As filed with the Securities and Exchange Commission on March 30, 1995
1933 Act File No. 33-7638
1940 Act File No. 811-4777
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 20
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 22
MFS SERIES TRUST I
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on March 30, 1995 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest (without par value), under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice for its fiscal year ended
August 31, 1994 on October 31, 1994.
<PAGE>
MFS SERIES TRUST I
MFS MANAGED SECTORS FUND
MFS CASH RESERVE FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares *
of the Fund - Performance
Information
(d) Condensed Financial Information *
4 (a) Front Cover Page; the Fund; *
Investment Objective and Policies
(b), (c) Investment Objective and Policies *
5 (a) The Fund; Management of the Fund - *
Investment Adviser
(b) Front Cover Page; Management of the *
Fund - Investment Adviser; Back Cover
Page
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION
(c) Management of the Fund - Investment *
Adviser
(d) Management of the Fund - Investment *
Adviser - Back Cover Page
(e) Management of the Fund - Back Cover *
Page
(f) Expense Summary *
(g) Information Concerning Shares of the *
Fund - Purchases
5A (a), (b), (c) ** **
6 (a) Information Concerning Shares of the *
Fund - Description of Shares, Voting
Rights and Liabilities; Information
Concerning Shares of the Fund -
Redemptions and Repurchases;
Information Concerning Shares of the
Fund - Purchases
(b), (c), (d) * *
(e) Shareholder Services *
(f) Information Concerning Shares of the *
Fund - Distributions; Shareholder
Services - Distribution Options
(g) Information Concerning Shares of the *
Fund - Tax Status; Information
Concerning Shares of the Fund
Distributions
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
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION
(c) Information Concerning Shares of the *
Fund - Purchases; Information
Concerning Shares of the Fund -
Exchanges; Information Concerning
Shares of the Fund - Redemptions and
Repurchases; Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases; Shareholder Services
(e) Information Concerning Shares of the *
Fund - Distribution Plans; Information
Concerning Shares of the Fund -
Purchases; Expense Summary
(f) Information Concerning Shares of the *
Fund - Distribution Plans
8 (a) Information Concerning Shares of the *
Fund - Redemptions and Repurchases;
Information Concerning Shares of the
Fund - Purchases; Shareholder Services
(b), (c), (d)Information Concerning Shares of the *
Fund - Redemptions and Repurchases
9 * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 * Definitions
13 (a), (b), (c) * Investment Objective,
Policies and Restrictions
(d) * *
14 (a), (b) * Management of the Fund -
Trustees and Officers
(c) * Management of the Fund -
Trustees and Officers;
Appendix A
15 (a) * *
(b), (c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
(f) * Distribution Plans
(g) * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION
(h) * Management of the Fund -
Custodian; Independent
Accountants and Financial
Statements; Back Cover
Page
(i) * Management of the Fund -
Shareholder Servicing
Agent
17 (a), (b), (c) * Portfolio Transactions and
(d), (e) Brokerage Commissions
18 (a) Information Concerning Shares Description of Shares
of the Fund - Description of Voting Rights and
Shares, Voting Rights and Liabilities
Liabilities
(b) * *
19 (a) Information Concerning Shares Shareholder Services
of the Fund - Purchases
(b) Information Concerning Shares of Management of the Fund -
the Fund - Net Asset Value; Distributor;
Information Concerning Shares Determination of Net
of the Fund - Purchases Asset Value and
Performance - Net Asset
Value
(c) * *
20 * Tax Status
21 (a), (b) * Management of the Fund -
Distributor; Distribution
Plans
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION
23 * Independent Accountants
and Financial Statements
--------------------------
* Not Applicable
** Contained in Annual Report
<PAGE>
MFS(R) Managed Sectors Fund MFS(R) Growth Opportunities Fund
MFS(R) Emerging Growth Fund MFS(R) High Income Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Bond Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Research Fund
MFS(R) World Total Return Fund MFS(R) Value Fund
MFS(R) World Equity Fund MFS(R) Bond Fund
MFS(R) Utilities Fund MFS(R) Limited Maturity Fund
MFS(R) Strategic Income Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Municipal Income Fund MFS(R) Municipal Series Trust
Supplement to be affixed to the current Prospectus for distribution in Ohio
Prospective Ohio investors should note the following:
a) This Prospectus must be delivered to the investor prior to consummation of
the sale;
b) The Fund may invest up to 50% of its assets in restricted securities,
including Rule 144A securities which have been deemed to be liquid by the Board
of Trustees.
The date of this Supplement is February 1, 1995. MFS-16OH-2/95/19.5M
<PAGE>
<TABLE>
<S> <C>
Massachusetts Investors Trust MFS(R) World Total Return Fund
Massachusetts Investors Growth Stock Fund MFS(R) Municipal Bond Fund
MFS(R) Capital Growth Fund MFS(R) Municipal High Income Fund
MFS(R) Emerging Growth Fund MFS(R) Municipal Income Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Alabama Municipal Bond Fund
MFS(R) Growth Opportunities Fund MFS(R) Arkansas Municipal Bond Fund
MFS(R) Managed Sectors Fund MFS(R) California Municipal Bond Fund
MFS(R) OTC Fund MFS(R) Florida Municipal Bond Fund
MFS(R) Research Fund MFS(R) Georgia Municipal Bond Fund
MFS(R) Value Fund MFS(R) Louisiana Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) Maryland Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) Massachusetts Municipal Bond Fund
MFS(R) Bond Fund MFS(R) Mississippi Municipal Bond Fund
MFS(R) Government Mortgage Fund MFS(R) New York Municipal Bond Fund
MFS(R) Government Securities Fund MFS(R) North Carolina Municipal Bond Fund
MFS(R) High Income Fund MFS(R) Pennsylvania Municipal Bond Fund
MFS(R) Intermediate Income Fund MFS(R) South Carolina Municipal Bond Fund
MFS(R) Strategic Income Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) Government Limited Maturity Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Limited Maturity Fund MFS(R) Virginia Municipal Bond Fund
MFS(R) Municipal Limited Maturity Fund MFS(R) Washington Municipal Bond Fund
MFS(R) World Equity Fund MFS(R) West Virginia Municipal Bond Fund
MFS(R) World Governments Fund MFS(R) World Asset Allocation Fund
MFS(R) World Growth Fund
</TABLE>
Supplement to the Current Prospectus
During the period from February 1, 1995 through April 14, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the Funds'
distributor), MFD will pay Corelink Financial Inc. ("Corelink") an additional
commission equal to 0.10% of the gross commissionable sales for Class A shares
and Class B shares and the net asset value for Class C shares (if applicable) of
the Funds sold by Corelink during the Sales Period.
The date of this Supplement is February 1, 1995.
MFS-16CL-2/95/5M
<PAGE>
MFS(R) Managed Sectors Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Cash Reserve Fund MFS(R) Alabama Municipal Bond Fund
MFS(R) World Asset Allocation Fund MFS(R) Arkansas Municipal Bond Fund
MFS(R) Emerging Growth Fund MFS(R) California Municipal Bond Fund
MFS(R) Capital Growth Fund MFS(R) Florida Municipal Bond Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Georgia Municipal Bond Fund
MFS(R) Intermediate Income Fund MFS(R) Louisiana Municipal Bond Fund
MFS(R) High Income Fund MFS(R) Maryland Municipal Bond Fund
MFS(R) Municipal High Income Fund MFS(R) Massachusetts Municipal Bond Fund
MFS(R) Money Market Fund MFS(R) Mississippi Municipal Bond Fund
MFS(R) Government Money Market Fund MFS(R) New York Municipal Bond Fund
MFS(R) Municipal Bond Fund MFS(R) North Carolina Municipal Bond Fund
MFS(R) OTC Fund MFS(R) Pennsylvania Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) South Carolina Municipal Bond Fund
MFS(R) Research Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) World Total Return Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) Virginia Municipal Bond Fund
MFS(R) World Equity Fund MFS(R) Washington Municipal Bond Fund
MFS(R) World Governments Fund MFS(R) West Virginia Municipal Bond Fund
MFS(R) Value Fund MFS(R) Growth Opportunities Fund
MFS(R) Strategic Income Fund MFS(R) Government Mortgage Fund
MFS(R) World Growth Fund MFS(R) Government Securities Fund
MFS(R) Bond Fund Massachusetts Investors Growth Stock Fund
MFS(R) Limited Maturity Fund MFS(R) Government Limited Maturity Fund
Massachusetts Investors Trust
Supplement to the Current Prospectus
Effective as of January 1, 1995, MFS Fund Distributors, Inc. ("MFD") has
replaced MFS Financial Services, Inc. ("FSI") as the Fund's distributor. Both
MFD and FSI are wholly-owned subsidiaries of Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser.
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) The sponsoring organization must demonstrate to the satisfaction of
MFD that either (a) the employer has at least 25 employees or (b) the
aggregate purchases by the retirement plan of Class A shares of the
Funds will be in an amount of at least $250,000 within a reasonable
period of time, as determined by MFD in its sole discretion; and
(ii) A contingent deferred sales charge of 1% will be imposed on such
purchases in the event of certain redemption transactions within 12
months following such purchases.
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale.
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an
administrative services agreement with MFD or one or more of its affiliates to
perform certain administrative services, subject to certain operational
requirements specified from time to time by MFD or one or more of its
affiliates.
(Over)
<PAGE>
Class A shares of the Fund (except of the MFS municipal bond funds
identified above) may be purchased at net asset value by retirement plans
qualified under Section 401(k) of the Code through certain broker-dealers and
other financial institutions which have entered into an agreement with MFD which
includes certain minimum size qualifications for such retirement plans and
provides that the broker-dealer or other financial institution will perform
certain administrative services with respect to the plan's account.
The CDSC on Class A and Class B shares will be waived upon redemption by a
retirement plan where the redemption proceeds are used to pay expenses of the
retirement plan or certain expenses of participants under the retirement plan
(e.g., participant account fees), provided that the retirement plan's sponsor
subscribes to the MFS Fundamental 401(k) Plan (sm) or another similar
recordkeeping system made available by MFS Service Center, Inc. (the
"Shareholder Servicing Agent").
The CDSC on Class A and B shares will be waived upon the transfer of
registration from shares held by a retirement plan through a single account
maintained by the Shareholder Servicing Agent to multiple Class A and B share
accounts, respectively, maintained by the Shareholder Servicing Agent on behalf
of individual participants in the retirement plan, provided that the retirement
plan's sponsor subscribes to the MFS Fundamental 401(k) Plan(sm) or another
similar recordkeeping system made available by the Shareholder Servicing Agent.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
The current Prospectus discloses that "Class A shares of the Fund may also
be purchased at net asset value where the purchase is in an amount of $3 million
or more and where the dealer and FSI enter into an agreement in which the dealer
agrees to return any commission paid to it on the sale (or a pro rata portion
thereof as described above if the shareholder redeems his or her shares within
one year of purchase. (Shareholders who purchase shares at NAV pursuant to these
conditions are called ("$3 Million Shareholders")." This policy is terminated
effective as of the date of this Supplement and the above-referenced language,
and all references to "$3 Million Shareholders," are deleted from the
Prospectus.
From time to time, MFD may pay dealers 100% of the applicable sales charge
on sales of Class A shares of certain specified Funds sold by such dealer during
a specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset value
of all of the Class B shares of certain specified Funds sold by such dealer
during a specified sales period.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to reinvest all dividends
and other distributions reinvested in additional shares.
From time to time, MFS may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fees charged by the custodian of the Fund's assets).
The date of this Supplement is January 13, 1995.
MFS-16-1/95/605M
<PAGE>
<TABLE>
<S> <C>
MFS(R) Total Return Fund MFS(R) Alabama Municipal Bond Fund
Massachusetts Investors Growth Stock Fund MFS(R) Arkansas Municipal Bond Fund
MFS(R) Growth Opportunities Fund MFS(R) California Municipal Bond Fund
MFS(R) Emerging Growth Fund MFS(R) Florida Municipal Bond Fund
MFS(R) Capital Growth Fund MFS(R) Georgia Municipal Bond Fund
MFS(R) Intermediate Income Fund MFS(R) Louisiana Municipal Bond Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Maryland Municipal Bond Fund
MFS(R) Managed Sectors Fund MFS(R) Massachusetts Municipal Bond Fund
MFS(R) Value Fund MFS(R) Mississippi Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) New York Municipal Bond Fund
MFS(R) World Equity Fund MFS(R) North Carolina Municipal Bond Fund
MFS(R) World Total Return Fund MFS(R) Pennsylvania Municipal Bond Fund
MFS(R) Bond Fund MFS(R) South Carolina Municipal Bond Fund
MFS(R) Limited Maturity Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) Government Mortgage Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Government Limited Maturity Fund MFS(R) Virginia Municipal Bond Fund
MFS(R) Government Securities Fund MFS(R) Washington Municipal Bond Fund
MFS(R) High Income Fund MFS(R) West Virginia Municipal Bond Fund
MFS(R) Strategic Income Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) World Governments Fund MFS(R) Municipal Bond Fund
MFS(R) World Growth Fund MFS(R) Municipal Income Fund
MFS(R) OTC Fund MFS(R) Research Fund
MFS(R) Municipal High Income Fund MFS(R) World Asset Allocation Fund
Massachusetts Investors Trust
</TABLE>
Supplement to the Current Prospectus
During the period from January 3, 1995 through April 28, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the funds'
principal underwriter), MFD will pay A. G. Edwards and Sons, Inc., ("A. G.
Edwards") 100% of the applicable sales charge on sales of Class A shares of each
of the funds listed above (the "Funds") sold for investment in Individual
Retirement Accounts ("IRAs") (excluding SEP-IRAs). In addition, MFD will pay A.
G. Edwards an additional commission equal to 0.50% of the net asset value of all
of the Class B shares of the Funds sold by A. G. Edwards during the Sales
Period.
The date of this Supplement is January 3, 1995.
MFS-16AG-1/95/3.5M
<PAGE>
<TABLE>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS(R) TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) GOVERNMENT MONEY MARKET FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) CASH RESERVE FUND
MFS(R) EMERGING GROWTH FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) INCOME & OPPORTUNITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD GROWTH FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) MONEY MARKET FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) RESEARCH FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) MUNICIPAL INCOME FUND
</TABLE>
Supplement to the Current Prospectus
Effective immediately, the Funds have expanded their policies with respect to
exchanges effected by market timers to be as follows:
FSI may enter into an agreement with shareholders who intend to make
exchanges among certain classes of certain MFS Funds (as determined by FSI)
which follow a timing pattern, and with individuals or entities acting on
such shareholders' behalf (collectively, "market timers"), setting forth
the terms, procedures and restrictions with respect to such exchanges. In
the absence of such an agreement, it i5 the policy of the Fund and FSI to
reject or restrict purchases by market timers if (i) more than two exchange
purchases are effected in a timed account in the same calendar quarter or
(ii) a purchase would result in shares being held in timed accounts by
market timers representing more than (x) one percent of the Fund's net
assets or (y) specified dollar amounts in the case of certain MFS Funds
which may include the Fund and which may change from time to time. The Fund
and FSI each reserve the right to request market timers to redeem their
shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
The date of this Supplement is April 1, 1994.
MFS-16F-4/94/500M
<PAGE>
MFS(R) MANAGED SECTORS FUND
(a series of MFS SERIES TRUST I)
Supplement to be affixed to the current
Prospectus for distribution in Iowa
For Class B shares purchased after September 1, 1993, a contingent deferred
sales charge declining from 4% to 0% will be imposed if the investor redeems
within six years from the date of purchase. In addition, the Class is subject to
an annual distribution and service fee of 1% of its average daily net assets.
The date of this Supplement is April 1, 1994.
MMS-16IA-4/94/7M
<PAGE>
MFS(R) MANAGED
SECTORS FUND
(A member of the MFS Family of Funds(R))
PROSPECTUS
April 1, 1994
Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
Page
----------
1. The Fund 2
2. Expense Summary 2
3. Condensed Financial Information 4
4. Investment Objective and Policies 4
5. Investment Techniques 8
6. Management of the Fund 12
7. Information Concerning Shares of the Fund 13
Purchases 13
Exchanges 18
Redemptions and Repurchases 18
Distribution Plans 21
Distributions 22
Tax Status 22
Net Asset Value 22
Description of Shares, Voting Rights and Liabilities 22
Performance Information 23
8. Shareholder Services 23
Appendix A 26
Appendix B 29
Appendix C 31
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS MANAGED SECTORS FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of MFS Managed Sectors Fund (the "Fund") is to
provide capital appreciation by varying the weighting of its portfolio among
15 equity sectors. The Fund is a non-diversified series of MFS Series Trust I
(the "Trust"), an open-end management investment company. The Fund is
intended for investors who understand and are willing to accept the risks
entailed in seeking long-term growth of capital (see "Investment Objective
and Policies"). The minimum initial investment generally is $1,000 per
account (see "Purchases"). The Fund's investment adviser and principal
underwriter are Massachusetts Financial Services Company and MFS Financial
Services, Inc., respectively, both of which are located at 500 Boylston
Street, Boston, Massachusetts 02116.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
This Prospectus sets forth concisely the information concerning the Trust and
Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
a Statement of Additional Information, dated April 1, 1994, which contains
more detailed information about the Trust and the Fund and is incorporated
into this Prospectus by reference. See page 25 for a further description of
the information set forth in the Statement of Additional Information. A copy
of the Statement of Additional Information may be obtained without charge by
contacting the Shareholder Servicing Agent (see back cover for address and
phone number).
Investors should read this Prospectus and retain it for future reference.
<PAGE>
1. THE FUND
MFS Managed Sectors Fund (the "Fund") is a non-diversified series of MFS
Series Trust I (the "Trust"), an open-end management investment company which
was organized as a business trust under the laws of The Commonwealth of
Massachusetts on July 30, 1986. The Trust presently consists of two series of
shares, each of which represents a portfolio with separate investment
policies. Shares of the Fund are continuously sold to the public and the Fund
then uses the proceeds to buy securities for its portfolio. Two classes of
shares of the Fund currently are offered to the general public. Class A
shares are offered at net asset value plus an initial sales charge (or a
contingent deferred sales charge (a "CDSC") in the case of certain purchases
of $1 million or more) and subject to a Distribution Plan, providing for an
annual distribution fee and service fee. Class B shares are offered at net
asset value without an initial sales charge but subject to a CDSC and a
Distribution Plan providing for an annual distribution fee and service fee
which are greater than the Class A distribution fee and service fee; Class B
shares will convert automatically to Class A shares approximately eight years
after purchase.
The Trust's Board of Trustees provides broad supervision over the affairs of
the Fund. Massachusetts Financial Services Company, a Delaware corporation
("MFS" or the "Adviser"), is the Fund's investment adviser. Prior to
September 1, 1993, Lifetime Advisers, Inc. ("LAI"), a Delaware corporation
and a wholly owned subsidiary of MFS, was the investment adviser for the
Fund. The Adviser is responsible for the management of the Fund's assets and
the officers of the Trust are responsible for the Fund's operations. The
Adviser manages the portfolio from day to day in accordance with the Fund's
investment objective and policies. A majority of the Trustees are not
affiliated with the Adviser. The selection of investments and the way they
are managed depend on the conditions and trends in the economy and the
financial marketplaces. The Trust also offers to buy back (redeem) shares of
the Fund from Fund shareholders at any time at net asset value, less any
applicable CDSC.
2. EXPENSE SUMMARY
<TABLE>
<CAPTION>
Shareholder Transaction Expenses: Class A Class B
-------------- ------------
<S> <C> <C>
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as a percentage
of offering price) 5.75% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) See Below(1) 4.00%
Annual Operating Expenses of the Fund (as a percentage of average net assets): (2)
Management Fees 0.75% 0.75%
Rule 12b-1 Fees 0.35%(3) 1.00%(4)
Other Expenses 0.39%(5) 0.46%(6)
------------ ----------
Total Operating Expenses. 1.49% 2.21%
</TABLE>
(1) Purchases of $1 million or more are not subject to an initial sales
charge; however, a CDSC of 1% will be imposed on such purchases in the event
of certain redemption transactions within 12 months following such purchases
(see "Purchases" below).
(2) For Class B shares, percentages are based on fees incurred during the
fiscal year ended November 30, 1993. For Class A shares, which were initially
offered on September 20, 1993, percentages are based on Class B expenses
adjusted for Class A specific expenses.
(3) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per annum
of the average daily net assets attributable to the Class A shares (see
"Distribution Plans"). After a substantial period of time distribution
expenses paid under this Plan, together with the initial sales charge, may
total more than the maximum sales charge that would have been permissible if
imposed entirely as an initial sales charge.
<PAGE>
(4) The Fund has adopted a Distribution Plan for its Class B shares in
accordance with Rule 12b-1 under the 1940 Act, which provides that it will
pay distribution/ service fees aggregating up to 1.00% per annum of the
average net assets attributable to the Class B shares (see "Distribution
Plans"). After a substantial period of time, distribution expenses paid under
this Plan, together with any CDSC, may total more than the maximum sales
charge that would have been permissible if imposed entirely as an initial
sales charge.
(5) Based on Class B expenses incurred during the last fiscal year except for
the shareholder servicing agent fees component of "Other Expenses" which has
been estimated for Class A shares.
(6) "Other Expenses" have been calculated based on current shareholder
servicing fees.
Example of Expenses
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
<TABLE>
<CAPTION>
Period Class A Class B
------------- --------- ---------------------
<S> <C> <C> <C>
(1)
1 year $ 72 $ 62 $ 22
3 years 102 99 69
5 years 134 138 118
10 years 225 236(2) 236(2)
<FN>
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
</FN>
</TABLE>
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund
will bear directly or indirectly. More complete descriptions of the following
Fund expenses are set forth in the following sections: (i) varying sales
charges on share purchases--"Purchases"; (ii) varying CDSCs--"Purchases";
(iii) management fees--"Investment Adviser"; and (iv) Rule 12b-1 (i.e.,
distribution plan) fees--"Distribution Plans".
The "Example" set forth above should not be considered a representation of
past or future expenses of the Fund; actual expenses may be greater or less
than those shown.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which is
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche, independent certified public
accountants, as experts in accounting and auditing.
Financial Highlights
<TABLE>
<CAPTION>
Year Ended November 30, 1993++ 1993 1992 1991 1990 1989 1988 1987+
---------------------------------------------------------------------------------------------------------------------------
Class A Class B
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each
period):
Net asset value--beginning of
period $15.68 $15.42 $13.00 $ 9.23 $11.32 $ 7.86 $ 6.94 $ 6.50
------ ------ ------ ------ ------- ------ ------ --------
Income from investment
operations--
Net investment income (loss) $(0.02) $(0.25) $(0.24) $(0.12) $(0.03) $ 0.03 $ 0.09 $ 0.03
Net realized and unrealized
gain (loss) on investments (0.16) 0.94 2.66 3.89 (2.06) 3.51 0.89 0.42
------ ------ ------ ------ ------- ------ ------ --------
Total from investment
operations $(0.18) $ 0.69 $ 2.42 $ 3.77 $(2.09) $ 3.54 $ 0.98 $ 0.45
------ ------ ------ ------ ------- ------ ------ --------
Less distributions declared
to shareholders--
From net investment income $ -- $ -- $ -- $ -- $ -- $(0.08) $(0.06) $(0.01)
From realized gains -- (0.62) -- -- -- -- -- --
------ ------ ------ ------ ------- ------ ------ --------
Total distributions declared
to shareholders $ -- $(0.62) $ -- $ -- $ -- $(0.08) $(0.06) $(0.01)
------ ------ ------ ------ ------- ------ ------ --------
Net asset value--end of
period $15.50 $15.49 $15.42 $13.00 $ 9.23 $11.32 $ 7.86 $ 6.94
====== ====== ====== ====== ======= ====== ====== ========
Total return# (5.99)%* 4.50% 18.62% 40.85% (18.46)% 45.35% 14.06% 7.47%*
Ratios (to average net
assets)/Supplemental data:
Expenses 1.59%* 2.21% 2.37% 2.44% 2.50% 2.52% 2.31% 2.25%*
Net investment income (loss) (0.75)%* (1.55)% (1.85)% (1.00)% (0.27)% 0.37% 1.08% 0.09%*
Portfolio turnover 106% 106% 22% 59% 79% 84% 146% 163%
Net assets at end of period
(000 omitted) $136,179 $232,982 $249,493 $190,232 $152,132 $180,416 $137,311 $134,762
<FN>
* Annualized
+ For the period from the commencement of investment operations, December 29, 1986 to November 30, 1987.
++ For the period from commencement of offering of Class A shares, September 20, 1993, to November 30, 1993.
# Total returns for Class A shares do not include the sales charge. If the charge had been included, the
results would have been lower.
Further information about the performance of the Fund is contained in the Fund's Annual Report to Shareholders
which can be obtained from the Shareholder Servicing Agent (see back cover for address and phone number)
without charge.
</FN>
</TABLE>
4. INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide capital appreciation. Dividend income, if any, is a
consideration incidental to the Fund's objective of capital appreciation.
The Fund seeks to achieve its investment objective by varying the weighting
of its portfolio among 15 equity sectors. The 15 sectors from among which the
Fund chooses its investments are: autos and housing; consumer goods and
services; defense and aerospace; energy; financial services; health care;
heavy industry; leisure; machinery and equipment; precious metals and natural
resources; retailing; technology; transportation; utilities; and foreign
securities. (For a description of the scope of each of these industry
sectors, see Appendix A to this Prospectus.) Certain sectors may overlap; for
example, the defense and aerospace sector and the technology sector both
include companies involved in the development of computer-related products.
Therefore, securities of certain companies or industries may simultaneously
be held in more than one industry sector. Generally,
<PAGE>
at least 90% of the assets of the Fund will be invested in securities in up
to five such sectors or cash. Occasionally, the number of sectors may be
increased if deemed appropriate by the Adviser due to the lack of desirable,
concentrated investment opportunities at a particular time.
In response to changes or anticipated changes in the general economy or
within one or more particular industry sectors, the Fund may increase,
decrease or eliminate entirely a particular sector's representation in the
Fund's portfolio; similarly, the Fund may acquire securities of a sector not
then represented in its portfolio. A sector or stock of a particular company
will be added to or eliminated from the Fund's portfolio based upon such
factors as such sector's or such company's economic cycle and sensitivity to
interest rates. For example, as interest rates rise and the performance of
interest-sensitive stocks declines, the Fund expects to remove such stocks
from its portfolio. Any one sector or cash may comprise up to 50% of the
Fund's portfolio. The Fund has registered as a "non-diversified" investment
company so that more than 5% of the Fund's assets may be invested (subject to
the tax limitations described below) in the securities of any one or more
issuers. As a result of its non-diversified status, the Fund's shares may be
more susceptible to adverse changes in the value of securities of a
particular company than would be the shares of a diversified investment
company. Similarly, due to the Fund's policy of generally concentrating in no
more than five industry sectors at any one time, some of which may overlap,
the value of the Fund's shares may be more susceptible to any single
economic, political or regulatory occurrence than would be the shares of an
investment company without a policy of concentration in particular industry
sectors.
While the Fund's policy is to invest primarily in common stocks, it may seek
appreciation in other types of securities such as non-convertible and
convertible bonds, convertible preferred stocks and warrants to purchase
common stock, when relative values make such investments appear attractive
either as individual issues or as types of securities in certain economic
environments (see "Additional Information as to Investment Objective and
Policies--Additional Risk Factors" and "--Risk Factors Regarding Lower Rated
Securities" below). The non-convertible bonds invested in by the Fund may
include (i) obligations issued or guaranteed by the U.S. Treasury or U.S.
Government agencies, authorities or instrumentalities, and (ii) obligations
of the U.S. Treasury that have been issued without interest coupons or
stripped of their unmatured interest coupons, interest coupons that have been
stripped from such debt obligations, and receipts and certificates for such
stripped debt obligations and stripped coupons. U.S. Government securities
also include interests in trusts or other entities representing interests in
obligations that are issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities. The Fund may invest in foreign
securities and hold foreign currency (see "Additional Risk Factors" below).
The Fund may also enter into forward foreign currency exchange contracts for
the purchase or sale of foreign currency for hedging purposes and non-hedging
purposes, including transactions entered into for the purpose of profiting
from anticipated changes in foreign currency exchange rates, as well as
options on foreign currencies (see "Investment Techniques--Forward Contracts
on Foreign Currency" and "--Options on Foreign Currencies" below).
The Fund may invest in corporate asset-backed securities (see "Investment
Techniques--Corporate Asset-Backed Securities" below). The Fund may write
covered call and put options and purchase call and put options on securities
and stock indexes in an effort to increase current income and for hedging
purposes (see "Investment Techniques--Options" below). The Fund may also
purchase and sell stock index and interest rate futures contracts and may
write and purchase options thereon for hedging purposes and for non-hedging
purposes, subject to applicable law (see "Investment Techniques--Futures
Contracts and Options on Futures Contracts" below). In addition, the Fund may
purchase portfolio securities on a "when-issued" or on a "forward delivery"
basis (see "Investment Techniques--When-Issued Securities" below).
Subject to tax requirements, 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.
Additional Information as to Investment Objective and Policies
Fixed Income Securities--When and if available, the Fund may purchase fixed
income securities at a discount from face value. However, the Fund does not
intend to hold such securities to maturity for the purpose of achieving
potential capital gains, unless current yields on these securities remain
attractive.
<PAGE>
Risk Factors Regarding Lower Rated Securities--The Fund may invest to a
limited extent in lower rated fixed income securities or comparable unrated
securities. Investments in such securities while generally providing greater
income and opportunity for gain than investments in higher rated securities,
usually entail greater risk of principal and income (including the
possibility of default or bankruptcy of the issuers of such securities), and
involve greater volatility of price (especially during periods of economic
uncertainty or change) than investments in higher rated securities and
because yields may vary over time, no specified level of income can ever be
assured. In particular, securities rated lower than Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P")
or comparable unrated securities (commonly known as "junk bonds") are
considered speculative. For a description of these ratings, see Appendix B to
this Prospectus. These lower rated high yielding fixed income securities
generally tend to reflect 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 fixed income securities are also affected by changes in
interest rates). 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. For example, federal rules require that savings
and loan associations gradually reduce their holdings of high-yield
securities. An effect of such legislation may be to depress the prices of
outstanding lower rated high yielding fixed income securities. Changes in the
value of securities subsequent to their acquisition will not affect cash
income or yield to maturity to the Fund but will be reflected in the net
asset value of shares of the Fund. 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 adverse
market conditions to sell these lower rated securities at their fair value to
meet redemption requests or to respond to changes in the market. No minimum
rating standard is required by the Fund. To the extent the Fund invests in
these lower rated fixed income securities, the achievement of its investment
objective may be more dependent on the Adviser's own credit analysis than in
the case of fund investing in higher quality bonds. While the Adviser may
refer to ratings issued by established credit rating agencies, it is not a
policy of the Fund to relay exclusively on ratings issued by these agencies,
but rather to supplement such ratings with the Adviser's own independent and
ongoing review of credit quality.
The Fund may also invest in fixed income securities rated Baa by Moody's or
BBB by S&P and comparable unrated securities. These securities, while
normally exhibiting adequate protection parameters, may have speculative
characteristics and changes in economic conditions and 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.
Additional Risk Factors--The net asset value of the shares of an open-end
investment company which may invest to a limited extent in fixed income
securities changes as the general levels of interest rates fluctuate. When
interest rates decline, the value of a fixed income portfolio can be expected
to rise. Conversely, when interest rates rise, the value of a fixed income
portfolio can be expected to decline.
Although changes in the value of securities subsequent to their acquisition
are reflected in the net asset value of shares of the Fund, such changes will
not affect the income received by the Fund from such securities. However, the
dividends paid by the Fund, if any, will increase or decrease in relation to
the income received by the Fund from its investments, which would in any case
be reduced by the Fund's expenses before it is distributed to shareholders.
<PAGE>
In addition, the use of options, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies (see
"Investment Techniques" below) may result in the loss of principal,
particularly where such instruments are traded for other than hedging
purposes (e.g., to enhance current yield).
The portfolio of the Fund is aggressively managed and, therefore, the value
of its shares is subject to greater fluctuation and investments in its shares
involve the assumption of a higher degree of risk than would be the case with
an investment in a conservative equity fund or a growth fund investing
entirely in proven growth equities.
The Fund may also invest in foreign securities, which may be traded on
foreign exchanges. The Fund may invest up to 50% (and expects generally to
invest between 15% and 35%) of its total assets in foreign securities (not
including American Depositary Receipts). Investing in foreign securities or
on foreign exchanges may present a greater degree of risk than investing in
domestic issuers. These risks include changes in currency rates, exchange
control regulations, governmental administration, economic or monetary policy
(in this country or abroad), war or expropriation. In particular, the dollar
value of portfolio securities of non-U.S. issuers fluctuates with changes in
market and economic conditions abroad and with changes in relative currency
values (when the value of the dollar increases as compared to a foreign
currency, the dollar value of a foreign-denominated security decreases, and
vice versa). Costs may be incurred in connection with conversions between
various currencies. Special considerations may also include more limited
information about foreign issuers, higher brokerage costs, different
accounting standards and thinner trading markets. Foreign securities markets
may also be less liquid, more volatile and less subject to government
supervision than in the United States. Investments in foreign countries could
be affected by other factors including confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods. Therefore, an investment in shares of the Fund
may be subject to a greater degree of risk than investments in other
investment companies which invest exclusively in domestic securities.
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. In that event, the Fund may promptly convert such currencies
into dollars at the then current exchange rate. Under certain circumstances,
however, 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.
In addition, the Fund may be required to receive delivery of the foreign
currency underlying forward foreign currency 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.
The Fund may also hold foreign currency in anticipation of purchasing foreign
securities. The Fund may also elect to take delivery of the currencies
underlying options or forward contracts if, in the judgment of the Adviser,
it is in the best interest of the Fund to do so. In such instances as well,
the Fund may promptly convert the foreign currencies to dollars at the then
current exchange rate, or 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, 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 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 of securities, and could reduce the
dollar value of interest or dividend payments received. In addition, the
holding of currencies could adversely affect the Fund's profit or loss on
currency options or forward contracts, as well as its hedging strategies.
Costs may be incurred in connection with conversions between various
currencies. Foreign brokerage commissions are generally higher than in the
United States and foreign securities markets may be less liquid, more
volatile and less subject to governmental supervision than in the United
States. See the Statement of Additional Information for further discussion of
foreign securities and the holding of foreign currency as well as the
associated risks.
The Fund may also 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 col-
<PAGE>
lateral. Although ADRs are issued by a U.S. depository, they are subject to
many of the risks of foreign securities such as exchange rates and more
limited information about foreign issuers.
The Fund has registered as a "non-diversified" investment company. As a
result, the Fund is limited as to the percentage of its assets that may be
invested in the securities of any one issuer only by its own investment
restrictions and the diversification requirements of the Internal Revenue
Code of 1986, as amended (the "Code"). U.S. Government securities are not
subject to any investment limitation. Since the Fund may invest a relatively
high percentage of its assets in the obligations of a limited number of
issuers, the Fund may be more susceptible to any single economic, political
or regulatory occurrence.
Given the above average investment risk inherent in the Fund, investment in
shares of the Fund should not be considered a complete investment program and
may not be appropriate for all investors.
Short-Term Investments for Defensive Purposes--During periods of unusual
market conditions when the Adviser believes that investing for defensive
purposes is appropriate, or in order to meet anticipated redemption requests,
a large portion or all of the assets of the Fund may be invested in cash or
cash equivalents including, but not limited to, obligations of banks
(including certificates of deposit bankers' acceptances and repurchase
agreements) with assets of $1 billion or more, commercial paper, short-term
notes, obligations issued or guaranteed by the U.S. Government or any of its
agencies, authorities or instrumentalities and related repurchase agreements.
See Appendix C to this Prospectus for a description of certain short-term
obligations.
The investment objective and policies discussed above may be changed without
shareholder approval.
5. INVESTMENT TECHNIQUES
Lending of Securities: The Fund may make loans of its portfolio securities.
Such loans will usually be made only to member banks of the Federal Reserve
System and member firms (and subsidiaries thereof) of the New York Stock
Exchange and would be required to be secured continuously by collateral in
cash, cash equivalents 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 continue to collect the equivalent of the dividends or
interest on the securities loaned and would also receive either interest
(through investment of cash collateral) or a fee (if the collateral is U S.
Government Securities).
Repurchase Agreements: The Fund may enter into repurchase agreements in order
to earn additional income on available cash or as a temporary defensive
measure. Under a repurchase agreement, the Fund acquires securities subject
to the seller's agreement to repurchase at a specified time and price. If the
seller becomes subject to a proceeding under the bankruptcy laws or its
assets are otherwise subject to a stay order, the Fund's right to liquidate
the securities may be restricted (during which time the value of the
securities could decline). As discussed in the Statement of Additional
Information, the Fund has adopted certain procedures which are intended to
minimize any such risk.
When-Issued Securities: In order to help ensure the availability of suitable
securities for its portfolio, the Fund may purchase securities 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. It is expected that, under normal circumstances, the Fund
will take delivery of such securities. In general, the Fund does not pay for
the securities until received and does not start earning interest on the
obligations until the contractual settlement date. While awaiting delivery of
the obligations purchased on such bases, the Fund will establish a segregated
account consisting of cash, short-term money market instruments or high
quality debt securities equal to the amount of the commitments to purchase
"when-issued" securities. See the Statement of Additional Information.
Restricted Securities--The Fund may also 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"). The Trust's Board of Trustees determines, 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 limitation
<PAGE>
on investing not more than 15% of its net assets in illiquid investments, or
liquid and thus not subject to such limitation. The Board of Trustees has
adopted guidelines and delegated to MFS the daily function of determining and
monitoring the liquidity of Rule 144A securities. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Board will carefully monitor the Fund's investments in
Rule 144A securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment
practice could have the effect of increasing the level of illiquidity in a
Fund 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.
Corporate Asset-Backed Securities: The Fund may invest in corporate
asset-backed securities. These securities, issued by trusts and special
purpose corporations, are backed by a pool of assets, such as credit card or
automobile loan receivables, representing the obligations of a number of
different parties. Corporate asset-backed securities present certain risks.
For instance, in the case of credit card receivables, these securities may
not have the benefit of any security interest in the related collateral. See
the Statement of Additional Information for further information on these
securities.
Transactions in Options, Futures and Forward Contracts: The Fund may enter
into transactions in options, futures and forward contracts on a variety of
instruments and indexes, in order to protect against declines in the value of
portfolio securities or increases in the cost of securities or other assets
to be acquired and, subject to applicable law, to increase the Fund's gross
income. The types of instruments to be purchased and sold by the Fund are
described in the Statement of Additional Information, which should be read in
conjunction with the following section. In addition, the Statement of
Additional Information contains a further discussion of the nature of the
transactions which may be entered into and the risks associated therewith.
Options
Options on Securities--The Fund may write (sell) covered call and put options
and purchase call and put options on securities. The Fund will write options
on securities for the purpose of increasing its return on such securities
and/or to protect the values of its portfolio. In particular, where the Fund
writes an option which expires unexercised or is closed out by the Fund at a
profit, it will retain the premium paid for the option which will increase
its gross income and will offset in part the reduced value of the portfolio
security underlying the option, or the increased cost of portfolio securities
to be acquired. In contrast, however, if the price of the underlying security
moves adversely to the Fund's position, the option may be exercised and the
Fund will be required to purchase or sell the underlying security at a
disadvantageous price, which may only be partially offset by the amount of
the premium. The 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.
By writing a call option on a security, the Fund limits its opportunity to
profit from any increase in the market value of the underlying security,
since the holder will usually exercise the call option when the market value
of the underlying security exceeds the exercise price of the call. However,
the Fund retains the risk of depreciation in value of securities on which it
has written call options.
The Fund may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. In the
event that the expected market fluctuations occur, the Fund may be able to
offset the resulting adverse effect on its portfolio, in whole or in part,
through the options purchased. The premium paid for a put or call option plus
any transaction costs will reduce the benefit, if any, realized by the Fund
upon exercise or liquidation of the option, and, unless the price of the
underlying security changes sufficiently, the option may expire without value
to the Fund.
<PAGE>
In certain instances, the Fund may enter into options on Treasury securities
which may be referred to as "reset" options or "adjustable strike" options.
These options provide for periodic adjustment of the strike price and may
also provide for the periodic adjustment of the premium during the term of
the option.
Options on Stock Indices--The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. The Fund may
write options on stock indices for the purpose of increasing its gross income
and 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.
Futures Contracts and Options on Futures Contracts
Futures Contracts--The Fund may enter into interest rate futures contracts,
stock index futures contracts and foreign currency futures contracts. (Unless
otherwise specified, interest rate futures contracts, futures contracts on
indices and foreign currency futures contracts are collectively referred to
as "Futures Contracts.") The Fund will utilize Futures Contracts for hedging
and non-hedging purposes, subject to applicable law. Purchases or sales of
stock index futures contracts for hedging purposes are used to attempt to
protect the Fund's current or intended stock investments from broad
fluctuations in stock prices, and foreign currency futures contracts are
purchased or sold to attempt to hedge against the effects of exchange rate
charges on a Fund's current or intended investments in fixed income or
foreign securities. In the event that an anticipated decrease in the value of
portfolio securities occurs as a result of a general stock market decline, a
general increase in interest rates or a decline in the dollar value of
foreign currencies in which portfolio securities are denominated, the adverse
effects of such changes may be offset, in whole or part, by gains on the sale
of Futures Contracts. Conversely, the increased cost of portfolio securities
to be acquired, caused by a general rise in the stock market, a general
decline in interest rates or a rise in the dollar value of foreign
currencies, may be offset, in whole or part, by gains on Futures Contracts
purchased by the Fund. The Fund will incur brokerage fees when it purchases
and sells Futures Contracts, and it will be required to make and maintain
margin deposits.
Options on Futures Contracts--The Fund may purchase and write options to buy
or sell interest rate futures contracts and options on stock index futures
contracts. (Unless otherwise specified, options on interest rate futures
contracts and options on stock index futures contracts are collectively
referred to as "Options on Futures Contracts.") Such investment strategies
will be used for hedging and non-hedging purposes, subject to applicable law.
Put and call Options on Futures Contracts may be traded by the Fund 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 portfolios of the Fund
than the purchase or sale of the underlying Futures Contracts since the
potential loss is limited to the amount of the premium plus related
transaction costs. The writing of such options, however, does not present
less risk than the trading of Futures Contracts and will constitute only a
partial hedge, up to the amount of the premium received. In addition, if an
option is exercised, the Fund may suffer a loss on the transaction.
Forward Contracts on Foreign Currency--The Fund may enter into 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 will enter into
Forward Contracts
<PAGE>
for hedging and non-hedging purposes including transactions entered into for
the purpose of profiting from anticipated changes in foreign currency
exchange rates. Transactions in Forward Contracts entered into for hedging
purposes may include forward purchases or sales of foreign currencies for the
purpose of protecting the dollar value of securities denominated in a foreign
currency or protecting the dollar equivalent of interest or dividends to be
paid on such securities. The Fund may also enter into Forward Contracts for
"cross hedging" purposes, e.g., the purchase or sale of a Forward Contract on
one type of currency as a hedge against adverse fluctuations in the value of
a second type of currency. By entering into such transactions, however, the
Fund may be required to forgo the benefits of advantageous changes in
exchange rates. The Fund may also enter into transactions in Forward
Contracts for other than hedging purposes. 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. Such transactions, however, may be
considered speculative and could involve significant risk of loss, as set
forth below. The Fund has established procedures consistent with statements
of the Securities and Exchange Commission (the "SEC") and its staff regarding
the use of Forward Contracts by registered investment companies, which
requires use of segregated assets or "cover" in connection with the purchase
and sale of such contracts.
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 the Futures and
Options contracts described above.
Options on Foreign Currencies: The Fund may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines
in the dollar value of portfolio securities, and against increases in the
dollar cost of 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 could 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 plus related transaction costs. As in the case of Forward Contracts,
certain options on foreign currencies are traded over-the-counter and involve
risks which may not be present in the case of exchange-traded instruments.
Risks of Transactions in Options, Futures Contracts and Forward
Contracts: Although the Fund will enter into certain transactions in Futures
Contracts, Options on Futures Contracts, Forward Contracts and options for
hedging purposes, such transactions do involve certain risks. For example, a
lack of correlation between the index or instrument underlying an option,
Futures Contract of Forward Contract and the assets being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses. "Cross hedging" transactions may
involve greater correlation risks. In addition, there 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. As noted, the Fund may also enter
into transactions in such instruments (except for options on foreign
currencies) for other than hedging purposes (subject to applicable law),
including speculative transactions, which involve greater risk. In
particular, in entering into such transactions, the Fund may experience
losses which are not offset by gains on other portfolio positions, thereby
reducing its gross income. In addition, the markets for such instruments may
be extremely volatile from time to time, as discussed in the Statement of
Additional Information, which could increase the risks incurred by the Fund
in entering into such transactions.
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while
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 (the
"CFTC") and on foreign exchanges. The securities underlying options and
Futures Contracts traded by the Fund may include domestic as well as foreign
securities. Investors should recognize that transactions involving foreign
securities or foreign currencies, and transactions entered into in foreign
countries, may involve considerations and risks not typically associated with
investing in U.S. markets.
<PAGE>
Transactions in options, Futures Contracts, Options on Futures Contracts and
Forward Contracts entered into for non-hedging purposes involve greater risk
and could result in losses which are not offset by gains on other portfolio
assets. For example, the Fund may sell Futures Contracts on an index of
securities in order to profit from any anticipated decline in the value of
the securities comprising the underlying index. In such instances, any losses
on the Futures transaction will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction. The risks related to transactions in options, Futures Contracts,
Options on Futures Contracts and Forward Contracts entered into by the Fund
are set forth in greater detail in the Statement of Additional Information,
which should be reviewed in conjunction with the foregoing discussion.
Portfolio Trading
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD") and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of other investment company
clients of MFS Financial Services, Inc. ("FSI"), the Fund's distributor, as a
factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. For a further discussion of portfolio trading, see the
Statement of Additional Information.
Since shares of the Fund represent an investment in securities with
fluctuating market prices, shareholders should understand that the value of
their shares will vary as the aggregate value of the Fund's portfolio
securities increases or decreases. Moreover, any dividends the Fund pays will
increase or decrease in relation to the income received from its investments.
The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Fund's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may not be changed without
shareholder approval (see "Investment Restrictions" in the Statement of
Additional Information). 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.
6. MANAGEMENT OF THE FUND
Investment Adviser--MFS manages the Fund pursuant to an Investment Advisory
Agreement dated September 1, 1993 (the "Advisory Agreement"). The Adviser
provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Kenneth J. Enright, a Vice
President of the Adviser, has been the Fund's portfolio manager since
September 1, 1993. Mr. Enright has been employed by the Adviser since 1986.
Subject to such policies as the Trustees may determine, the Adviser makes
investment decisions for the Fund. For its services and facilities, the
Adviser receives a management fee, computed and paid monthly, in an amount
equal to 0.75% of the Fund's average daily net assets for its then-current
fiscal year.
For the Fund's fiscal year ended November 30, 1993 the Fund's current
investment adviser, MFS, together with the Fund's former investment adviser,
Lifetime Advisers, Inc. (a wholly owned subsidiary of MFS) received
management fees under the Fund's Advisory Agreements of $2,065,624.
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 Union Standard Trust, MFS Institutional Trust, MFS/Sun Life Series Trust,
Sun Growth Variable Annuity Fund, Inc. and seven variable accounts, each of
which is a registered investment company established by Sun Life Assurance
Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the
sale of Compass-2 and Compass-3 combination fixed/variable annuity contracts.
The MFS Asset Management Group, a division of the Adviser, provides
investment advice to substantial private clients.
<PAGE>
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $34.9 billion on behalf of approximately 1.4 million investor
accounts as of February 28, 1994. As of such date, the MFS organization
managed approximately $9.9 billion of assets invested in equity securities
and approximately $21.5 billion of assets invested in fixed income
securities. Approximately $4.3 billion of the assets managed by MFS are
invested in securities of foreign issuers and non-U.S. dollar denominated
securities of U.S. issuers. MFS is a subsidiary of Sun Life of Canada (U.S.),
which in turn is a subsidiary of Sun Life Assurance Company of Canada ("Sun
Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold
D. Scott, John D. McNeil and John R. Gardner. Mr. Brodkin is the Chairman,
Mr. Shames is the President and Mr. Scott is the Secretary and a Senior
Executive Vice President of MFS. Messrs. McNeil and Gardner are the Chairman
and President, respectively, of Sun Life. Sun Life, a mutual life insurance
company, is one of the largest international life insurance companies and has
been operating in the United States since 1895, establishing a headquarters
office here in 1973. The executive officers of MFS report to the Chairman of
Sun Life.
A. Keith Brodkin, the Chairman of MFS, is the Chairman and President of the
Trust. W. Thomas London, Stephen E. Cavan, James R. Bordewick, Jr., James O.
Yost and Linda J. Hoard, all of whom are officers of MFS, are officers of the
Trust.
Distributor--FSI, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
Shareholder Servicing Agent--MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer
agency, certain dividend disbursing agency and other services for the Fund.
7. INFORMATION CONCERNING SHARES OF THE FUND
Purchases
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having
selling agreements with FSI. Non-securities dealer financial institutions
will receive transaction fees that are the same as commission fees to
dealers. Securities dealers and other financial institutions may also charge
their customers fees relating to investments in the Fund.
The Fund offers two classes of shares which bear sales charges and
distribution fees in different forms and amounts:
Class A shares. Class A shares are offered at net asset value plus an initial
sales charge (or CDSC in the case of certain purchases of $1 million or more)
as follows:
<TABLE>
<CAPTION>
Sales Charge* as
Percentage of:
----------------------------- Dealer Allowance
Net Amount as a Percentage
Amount of Purchase Offering Price Invested of Offering Price
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.75 4.99 4.00
$100,000 but less than $250,000 4.00 4.17 3.20
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.20 2.25 1.70
$1,000,000 or more None** None** See Below**
<FN>
*Because of rounding in the calculation of offering price, actual sales charges may be
more or less than those calculated using the percentages above.
**A CDSC may apply in certain circumstances. FSI will pay a commission on purchases of
$1 million or more.
</FN>
</TABLE>
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% on the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions)
or the total cost of such shares.
<PAGE>
In determining whether a CDSC on such Class A shares is payable, and, if so,
the amount of the charge, it is assumed that shares not subject to the CDSC
are the first redeemed followed by other shares held for the longest period
of time. All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on the last day
of the month and each subsequent month. Except as noted below, the CDSC on
Class A shares will be waived in the case of: (i) exchanges (except that if
the shares acquired by exchange were then redeemed within 12 months of the
initial purchase (other than in connection with subsequent exchanges to other
MFS Funds), the charge would not be waived); (ii) distributions to
participants from a retirement plan qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") (a "Retirement Plan"),
due to: (a) a loan from the plan (repayments of loans, however, will
constitute new sales for purposes of assessing the CDSC; (b) "financial
hardship" of the participant in the plan, as that term is defined in Treasury
Regulation Section 1.401(k)-1(d)(2), as amended from time to time; or (c) the
death of a participant in such a plan; (iii) distributions from a 403(b) plan
or an Individual Retirement Account ("IRA"), due to death, disability, or
attainment of age 59-1/2; (iv) tax-free returns of excess contributions to an
IRA; (v) distributions by other employee benefit plans to pay benefits; and
(vi) certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a qualified retirement plan. The CDSC on
Class A shares will not be waived, however, if the retirement plan withdraws
from the Fund except if that retirement plan has invested its assets in Class
A shares of one or more of the MFS Funds for more than 10 years from the
later to occur of (i) January 1, 1993 or (ii) the date such retirement plan
first invests its assets in Class A shares of one or more of the MFS Funds,
the CDSC on Class A shares will be waived in the case of a redemption of all
of the Retirement Plan's shares (including shares of any other class) in all
MFS Funds (i.e., all the assets of the Retirement Plan invested in the MFS
Funds are withdrawn), unless, immediately prior to the redemption, the
aggregate amount invested by the Retirement Plan in Class A shares of the MFS
Funds (excluding the reinvestment of distributions) during the prior four
year period equals 50% or more of the total value of the Retirement Plan's
assets in the MFS Funds, in which case the CDSC will not be waived. Any
applicable CDSC will be deferred upon an exchange of Class A shares of the
Fund for units of participation of the MFS Fixed Fund (a bank collective
investment fund) (the "Units"), and the CDSC will be deducted from the
redemption proceeds when such Units are subsequently redeemed (assuming the
CDSC is then payable). No CDSC will be assessed upon an exchange of Units for
Class A shares of the Fund. For purposes of calculating the CDSC payable upon
redemption of Class A shares of the Fund or Units acquired pursuant to one or
more exchanges, the period during which the Units are held will be aggregated
with the period during which the Class A shares are held. The applicability
of the CDSC will be unaffected by transfers of registration. FSI shall
receive all CDSCs.
FSI allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the table above. In the case of
the maximum sales charge, the dealer retains 5% and FSI retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending
on the number of shares of the Fund as well as certain MFS Funds and other
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 Purchases privileges by
which the sales charge may be reduced is set forth in the Statement of
Additional Information. In addition, FSI, will pay a commission to dealers
who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales up to $5 million, plus 0.25% on the amount in excess
of $5 million. Purchases of $1 million or more for each shareholder account
will be aggregated over a 12-month period (commencing from the date of the
first such purchase) for purposes of determining the level of commissions to
be paid during that period with respect to such account.
Class A shares of the Fund may be sold at their net asset value to the
officers of the Trust, to any of the subsidiary companies of Sun Life, to
eligible Directors, officers, employees (including retired employees) and
agents of MFS, Sun Life or any of their subsidiary companies, to any trust,
pension, profit-sharing or any other benefit plan for such persons, to any
trustees and retired trustees of any investment company for which FSI serves
as distributor or principal underwriter, and to certain family members of
such individuals and their spouses, provided the shares will not be resold
except to the Fund. Class A shares of the Fund may be sold at net asset value
to any employee, partner, officer or trustee of any sub-adviser to any MFS
Fund and to certain family members of such individuals and their spouses, or
to any trust, pension, profit-sharing or other retirement
<PAGE>
plan for the sole benefit of such employee or representative, provided such
shares will not be resold except to the Fund. Class A shares of the Fund may
also be sold at their net asset value to any employee or registered
representative of any dealer or other financial institution which has a sales
agreement with FSI or its affiliates, to certain family members of such
employee or representative and their spouses, or to any trust, pension,
profit-sharing or other retirement plan for the sole benefit of such employee
or representative, as well as to clients of the MFS Asset Management Group.
Class A shares of the Fund also may be sold at net asset value, subject to
appropriate documentation, through a dealer where the amount invested
represents redemption proceeds from a registered open-end management
investment company not distributed or managed by FSI or its affiliates, if
such redemption has occurred no more than 60 days prior to the purchase of
Class A shares of the Fund and the shareholder either (i) paid an initial
sales charge or (ii) was at some time subject to, but did not actually pay, a
deferred sales charge with respect to the redemption proceeds. Class A shares
of the Fund may also be sold at net asset value where the amount invested
represents redemption proceeds from the MFS Fixed Fund. In addition, Class A
shares may be sold at their net asset value in connection with the
acquisition or liquidation of the assets of other investment companies or
personal holding companies. Insurance company separate accounts may also
purchase Class A shares of the Fund at their net asset value. Class A shares
of the Fund may also be purchased at their net asset value by retirement
plans where third party administrators of such plans have entered into
certain arrangements with FSI or its affiliates provided that no commission
is paid to dealers. Class A shares of the Fund may also be purchased at net
asset value where the purchase is in an amount of $3 million or more and
where the dealer and FSI enter into an agreement in which the dealer agrees
to return any commission paid to it on the sale (or on a pro rata portion
thereof) as described above if the shareholder redeems his or her shares
within a year of purchase (shareholders who purchase shares at net asset
value pursuant to these conditions are called "$3 Million Shareholders").
Class A shares of the Fund may be purchased at net asset value by retirement
plans qualified under section 401(a) or 403(b) of the Code which are subject
to the Employee Retirement Income Security Act of 1974, as amended, as
follows:
(i) the retirement plan and/or the sponsoring organization must subscribe
to the MFS FUNDamental 401(k) Plan((SM)) or another similar Section 401(a) or
403(b) recordkeeping program made available by MFS Service Center, Inc.;
(ii) either (a) the sponsoring organization must have at least 25 employees
or (b) the aggregate purchases by the retirement plan of Class A shares of
the MFS Funds must be in an amount of at least $250,000 within a reasonable
period of time, as determined by FSI in its sole discretion; and
(iii) a CDSC of 1% will be imposed on such purchases in the event of
certain redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of
the Fund in this manner will be paid a commission by FSI, as follows: 1.00%
on sales up to $5 million, plus 0.25% on the amount in excess of $5 million;
provided, however, that FSI may pay a commission, on sales in excess of $5
million to certain retirement plans, of 1.00% to certain dealers which, at
FSI's invitation, enter into an agreement with FSI in which the dealer agrees
to return any commission paid to it on the sale (or on a pro rata portion
thereof) if the shareholder redeems his or her shares within a period of time
after purchase as specified by FSI. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing
from the date of the first such purchase) for purposes of determining the
level of commissions to be paid during that period with respect to such
account. Class A shares of the Fund may be purchased at net asset value
through certain broker-dealers and other financial institutions which have
entered into an agreement with FSI, which includes a requirement that such
shares be sold for the benefit of clients participating in a "wrap account"
or a similar program under which such clients pay a fee to such broker-dealer
or other financial institution. Furthermore, Class A shares of the Fund may
be sold at net asset value through the automatic reinvestment of
distributions of dividends and capital gains of other MFS Funds pursuant to
the Distribution Investment Program (see "Shareholder Services" in the
Statement of Additional Information).
<PAGE>
Class B shares: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC as follows:
<TABLE>
<CAPTION>
Contingent
Year of Deferred
Redemption Sales
After Purchase Charge
------------------------------------------ ---------
<S> <C>
First 4%*
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
<FN>
*Class B shares purchased between January 1, 1993 and August 31, 1993, are
subject to a CDSC of 5% in the event of a redemption within the first year
after purchase.
</FN>
</TABLE>
For Class B shares purchased prior to January 1, 1993, the Fund imposes a
CDSC as a percentage of redemption proceeds as follows:
<TABLE>
<CAPTION>
Contingent
Year of Deferred
Redemption Sales
After Purchase Charge
------------------------------------------ ---------
<S> <C>
First 6%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
</TABLE>
No CDSC is paid upon an exchange of shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the
time of the original purchase of the exchanged shares. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge" for further discussion of the
CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the
account is registered (i) in the case of a deceased individual, solely in the
deceased individual's name, (ii) in the case of a disabled individual, solely
or jointly in the disabled individual's name or (iii) in the name of a living
trust for the benefit of the deceased or disabled individual. The CDSC on
Class B shares will also be waived in the case of redemptions of shares of
the Fund pursuant to a systematic withdrawal plan. In addition, the CDSC on
Class B shares will be waived in the case of distributions from an IRA,
SAR-SEP or any other retirement plan qualified under section 401(a), 401(k)
or 403(b) of the Code, due to death or disability, or in the case of required
minimum distributions from any such retirement plan due to attainment of age
70-1/2. The CDSC on Class B shares will be waived in the case of
distributions from a retirement plan qualified under Section 401(a) of the
Code due to (i) returns of excess contribution to the plan, (ii) retirement
of a participant in the plan, (iii) a borrowing from the plan (repayments of
borrowings, however, will constitute new sales for purposes of assessing the
CDSC), (iv) "financial hardship" of the participant in the plan, as that term
is defined in Treasury Regulation 401(k)-1(d)(2), as amended from time to
time, and (v) termination of employment of the participant in the plan
(excluding, however, a partial or other termination of the plan). The CDSC on
Class B shares will also be waived upon redemptions by: (i) officers of the
Trust; (ii) any of the subsidiary companies of Sun Life; (iii) eligible
Directors, officers, employees, (including retired employees) and agents of
MFS, Sun Life or any of their subsidiary companies; (iv) any trust, pension,
profit-sharing or any other benefit plan for such persons; (v) any trustees
and retired trustees of any investment company for which FSI serves as
distributor or principal underwriter; and (vi) certain family members of such
individuals and their spouses, provided in each case that
<PAGE>
the shares will not be resold except to the Fund. The CDSC on Class B shares
will also be waived in the case of redemptions by any employee or registered
representative of any dealer or other financial institution which has a sales
agreement with FSI, by certain family members of any such employee or
representative and their spouses, by any trust, pension, profit-sharing or
other retirement plan for the sole benefit of such employee or representative
and by clients of the MFS Asset Management Group. A retirement plan qualified
under section 401(a) of the Internal Revenue Code of 1986, as amended, (a
"Retirement Plan") that has invested its assets in Class B shares of one or
more of the MFS Funds for more than 10 years from the later to occur of (i)
January 1, 1993 or (ii) the date the Retirement Plan first invests its assets
in Class B shares of one or more of the funds in the MFS Funds will have the
CDSC on Class B shares waived in the case of a redemption of all the
Retirement Plan's shares (including any Class A shares) in all MFS Funds
(i.e., all the assets of the Retirement Plan invested in the MFS Funds are
withdrawn), except that if, immediately prior to the redemption, the
aggregate amount invested by the Retirement Plan in Class B shares of the MFS
Funds (excluding the reinvestment of distributions) during the prior four
year period equals 50% or more of the total value of the Retirement Plan's
assets in the MFS Funds, then the CDSC will not be waived. The CDSC on Class
B shares may also be waived in connection with the acquisition or liquidation
of the assets of other investment companies or personal holding companies.
Conversion of Class B Shares. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Distribution Plan
applicable to Class B shares. 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 shareholder's total Class B shares not acquired
through such reinvestment. The conversion of Class B shares to Class A shares
is subject to the continuing availability of a ruling from the Internal
Revenue Service or an opinion of counsel that such conversion will not
constitute a taxable event for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion
of Class B shares to Class A shares will not occur if such ruling or opinion
is not available. In such event, Class B shares would continue to be subject
to higher expenses than Class A shares for an indefinite period.
General: Except as described below, the minimum initial investment is $1,000
per account and the minimum additional investment is $50 per account.
Accounts being established for monthly automatic investments and under
payroll savings programs and tax-deferred retirement programs (other than
IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and
the minimum additional investment is $50 per account. Accounts being
established for participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. There are also
other limited exceptions to these minimums for certain tax-deferred
retirement programs. Any minimums may be changed at any time at the
discretion of FSI. The Fund reserves the right to cease offering its shares
for sale at any time.
For shareholders who elect to participate in certain investment programs
(e.g., the automatic investment plan) or other shareholder services FSI or
its affiliates may either (i) give a gift of nominal value, such as a
hand-held calculator, or (ii) make a nominal charitable contribution on their
behalf.
A shareholder whose shares are held in the name of, or controlled by, an
investment dealer, might not receive many of the privileges and services from
the Fund (such as Right of Accumulation, Letter of Intent and certain
recordkeeping services) that the Fund ordinarily provides.
The Fund and FSI each reserve the right to reject any specific purchase order
or to restrict purchases by a particular purchaser (or group of related
purchasers). The Fund or FSI may reject or restrict purchases of the Fund's
shares by a particular purchaser or
<PAGE>
group, for example, when a pattern of frequent purchases and sales of shares
of the Fund is evident, or if the purchase and sale orders are, or a
subsequent abrupt redemption might be, of a size that would disrupt
management of the Fund. The Fund and FSI intend specifically to exercise this
right in order to reject or restrict purchases by market timers (including
asset allocators) and the shareholder(s) whose accounts are exchanged
periodically based on an arrangement with or advice from such persons or
whose transactions seem to follow a timing pattern. In particular, action may
be taken if: (i) more than two exchange purchases are effected in a timed
account in the same calendar quarter; or (ii) a purchase would result in
shares being held in timed accounts by an individual or firm representing
more than (x) one percent of the Fund's net assets or (y) specified dollar
amounts in the case of certain funds in the MFS Funds, which may include the
Fund and which may change from time to time. The Fund and FSI each reserve
the right to request holders of timed accounts to redeem their shares at net
asset value, less any CDSC otherwise applicable, if either of these
restrictions is violated.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A and Class B shares.
The Glass-Steagall Act prohibits national banks from engaging in the business
of underwriting, selling or distributing securities. Although the scope of
the prohibition has not been clearly defined, FSI believes that such Act
should not preclude banks from entering into agency agreements with FSI (as
described above). If, however, a bank were prohibited from so acting, the
Trustees would consider what actions, if any, would be necessary to continue
to provide efficient and effective shareholder services. It is not expected
that shareholders would suffer any adverse financial consequence as a result
of these occurrences. In addition, state securities laws on this issue may
differ from the interpretation of federal law expressed herein, and banks and
financial institutions may be required to register as broker-dealers pursuant
to state law.
Exchanges
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds (if available for sale) at net asset value. Shares of
one class may not be exchanged for shares of any other class. Exchanges will
be made 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 MFS Service
Center, Inc.) or all the shares in the account. If the Exchange Request is
received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the New York Stock Exchange (the "Exchange"), the
exchange usually will occur on that day if all the requirements set forth
above have been complied with at that time. No more than five exchanges may
be made in any one Exchange Request by telephone. Additional information
concerning this exchange privilege and prospectuses for any of the other MFS
Funds may be obtained from investment dealers or the Shareholder Servicing
Agent. A shareholder should read the prospectus of the other MFS Fund and
consider the differences in objectives and policies before making any
exchange. For federal and (generally) state income tax purposes, an exchange
is treated as a sale of the shares exchanged and, therefore, an exchange
could result in a gain or loss to the shareholder making the exchange.
Exchanges by telephone are automatically available to most non-retirement
plan accounts and certain retirement plan accounts. For further information
regarding exchanges by telephone see "Redemptions By Telephone." The exchange
privilege (or any aspect of it) may be changed or discontinued and is subject
to certain limitations, including certain restrictions on purchases by market
timer accounts (see "Purchases").
Redemptions and Repurchases
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since the net asset value of shares of the account fluctuate,
redemptions or repurchases, which are taxable transactions are likely to
<PAGE>
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.
Certain purchases may, however, be subject to a CDSC in the event of certain
redemption transactions (see "Contingent Deferred Sales Charge" below). For
the convenience of shareholders, the Fund has arranged for different
procedures for redemption and repurchase. The proceeds of a redemption or
repurchase will normally be available within seven days, except for shares
purchased, or received in exchange for shares purchased, by check (including
certified checks or cashier's checks); payment of redemption proceeds may be
delayed for 15 days from the purchase date in an effort to assure that such
check has cleared. Payment of redemption proceeds may be delayed for up to
seven days if the Fund determines that such a delay would be in the best
interest of all its shareholders.
A. Redemption By Mail--Each shareholder has the right to redeem all or any
portion of the shares in his account by mailing or delivering to the
Shareholder Servicing Agent (see back cover for address) a stock power with a
written request for redemption or a letter of instruction, together with his
share certificates (if any were issued), all in "good order" for transfer.
"Good order" generally means that 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" may require the
furnishing of additional documents. The Shareholder Servicing Agent may make
certain de minimis exceptions to the above requirements for redemption.
Within seven days after receipt of a redemption request by the Shareholder
Servicing Agent in "good order," the Fund will make payment in cash of the
net asset value of the shares next determined after such redemption request
was received, reduced by the amount of any applicable CDSC and the amount of
any income tax required to be withheld, except during any period in which the
right of redemption is suspended or date of payment is postponed because the
Exchange is closed or trading on such Exchange is restricted or to the extent
otherwise permitted by the Investment Company Act of 1940 (the "1940 Act"),
if an emergency exists (see "Tax Status").
B. Redemption By Telephone--Each shareholder may redeem an amount from his
account by telephoning toll-free at (800) 225-2606. Shareholders wishing to
avail themselves of this telephone redemption privilege must so elect on
their Account Application, designate thereon a commercial bank and account
number to receive the proceeds of such redemption, and sign the Account
Application Form with the signature(s) guaranteed in the manner set forth
below under the caption "Signature Guarantee". The proceeds of such a
redemption, reduced by the amount of any applicable CDSC described above and
the amount of any income tax required to be withheld, are mailed by check to
the designated account, without charge. As a special service, investors may
arrange to have proceeds in excess of $1,000 wired in federal funds to the
designated account. If a telephone redemption request is received by the
Shareholder Servicing Agent by the close of regular trading on the Exchange
on any business day, shares will be redeemed at the closing net asset value
of the Fund on that day. Subject to the conditions described in this section,
proceeds of a redemption are normally mailed or wired on the next business
day following the date of receipt of the order for redemption. The
Shareholder Servicing Agent will not be responsible for any losses resulting
from unauthorized telephone transactions if it follows reasonable procedures
designed to verify the identity of the caller. The Shareholder Servicing
Agent will request personal or other information from the caller, and will
normally also record calls. Shareholders should verify the accuracy of
confirmation statements immediately after their receipt.
C. Repurchase Through a Dealer--If a shareholder desires to sell his shares
at net asset value through his securities dealer (a repurchase), the
shareholder can place a repurchase order with his dealer, who may charge the
shareholder a fee. Net asset value is calculated on the day the dealer places
the order with FSI, as the Fund's agent. If the dealer receives the
shareholder's order prior to the close of regular trading on the Exchange and
communicates it to FSI on the same day before FSI closes for business, the
shareholder will receive the net asset value calculated on that day reduced
by the amount of any applicable CDSC and the amount of any income tax
required to be withheld.
Signature Guarantee: In order to protect shareholders against fraud to the
greatest extent possible, the Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must
<PAGE>
be guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance
with policies established by the Shareholder Servicing Agent.
Shareholders of the Fund who have redeemed their shares have a one-time right
to reinvest the redemption proceeds in the same class of shares of any of the
MFS Funds (if shares of such Fund are available for sale) at net asset value
(with a credit for any CDSC paid) within 90 days of the redemption pursuant
to the Reinstatement Privilege. If the shares credited for any CDSC paid are
then redeemed within six years of the initial purchase in the case of Class B
shares, or within 12 months of the initial purchase for certain Class A
purchases, a CDSC will be imposed upon redemption. Such purchases under the
Reinstatement Privilege are subject to all limitations in the Statement of
Additional Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed 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 in
converting the securities to cash.
Due to the relatively high cost of maintaining small accounts, the Fund
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $500 because of redemptions,
except in the case of accounts established for monthly automatic investments
and certain payroll savings programs, Automatic Transfer Plan accounts and
tax-deferred retirement plans, for which there is a lower minimum investment
requirement. See "Purchases". Shareholders will be notified that the value of
their account is less than the minimum investment requirement and allowed 60
days to make an additional investment before the redemption is processed. No
CDSC will be imposed with respect to such involuntary redemptions.
Contingent Deferred Sales Charge--Investments ("Direct Purchases") will be
subject to a CDSC for a period of 12 months (in the case of purchases of $1
million or more of Class A shares) or six years (in the case of purchases of
Class B shares). Purchases of Class A shares made during a calendar month,
regardless of when during the month the investment occurred, will age one
month on the last day of the month and each subsequent month. Class B shares
purchased 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 purchased prior to January 1, 1993,
transactions will be aggregated on a calendar year basis--all transactions
made during a calendar year, regardless of when during the year they have
occurred, will age one year at the close of business on December 31 of that
year and each subsequent year. At the time of a redemption, the amount by
which the value of a shareholder's account for a particular class represented
by Direct Purchases exceeds the sum of the six calendar year aggregations (12
months in the case of purchases of $1 million or more of Class A shares) of
Direct Purchases may be redeemed without charge ("Free Amount"). Moreover, no
CDSC is ever assessed on additional shares acquired through the automatic
reinvestment of dividends or capital gain distributions ("Reinvested
Shares").
Therefore, at the time of redemption of shares of a particular class, (i) any
Free Amount is not subject to the CDSC, and (ii) the amount of redemption
equal to the then-current value of Reinvested Shares is not subject to the
CDSC, but (iii) any amount of the redemption in excess of the aggregate of
the then-current value of Reinvested Shares and the Free Amount is subject to
a CDSC. The CDSC will first be applied against the amount of Direct Purchases
which will result in any such charge being imposed at the lowest possible
rate. The CDSC to be imposed upon redemptions will be calculated as set forth
in "Purchases" above.
The applicability of the CDSC will be unaffected by exchanges or transfers of
registration.
<PAGE>
Distribution Plans
The Trustees have adopted separate distribution plans for Class A and Class B
pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule"), after having concluded that there is a reasonable likelihood that
the plans would benefit the Fund and its shareholders.
Class A Distribution Plan. The Class A Rule Distribution Plan provides that
the Fund will pay FSI a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% of the average daily net assets attributable to
Class A shares annually in order that FSI may pay expenses on behalf of the
Fund related to the distribution and servicing of Class A shares. The
expenses to be paid by FSI on behalf of the Fund include a service fee to
securities dealers which enter into a sales agreement with FSI of up to 0.25%
of the Fund's average daily net assets attributable to Class A shares that
are owned by investors for whom such securities dealer is the holder or
dealer of record. This fee is intended to be partial consideration for all
personal services and/or account maintenance services rendered by the dealer
in the distribution of Class A shares. FSI may from time to time reduce the
amount of the service fee paid for shares sold prior to a certain date. FSI
will also retain a distribution fee of 0.10% of the Fund's average daily net
assets attributable to Class A shares as partial consideration for services
performed and expenses incurred in the performance of FSI's obligations under
its distribution agreement with the Fund. In addition, to the extent that the
aggregate of the foregoing fees does not exceed 0.35% per annum of the
average daily net assets of the Fund attributable to Class A shares, the Fund
is permitted to pay other distribution-related expenses, including
commissions to dealers and payments to wholesalers employed by FSI for sales
at or above a certain dollar level. Fees payable under the Class A
Distribution Plan are charged to, and therefore reduce, income allocated to
Class A shares. Service fees may be reduced for a securities dealer that is
the holder or dealer of record for an investor who owns shares of the Fund
having a net asset value at or above a certain dollar level. Dealers may from
time to time be required to meet certain criteria in order to receive service
fees. FSI or its affiliates are entitled to retain all service fees payable
under the Class A Distribution Plan for which there is no dealer of record or
for which qualification standards have not been met as partial consideration
for personal services and/or account maintenance services performed by FSI or
its affiliates for shareholder accounts. Certain banks and other financial
institutions that have agency agreements with FSI will receive service fees
that are the same as service fees to dealers.
Class B Distribution Plan. The Class B Distribution Plan provides that the
Fund will pay FSI a daily distribution fee equal on an annual basis to 0.75%
of the Fund's average daily net assets attributable to Class B shares and
will pay FSI a service fee of up to 0.25% per annum of the Fund's average
daily net assets attributable to Class B shares (which FSI will in turn pay
to securities dealers which enter into a sales agreement with FSI at a rate
of up to 0.25% per annum of the Fund's average daily net assets attributable
to Class B shares owned by investors for whom that securities dealer is the
holder or dealer of record). This service fee is intended to be additional
consideration for all personal services and/or account maintenance services
rendered by the dealer with respect to Class B shares. Fees payable under the
Class B Distribution Plan are charged to, and therefore reduce, income
allocated to Class B shares. The Class B Distribution Plan also provides that
FSI will receive all CDSCs attributable to Class B shares (see "Redemptions
and Repurchases of Shares"), which do not reduce the distribution fee. FSI
will pay commissions to dealers of 3.75% of the purchase price of Class B
shares purchased through dealers. FSI will also advance to dealers the first
year service fee at a rate equal to 0.25% of the purchase price of such
shares and as compensation therefor, FSI may retain the service fee paid by
the Fund with respect to such shares for the first year after purchase.
Therefore, the total amount paid to a dealer upon the sale of shares is 4.00%
of the purchase price of the shares (commission rate of 3.75% plus service
fee equal to 0.25% of the purchase price). Dealers will become eligible for
additional service fees with respect to such shares commencing in the
thirteenth month following the purchase. Dealers may from time to time be
required to meet certain criteria in order to receive service fees. FSI or
its affiliates are entitled to retain all service fees payable under the
Class B Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by FSI or its
affiliates for shareholder accounts. The purpose of the payments to FSI under
the Class B Distribution Plan is to compensate FSI for its distribution
services to the Fund. Since FSI's compensation is not directly tied to its
expenses, the amount of compensation received by FSI during any year may be
more or less than its actual expenses. For this reason, this type of
distribution fee arrangement is characterized by the staff of the SEC as
being of the "compensation" variety. However, the Fund is not liable for any
expenses
<PAGE>
incurred by FSI in excess of the amount of compensation it receives. The
expenses incurred by FSI, including commissions to dealers, are likely to be
greater than the distribution fees for the next several years, but thereafter
such expenses may be less than the amount of the distribution fees. Certain
banks and other financial institutions that have agency agreements with FSI
will receive agency transaction and service fees that are the same as
commissions and service fees to dealers.
Distributions
The Fund intends to pay substantially all of its net investment income for
any calendar year to its shareholders as dividends on an annual basis. In
addition, the Fund may make one or more distributions during the calendar
year to its shareholders from any long-term capital gains. The Fund also may
make one or more distributions during the calendar year to its shareholders
from short-term capital gains. Shareholders may elect to receive dividends
and capital gain distributions in either cash or additional shares of the
same class in respect of which the 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 shares because expenses attributable to Class B
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 Code, and to make
distributions to its shareholders in accordance with the timing requirements
imposed by the Code. It is not expected that the Fund will be required to pay
any federal income or excise taxes, although foreign-source income earned by
the Fund may be subject to foreign withholding taxes. Shareholders of the
Fund normally will have to pay federal income taxes, and any state and local
taxes, on the dividends and capital gain distributions they receive from the
Fund, whether paid in cash or in additional shares. A portion of the
dividends received from the Fund (but none of the Fund's capital gain
distributions) may qualify for the dividends-received deduction for
corporations. A statement setting forth the federal income tax status of all
dividends and distributions for that calendar year, including the portion
taxable as ordinary income, the portion taxable as long-term capital gains,
the portion, if any, representing a return of capital (which is generally
free of current taxes but results in a basis reduction) and the amount, if
any, of federal income tax withheld will be sent to each shareholder promptly
after the end of such year.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
any payments that are subject to such withholding and are made to persons who
are neither citizens nor residents of the U.S., regardless of whether a lower
rate may be permitted under an applicable treaty. The Fund is also required
in certain circumstances to apply backup withholding of 31% of taxable
dividends and redemption proceeds paid to any shareholder (including a
shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is
otherwise subject to backup withholding. Backup withholding, however, will
not be applied to payments which 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 advisor as to the tax consequences 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 such Exchange by
deducting the amount of the liabilities attributable to the class from the
value of the Fund's assets and dividing the difference by the number of
outstanding shares of the class outstanding. Assets in the Fund's portfolio
are valued on the basis of their current values or otherwise at their fair
values, as described in the Statement of Additional Information. All
investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. The net asset value of each class of shares is
effective for orders received by the dealer prior to its calculation and
received by FSI prior to the close of that business day.
Description of Shares, Voting Rights and Liabilities
The Fund, one of two series of the Trust, has two classes of shares, entitled
Class A and Class B Shares of Beneficial Interest (without par value). The
Trust has reserved the right to create and issue additional classes and
series of shares, in which case
<PAGE>
each class of shares of a series would participate equally in the earnings,
dividends and assets attributable to that class of shares of that particular
series. Shareholders are entitled to one vote for each share held and shares
of each series would be entitled to vote separately to approve investment
advisory agreements or changes in investment restrictions, but shares of all
series would vote together in the election of Trustees and ratification of
selection of accountants. Additionally, each class of shares of a series will
vote separately on any material increases in the fees under its Distribution
Plan or on any other matter that affects solely that class of shares, but
will otherwise vote together with all other classes of shares of the series
on all other matters. The Trust does not intend to hold annual shareholder
meetings. The Declaration of Trust provides that a Trustee may be removed
from office in certain instances (see "Description of Shares, Voting Rights
and Liabilities" in the Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest
in the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as
set forth above "Purchases--Conversion of Class B Shares"). Shares are fully
paid and non-assessable. Should the Fund be liquidated, shareholders of each
class are entitled to share pro rata in the net assets attributable to that
class available for distribution to shareholders. Shares will remain on
deposit with the Shareholder Servicing Agent and certificates will not be
issued except in connection with pledges and assignments and in certain other
limited circumstances.
The 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 risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance (e.g., fidelity bonding and errors and omissions
insurance) existed and the Trust itself was unable to meet its obligations.
Performance Information
From time to time, the Fund will provide total rate of return quotations for
each class of shares and may also quote fund rankings in the relevant fund
category from various sources, such as the Lipper Analytical Services, Inc.
and Wiesenberger Investment Companies Service. Total rate of return
quotations will reflect the average annual percentage change over stated
periods in the value of an investment in a class of shares of the Fund made
at the maximum public offering price of shares of that class with all
distributions reinvested and which, if quoted for periods of six years or
less, will give effect to the imposition of the CDSC assessed upon
redemptions of the Fund's Class B shares. Such total rate of return
quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge or the
deduction of a CDSC, and which will thus be higher. The Fund's total rate of
return quotations are based on historical performance and are not intended to
indicate future performance. Total rate of return reflects all components of
investment return over a stated period of time. The Fund's quotations may
from time to time be used in advertisements, shareholder reports or other
communications to shareholders. For a discussion of the manner in which the
Fund will calculate its total rate of return, see the Statement of Additional
Information. In addition to information provided in shareholder reports, the
Fund may, in its discretion, from time to time, make a list of all or a
portion of its holdings available to investors upon request.
8. 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 income tax
information regarding reportable dividends and capital gain distributions for
that year (see "Tax Status").
Distribution Options--The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
--Dividends and capital gain distributions reinvested in additional shares.
This option will be assigned if no other option is specified;
<PAGE>
--Dividends (including short-term capital gains) in cash; long-term capital
gain distributions reinvested in additional shares;
--Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full
and fractional shares 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. Any request to change a distribution option
must be received by the Shareholder Servicing Agent by the record date for a
dividend or distribution in order to be effective for that dividend or
distribution. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Investment and Withdrawal Programs --For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders
to add to their investment in an account with the Fund or withdraw from it
with a minimum of paper work. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain Class A share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
Letter of Intent: If a shareholder (other than a group purchaser as described
in the Statement of Additional Information) anticipates purchasing $50,000 or
more of Class A shares of the Fund alone or in combination with shares of all
classes of all MFS Funds or the MFS Fixed Fund (a bank collective investment
fund) within a 13-month period (or 36-month period for purchases of $1
million or more), the shareholder may obtain such shares of the Fund at the
same reduced sales charge as though the total quantity were invested in one
lump sum, subject to escrow agreements and the appointment of an attorney for
redemptions from the escrow amount if the intended purchases are not
completed, by completing the Letter of Intent section of the Account
Application.
Right of Accumulation: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together
with the current offering price value of all holdings of any class of shares
of that shareholder in the MFS Funds or the MFS Fixed Fund (a bank collective
investment fund) reaches a discount level.
Distribution Investment Program: Shares of a particular class of the Fund may
be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the
same class of another MFS Fund. Furthermore, distributions made by the Fund
may be automatically invested at net asset value in shares of the same class
of another MFS Fund, if shares of such Fund are available for sale and
without any applicable CDSC).
Systematic Withdrawal Plan: A shareholder (except a $3 Million Shareholder)
may direct the Shareholder Servicing Agent to send him (or anyone he
designates) regular periodic payments, as designated on the Account
Application and based upon the value of his account. Each payment under a
Systematic Withdrawal Plan ("SWP") must be at least $100, except in certain
limited circumstances. The aggregate withdrawals of Class B shares in any
year pursuant to a SWP will not be subject to a CDSC and are generally
limited to 10% of the value of the account at the time of the establishment
of the SWP. The CDSC will not be waived in the case of SWP redemptions of
Class A shares which are subject to a CDSC.
Dollar Cost Averaging Programs--
Automatic Investment Plan: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or
investment dealers.
Automatic Exchange Plan: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic transfers of funds from the
shareholder's account in an MFS Fund for investment in the same class of
shares of other MFS Funds selected by the shareholder. Under the Automatic
Exchange Plan, transfers of at least $50 each may be made to up to four
different funds. A shareholder should consider the objectives and policies of
a fund and review its prospectus before electing to transfer money into such
fund through the Automatic Exchange Plan. No transaction fee is imposed in
connection with transfer transactions under the Automatic Exchange Plan.
However, transfers of shares of MFS Money Market Fund, MFS Government Money
Market Fund or Class A
<PAGE>
shares of MFS Cash Reserve Fund will be subject to any applicable sales
charge. For federal and (generally) state income tax purposes, a transfer is
treated as a sale of the shares transferred and, therefore, could result in a
capital gain or loss to the shareholder making the transfer. See the
Statement of Additional Information for further information concerning the
Automatic Exchange Plan. Investors should consult their tax advisers for
information regarding the potential capital gain and loss consequences of
transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should
consider his financial ability to continue his purchases through periods of
low price levels. Maintaining a dollar cost averaging program concurrently
with a withdrawal program could be disadvantageous because of the sales
charges included in share purchases in the case of Class A shares and because
of the assessment of the CDSC for certain share redemptions in the case of
Class A shares.
Tax-Deferred Retirement Plans--Shares of the Fund may be purchased by all
types of tax-deferred retirement plans, including IRAs, SEP-IRA plans, 401(k)
plans, 403(b) plans and other corporate pension and profit-sharing plans.
Investors should consult with their tax adviser before establishing any of
the tax-deferred retirement plans described above.
The Fund's Statement of Additional Information, dated April 1, 1994, contains
more detailed information about the Trust and the Fund, including information
related to (i) investment policies and restrictions, including the purchase
and sale of options, 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 Fund's shares,
including rights and liabilities of shareholders, (v) tax status of dividends
and distributions, (vi) the Distribution Plans, (vii) the method used to
calculate total rate of return quotations and (viii) various services and
privileges provided by the Fund for the benefit of its shareholders,
including additional information with respect to the exchange privilege.
<PAGE>
APPENDIX A
DESCRIPTION OF INDUSTRY SECTORS
The Fund seeks to achieve its investment objective by varying the weighting
of its portfolio among the following 15 industry sectors (i.e., industry
groupings).
(1) Autos and Housing Sector: companies engaged in the design, production and
sale of automobiles, automobile parts, mobile homes and related products, and
in the design, construction, renovation and refurbishing of residential
dwellings. The value of automobile industry securities is affected by foreign
competition, consumer confidence, consumer debt and installment loan rates.
The housing construction industry is affected by the level of consumer
confidence, consumer debt, mortgage rates and the inflation outlook.
(2) Consumer Goods and Services Sector: companies engaged in providing
consumer goods and services such as: the design, processing, production and
storage of packaged, canned, bottled and frozen foods and beverages; and the
design, production and sale of home furnishings, appliances, clothing,
accessories, cosmetics and perfumes. Certain such companies are subject to
government regulation affecting the permissibility of using various food
additives and production methods, which regulations could affect company
profitability. Also, the success of food- and fashion-related products may be
strongly affected by fads, marketing campaigns and other factors affecting
supply and demand.
(3) Defense and Aerospace Sector: companies engaged in the research,
manufacture or sale of products or services related to the defense and
aerospace industries, such as: air transport; data processing or
computer-related services; communications systems; military weapons and
transportation; general aviation equipment, missiles, space launch vehicles
and spacecraft; units for guidance, propulsion and control of flight
vehicles; and airborne and ground-based equipment essential to the test,
operation and maintenance of flight vehicles. Since such companies rely
largely on U.S. (and other) governmental demand for their products and
services, their financial conditions are heavily influenced by federal (and
other governmental) defense spending policies.
(4) Energy Sector: companies in the energy field, including oil, gas,
electricity and coal as well as nuclear, geo-thermal, oil shale and solar
sources of energy. The business activities of companies comprising this
sector may include: production, generation, transmission, marketing, control
or measurement of energy or energy fuels; provision of component parts or
services to companies engaged in such activities; energy research or
experimentation; environmental activities related to the solution of energy
problems; and activities resulting from technological advances or research
discoveries in the energy field. The value of such companies' securities
varies based on the price and supply of energy fuels and may be affected by
events relating to international politics, energy conservation, the success
of exploration projects, and the tax and other regulatory policies of various
governments.
(5) Financial Services Sector: companies providing financial services to
consumers and industry, such as: commercial banks and savings and loan
associations; consumer and industrial finance companies; securities brokerage
companies; leasing companies; and firms in all segments of the insurance
field (such as multiline, property and casualty, and life insurance). These
kinds of companies are subject to extensive governmental regulations, some of
which regulations are currently being studied by Congress. The profitability
of these groups may fluctuate significantly as a result of volatile interest
rates and general economic conditions.
(6) Health Care Sector: companies engaged in the design, manufacture or sale
of products or services used in connection with health care or medicine, such
as: pharmaceutical companies; firms that design, manufacture, sell or supply
medical, dental and optical products, hardware or services; companies
involved in biotechnology, medical diagnostic and biochemical research and
development; and companies involved in the operation of health care
facilities. Many of these companies are subject to government regulation,
which could affect the price and availability of their products and services.
Also, products and services in this sector could quickly become obsolete.
<PAGE>
(7) Heavy Industry Sector: companies engaged in the research, development,
manufacture or marketing of products, processes or services related to the
agriculture, chemicals, containers, forest products, non-ferrous metals,
steel and pollution control industries, such as: synthetic and natural
materials, for example, chemicals, plastics, fertilizers, gases, fibers,
flavorings and fragrances; paper; wood products; steel and cement. Certain
companies in this sector are subject to regulation by state and federal
authorities, which could require alteration or cessation of production of a
product, payment of fines or cleaning of a disposal site. In addition, since
some of the materials and processes used by these companies involve hazardous
components, there are risks associated with their production, handling and
disposal. The risk of product obsolescence is also present.
(8) Leisure Sector: companies engaged in the design, production or
distribution of goods or services in the leisure industry, such as:
television and radio broadcast or manufacture; motion pictures and
photography; recordings and musical instruments; publishing; sporting goods,
camping and recreational equipment; sports arenas; toys and games; amusement
and theme parks; travel-related services and airlines; hotels and motels;
fast food and other restaurants; and gaming casinos. Many products produced
by companies in this sector--for example, video and electronic games--may
quickly become obsolete.
(9) Machinery and Equipment Sector: companies engaged in the research,
development or manufacture of products, processes or services relating to
electrical equipment, machinery, pollution control and construction services,
such as: transformers, motors, turbines, hand tools, earth-moving equipment
and waste disposal services. The profitability of most companies in this
group may fluctuate significantly in response to capital spending and general
economic conditions. Since some of the materials and processes used by these
companies involve hazardous components, there are risks associated with their
production, handling and disposal. The risk of product obsolescence is also
present.
(10) Natural Resources Sector: companies engaged in exploration, mining,
processing or dealing in gold, silver, platinum or other natural resources or
companies which, in turn, invest in companies engaged in these activities. A
significant portion of this sector may be represented by securities of
foreign companies, and investors should understand the special risks related
to such an investment emphasis. Also, such securities depend heavily on
prices in metals or other natural resources, some of which may experience
extreme price volatility based on international economic and political
developments.
(11) Retailing Sector: companies engaged in the retail distribution of home
furnishings, food products, clothing, pharmaceuticals, leisure products and
other consumer goods, such as: department stores; supermarkets; and retail
chains specializing in particular items such as shoes, toys or
pharmaceuticals. The value of securities in this sector will fluctuate based
on consumer spending patterns, which depend on inflation and interest rates,
level of consumer debt and seasonal shopping habits. The success or failure
of a particular company in this highly competitive sector will depend on such
company's ability to predict rapidly changing consumer tastes.
(12) Technology Sector: companies which are expected to have or develop
products, processes or services which will provide or will benefit
significantly from technological advances and improvements or future
automation trends in the office and factory, such as: semiconductors;
computers and peripheral equipment; scientific instruments; computer
software; telecommunications; and electronic components, instruments and
systems. Such companies are sensitive to foreign competition and import
tariffs. Also, many products produced by companies in this sector may quickly
become obsolete.
(13) Transportation Sector: companies involved in the provision of
transportation of people and products, such as: airlines, railroads and
trucking firms. Revenues of companies in this sector will be affected by
fluctuations in fuel prices resulting from domestic and international events,
and government regulation of fares.
(14) Utilities Sector: companies in the public utilities industry and
companies deriving a substantial majority of their revenues through supplying
public utilities such as: companies engaged in the manufacture, production,
generation,
<PAGE>
transmission and sale of gas and electric energy; and companies engaged in
the communications field, including telephone, telegraph, satellite,
microwave and the provision of other communication facilities to the public.
The gas and electric public utilities industries are subject to various
uncertainties, including the outcome of political issues concerning the
environment, prices of fuel for electric generation, availability of natural
gas, and risks associated with the construction and operation of nuclear
power facilities.
(15) Foreign Sector: companies whose primary business activity takes place
outside of the United States. The securities of foreign companies would be
heavily influenced by the strength of national economies, inflation levels
and the value of the U.S. dollar versus foreign currencies. Investments in
the Foreign Sector will be subject to certain risks not generally associated
with domestic investments.
Diversified companies will generally be included in the sector of their
predominant industry activity, as determined by the Adviser.
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS
The ratings of Moody's and S&P represent their opinions as to the quality of
various debt instruments. It should be emphasized, however, that ratings are
not absolute standards of quality. Consequently, debt instruments with the
same maturity, coupon and rating may have different yields while debt
instruments of the same maturity and coupon with different ratings may have
the same yield.
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
the 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. Such 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. 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.
<PAGE>
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.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated 'AAA' has the highest rating assigned by S&P's. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB: Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B: Debt rated 'B' has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'BB' or 'BB-' rating.
CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The 'CCC' rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied 'B' or 'B-' rating.
CC: The rating 'CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
C: The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating 'CI' is reserved for income bonds on which no interest is
being paid.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P 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 if debt service payments 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
categories.
NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.
<PAGE>
APPENDIX C
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES, AUTHORITIES OR INSTRUMENTALITIES
U.S. Government Obligations--are issued by the Treasury and include bills,
certificates of indebtedness, notes and bonds. Agencies and instrumentalities
of the U.S. Government are established under the authority of an act of
Congress and include, but are not limited to, the Tennessee Valley Authority,
the bank for Cooperatives, the Farmers Home Administration, Federal Home Loan
Banks, Federal Intermediate Credit Banks and Federal Land Banks, as well as
those listed below.
Federal Farm Credit Consolidated Systemwide Notes and Bonds--are bonds issued
by a cooperatively owned nationwide system of banks and associations
supervised by the Farm Credit Administration. These bonds are not guaranteed
by the U.S. Government.
Maritime Administration Bonds--are bonds issued by the Department of
Transportation of the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing Administration
of the U.S. Government and are fully and unconditionally guaranteed by the
U.S. Government.
GNMA Certificates--are mortgage-backed securities, with timely payment
guaranteed by the full faith and credit of the U.S. Government, which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Each mortgage loan included in the pool is also insured or
guaranteed by the Federal Housing Administration, the Veterans Administration
or the Farmers Home Administration.
Federal Home Loan Mortgage Corporation Bonds--are bonds issued and guaranteed
by the Federal Home Loan Mortgage Corporation and are not guaranteed by the
U.S. Government.
Federal Home Loan Bank Bonds--are bonds issued by the Federal Home Loan Bank
System and are not guaranteed by the U.S. Government.
Financing Corporation Bonds and Notes--are bonds and notes issued and
guaranteed by the Financing Corporation.
Federal National Mortgage Association Bonds--are bonds issued and guaranteed
by the Federal National Mortgage Association and are not guaranteed by the
U.S. Government.
Resolution Funding Corporation Bonds and Notes--are bonds and notes issued
and guaranteed by the Resolution Funding Corporation.
Student Loan Marketing Association Debentures--are debentures backed by the
Student Loan Marketing Association and are not guaranteed by the U.S.
Government.
Tennessee Valley Authority Bonds and Notes--are bonds and notes issued and
guaranteed by the Tennessee Valley Authority.
Some of the foregoing obligations, such as Treasury bills and GNMA
pass-through certificates, are supported by the full faith and credit of the
U.S. Government; others, such as securities of FNMA, by the right of the
issuer to borrow from the U.S. Treasury; still others, such as bonds issued
by SLMA, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government will provide financial
support to instrumentalities sponsored by the U.S. Government as it is not
obligated by law, in certain instances, to do so.
Although this list includes a description of the primary types of U.S.
Government agency, authorities or instrumentality obligations in which the
Fund intends to invest, the Fund may invest in obligations of U.S. Government
agencies or instrumentalities other than those listed above.
<PAGE>
DESCRIPTION OF SHORT-TERM INVESTMENTS OTHER THAN
U.S. GOVERNMENT OBLIGATIONS
Certificates of Deposit--are certificates issued against funds deposited in a
bank (including eligible foreign branches of U.S. banks), are for a definite
period of time, earn a specified rate of return and are normally negotiable.
Bankers' Acceptances--are marketable short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
Commercial Paper--refers to promissory notes issued by corporations in order
to finance their short-term credit needs.
Corporate Obligations--include bonds and notes issued by corporations in
order to finance long-term credit needs.
A-1 and P-1 Commercial Paper Ratings
Description of S&P and Moody's highest commercial paper ratings:
The rating "A" is the highest commercial paper rating assigned by S&P, and
issues so rated are regarded as having the greatest capacity for timely
payment. Issues in the "A" category are delineated with the numbers 1, 2 and
3 to indicate the relative degree of safety. The A-1 designation indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. Those A-1 issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated P-1 have a superior ability for repayment. P-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structure with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial markets
and assured sources of alternate liquidity.
<PAGE>
--------------------------------------------------------------------------------
The MFS Family of Funds(R) -- America's Oldest Mutual Fund Group
--------------------------------------------------------------------------------
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully before investing or sending money.
------------------------------------------
Stock Funds
------------------------------------------
Massachusetts Investors Trust
------------------------------------------
Massachusetts Investors Growth Stock Fund
------------------------------------------
MFS(R) Capital Growth Fund
------------------------------------------
MFS(R) Emerging Growth Fund*
------------------------------------------
MFS(R) Gold & Natural Resources Fund
------------------------------------------
MFS(R) Growth Opportunities Fund
------------------------------------------
MFS(R) Managed Sectors Fund
------------------------------------------
MFS(R) OTC Fund
------------------------------------------
MFS(R) Research Fund
------------------------------------------
MFS(R) Value Fund
------------------------------------------
MFS(R) World Equity Fund
------------------------------------------
MFS(R) World Growth Fund
------------------------------------------
------------------------------------------
Stock and Bond Funds
------------------------------------------
MFS(R) Total Return Fund
------------------------------------------
MFS(R) Utilities Fund
------------------------------------------
MFS(R) World Total Return Fund
------------------------------------------
------------------------------------------
Bond Funds
------------------------------------------
MFS(R) Bond Fund
------------------------------------------
MFS(R) Government Limited Maturity Fund
------------------------------------------
MFS(R) Government Mortgage Fund
------------------------------------------
MFS(R) Government Securities Fund
------------------------------------------
MFS(R) High Income Fund
------------------------------------------
MFS(R) Income & Opportunity Fund
------------------------------------------
MFS(R) Intermediate Income Fund
------------------------------------------
MFS(R) Limited Maturity Fund
-----------------------------------------
MFS(R) World Governments Fund
------------------------------------------
------------------------------------------
Tax-Free Bond Funds
------------------------------------------
MFS(R) Municipal Bond Fund
------------------------------------------
MFS(R) Municipal High Income Fund**
------------------------------------------
MFS(R) Municipal Income Fund
------------------------------------------
MFS(R) Municipal Limited Maturity Fund
------------------------------------------
MFS(R) Municipal Series Trust (AL, AR, CA, FL,
GA, LA, MD, MA, MS, NY, NC, PA, SC, TN, TX, VA, WA, WV)
------------------------------------------
------------------------------------------
Money Market Funds
------------------------------------------
MFS(R) Cash Reserve Fund
------------------------------------------
MFS(R) Government Money Market Fund
------------------------------------------
MFS(R) Money Market Fund
------------------------------------------
* Closed to new investors, commencing January 14, 1994.
** Closed to new investors.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Distributor
MFS Financial Services, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: 800-225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906
Independent Accountants
Deloitte & Touche
125 Summer Street, Boston, MA 02110
(MFS LOGO(R))
MFS(R) MANAGED
SECTORS FUND
500 Boylston Street, Boston, MA 02116
MMS-1-4/94/119M 08/208
MFS(R)
MANAGED
SECTORS
FUND
(ARTWORK)
PROSPECTUS
April 1, 1994
<PAGE>
MFS MANAGED SECTORS FUND
(a series of MFS SERIES TRUST I)
Supplement to be affixed to the current
Prospectus for distribution in Iowa
For shares designated as Class B purchased after September 1, 1993, a contingent
deferred sales charge declining from 4% to 0% will be imposed if the investor
redeems within six years from the date of purchase. In addition, the Class is
subject to an annual distribution and service fee of 1% of its average daily net
assets.
The date of this Supplement is April 1, 1995.
<PAGE>
(MFS LOGO)
MFS(R) MANAGED
SECTORS FUND STATEMENT OF
ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) April 1, 1995
Page
1. Definitions 2
2. Investment Objective, Policies and Restrictions 2
3. Management of the Fund 14
Trustees 14
Officers 14
Investment Adviser 15
Custodian 16
Shareholder Servicing Agent 16
Distributor 16
4. Portfolio Transactions and Brokerage Commissions 17
5. Shareholder Services 18
Investment and Withdrawal Programs 18
Exchange Privilege 20
Tax-Deferred Retirement Plans 21
6. Tax Status 21
7. Distribution Plans 22
8. Determination of Net Asset Value and Performance 24
9. Description of Shares, Voting Rights and Liabilities 26
10. Independent Accountants and Financial Statements 26
MFS MANAGED SECTORS FUND
A Series of MFS Series Trust I
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated April 1, 1995. This Statement of Additional Information 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 Statement of Additional Information is NOT a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by a
current prospectus.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS Managed Sectors Fund, a portfolio of MFS Series
Trust I, (the "Trust"). The Fund was known as MFS
Lifetime Managed Sectors Fund and was a separate
open-end diversified management company, organized
as a Massachusetts business trust in 1986 and known
as Lifetime Managed Sectors Trust prior to August
3, 1992. The Fund became a series of the Trust on
June 3, 1993.
"MFS" or the -- Massachusetts Financial Services Company, a
"Adviser" Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus, dated April 1, 1995 of the Fund.
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS The investment objective,
policies and techniques are described in the Prospectus. In addition, certain of
the Fund's investment policies are described in greater detail below.
Securities Lending
The Fund may seek to increase its income by lending portfolio securities. Such
loans will usually be made only to member banks of the Federal Reserve System
and to member firms (and subsidiaries thereof) of the New York Stock Exchange
(the "Exchange") and would be required to be secured continuously by collateral
in cash, cash equivalents, 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 and would also receive compensation based on investment of the
collateral. 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 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
20% of the value of the Fund's total assets.
When-Issued Securities
The Fund may purchase securities on a "when-issued" or on a "forward delivery"
basis. It is expected that, under normal circumstances, the Fund will take
delivery of such securities. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it will set up procedures
consistent with the General Statement of Policy of the Securities and Exchange
Commission (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 cash, short-term money market instruments or high quality
debt securities 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 SEC policies,
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 is 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 and any gain would not be tax-exempt. When the
time comes to pay for "when-issued" or "forward delivery" securities, the Fund
will meet its obligations from the then-available cash flow on the sale of
securities, or, although it would not normally expect to do so, from the sale of
the "when-issued" or "forward delivery" securities themselves (which may have a
value greater or less than the Fund's payment obligation).
Corporate Asset-Backed Securities
The Fund may invest in corporate asset-backed securities. These securities,
issued by trusts and special purpose corporations, are backed by a pool of
assets, such as credit card and automobile loan receivables, representing the
obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements
2
<PAGE>
of credit support which fall into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures payment
through insurance policies or letters of credit obtained by the issuer or
sponsor from third parties. The Fund will not pay any additional or separate
fees for credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
Repurchase Agreements
As described in the Prospectus, the Fund may enter into repurchase agreements
with sellers who are member firms (or subsidiaries thereof) of the Exchange,
members of the Federal Reserve System, recognized primary U.S. Government
securities dealers or institutions which the Adviser has determined to be of
comparable creditworthiness. The securities that the Fund purchases and holds
through its agent are U.S. Government securities, the values, including accrued
interest, of which are equal to or greater than the repurchase price agreed to
be paid by the seller. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a standard rate due to the Fund
together with the repurchase price on repurchase. In either case, the income to
the Fund is unrelated to the interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the 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 the seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value, including
accrued interest, of the securities (which are marked to market every business
day) is required to be greater than the repurchase price, and the Fund has the
right to make margin calls at any time if the value of the securities falls
below the agreed upon margin.
Foreign Securities
The Fund may invest up to 50% (and expects generally to invest between 0% and
25%) of its total assets in foreign securities which are not traded on a U.S.
exchange (not including American Depositary Receipts). As discussed in the
Prospectus, investing in foreign securities generally presents a greater degree
of risk than investing in domestic securities due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. 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.
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. The
Fund may also hold foreign currency in anticipation of purchasing foreign
securities. 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.
American 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. 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 depository 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 the information available to
a U.S. investor will be limited to the information the 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 traded in foreign currency.
Options
Options on Securities--As noted in the Prospectus, the Fund may write covered
call and put options and purchase call and put options on securities. Call and
put options written by the Fund may be covered in the manner set forth below.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate
3
<PAGE>
right to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
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 the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. A put option
written by the Fund is "covered" if the Fund maintains cash, short-term money
market instruments or high quality debt securities with a value equal to the
exercise price in a segregated account with its custodian, 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 equal to or greater than the exercise
price of the put written or where the exercise price of the put held is less
than the exercise price of the put written if the difference is maintained by
the Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. 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.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash, short-term money market
instruments or high quality debt securities. Such transactions permit the Fund
to generate additional premium income, which will partially offset declines in
the value of portfolio securities or increases in the cost of securities to be
acquired. Also, effecting a closing transaction will permit the cash or proceeds
from the concurrent sale of any securities subject to the option to be used for
other investments of the Fund, provided that another option on such security is
not written. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction in connection with the option prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing transaction if the premium paid in
connection with the closing of an option written by the Fund is less than the
premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than the
premium paid for the original purchase. Conversely, the Fund will suffer a loss
if the premium paid or received in connection with a closing transaction is more
or less, respectively, than the premium received or paid in establishing the
option position. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option previously written by the
Fund is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
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 the Fund determines to write will
depend 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. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will decline moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be used when it is expected
that the premiums received from writing the call option plus the appreciation in
the market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone. If
the call options are exercised in such transactions, the Fund's maximum gain
will be the premium received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of the security
and the exercise price, less related transaction costs. If the options are not
exercised and the price of the underlying security declines, the amount of such
decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received, less related transaction costs. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may elect
to close the position or retain the option until it is exercised, at which time
the Fund will be required to take delivery of the security at the exercise
price; the Fund's return will be the premium received from the put option minus
the amount by which the market price of the security is below the exercise
price, which could result in a loss. Out-of-the-money, at-the-money and
in-the-money put options may be used by the Fund in the same market environments
that 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, known as "straddles," with the same exercise price and expiration
date. By writing a straddle, the Fund undertakes a simultaneous obligation to
sell and 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 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 the security remains stable
4
<PAGE>
and neither the call nor the put is exercised. In those instances 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.
By writing a call option, 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 capital loss unless the security
subsequently appreciates in value. The writing of options on securities will not
be undertaken by the Fund solely for hedging purposes, and could involve certain
risks which are not present in the case of hedging transactions. Moreover, even
where options are written for hedging purposes, such transactions 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 purchase options for hedging purposes or to increase its return.
Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit the
Fund to sell the securities at the exercise price, or to close out the options
at a profit. By using put options in this way, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing in the future. If such increase
occurs, the call option will permit the Fund to purchase the securities at the
exercise price, or to close out the options at a profit. The premium paid for
the call 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 sufficiently, the option may expire worthless to the
Fund.
In certain instances, the Fund may enter into options on U.S. Treasury
securities which provide for periodic adjustment of the strike price and may
also provide for the periodic adjustment of the premium during the term of each
such option. Like other types of options, these transactions, which may be
referred to as "reset" options or "adjustable strike options," grant the
purchaser the right to purchase (in the case of a "call") or sell (in the case
of a "put"), a specified type and series of U.S. Treasury security at any time
up to a stated expiration date (or, in certain instances, on such date). In
contrast to other types of options, however, the price at which the underlying
security may be purchased or sold under a "reset" option is determined at
various intervals during the term of the option, and such price fluctuates from
interval to interval based on changes in the market value of the underlying
security. As a result, the strike price of a "reset" option, at the time of
exercise, may be less advantageous to the Fund than if the strike price had been
fixed at the initiation of the option. In addition, the premium paid for the
purchase of the option may be determined at the termination, rather than the
initiation, of the option. If the premium is paid at termination, the Fund
assumes the risk that (i) the premium may be less than the premium which would
otherwise have been received at the initiation of the option because of such
factors as the volatility in yield of the underlying Treasury security over the
term of the option and adjustments made to the strike price of the option, and
(ii) the option purchaser may default on its obligation to pay the premium at
the termination of the option.
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.
In contrast to an option on a security, an option on a stock index provides the
holder with the right but not the obligation to make or receive a cash
settlement upon exercise of the option, rather than the right to purchase or
sell a security. The amount of this settlement is equal to (i) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
call) or is below (in the case of a put) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
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 held in a segregated account by its custodian) 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 the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. The Fund may
cover put options on stock indices by maintaining cash, short-term money market
instruments or high quality debt securities with a value equal to the exercise
price in a segregated account with its custodian, or by holding a put on the
same stock index 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 where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. 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, 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
5
<PAGE>
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.
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.
The index underlying a stock index option may be a "broad-based" index, such as
the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index,
the changes in value of which ordinarily will reflect movements in the stock
market in general. In contrast, certain options may be based on narrower market
indices, such as the Standard & Poor's 100 Index, or on indices of securities of
particular industry groups, such as those of oil and gas or technology
companies. A stock index assigns relative values to the stocks included in the
index and the index fluctuates with changes in the market values of the stocks
so included. The composition of the index is changed periodically.
Futures Contracts and Options on Futures Contracts
Futures Contracts--As noted in the Prospectus, the Fund may enter into interest
rate futures contracts, stock index futures contracts and/or foreign currency
futures contracts. (Unless otherwise specified, interest rate futures contracts,
futures contracts on indices and foreign currency futures contracts are
collectively referred to as "Futures Contracts.") Such investment strategies
will be used for hedging purposes and for non-hedging purposes, subject to
applicable law.
A Futures Contract is a bilateral agreement providing for the purchase and sale
of a specified type and amount of a financial instrument or foreign currency, or
for the making and acceptance of a cash settlement, at a stated time in the
future for a fixed price. By its terms, a Futures Contract provides for a
specified settlement date on which, in the case of the majority of interest rate
and foreign currency futures contracts, the fixed income securities or currency
is delivered by the seller and paid for by the purchaser, or on which, in the
case of stock index futures contracts and certain interest rate and foreign
currency futures contracts, the difference between the price at which the
contract was entered into and the contract's closing value is settled between
the purchaser and seller in cash. Futures Contracts differ from options in that
they are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. Futures Contracts call for settlement
only on the expiration date and cannot be "exercised" at any other time during
their term.
The purchase or sale of a Futures Contract differs from the purchase or sale of
a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index or
instrument underlying the Futures Contract fluctuates, making positions in the
Futures Contract more or less valuable -- process known as "marking to the
market."
Purchases or sales of stock index futures contracts are used to attempt to
protect the Fund's current or intended stock investments from broad fluctuations
in stock prices. For example, the Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of the Fund's securities portfolio that might otherwise result. If
such decline occurs, the loss in value of portfolio securities may be offset, in
whole or part, by gains on the futures position. When the Fund is not fully
invested in the securities market and anticipates a significant market advance,
it may purchase stock index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the cost of
securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in stock index futures contracts will be closed out. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position, but under unusual market
conditions, a long futures position may be terminated without a related purchase
of securities.
Interest rate futures contracts may be purchased or sold to attempt to protect
against the effects of interest rate changes on the Fund's current or intended
investments in fixed income securities. For example, if the Fund owned long-term
bonds and interest rates were expected to increase, the Fund might enter into
interest rate futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling some of the long-term bonds in that
Fund's portfolio. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the Fund's interest
rate futures contracts would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have.
6
<PAGE>
Similarly, if interest rates were expected to decline, interest rate futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
long-term bonds at higher prices. Since the fluctuations in the value of the
interest rate futures contracts should be similar to that of long-term bonds,
the Fund could protect itself against the effects of the anticipated rise in the
value of long-term bonds without actually buying them until the necessary cash
became available or the market had stabilized. At that time, the interest rate
futures contracts could be liquidated and the Fund's cash reserves could then be
used to buy long-term bonds on the cash market. 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. However,
since the futures market is more liquid than the cash market, the use of
interest rate futures contracts as a hedging technique allows the Fund to hedge
its interest rate risk without having to sell its portfolio securities.
As noted in the Prospectus, the Fund may purchase and sell foreign currency
futures contracts for hedging purposes, to attempt to protect its current or
intended investments from fluctuations in currency exchange rates. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities to
be acquired, even if the value of such securities in the currencies in which
they are denominated remains constant. The Fund may sell futures contracts on a
foreign currency, for example, where it holds securities denominated in such
currency and it anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting adverse effect on
the value of foreign-denominated securities may be offset, in whole or in part,
by gains on the futures contracts.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. Where the Fund purchases futures contracts under such
circumstances, however, and the prices of securities to be acquired instead
decline, the Fund will sustain losses on its futures position which could reduce
or eliminate the benefits of the reduced cost of portfolio securities to be
acquired.
Options on Futures Contracts--As noted in the Prospectus, the Fund may purchase
and write options to buy or sell futures contracts in which it may invest
("Options on Futures Contracts"). Such investment strategies will be used for
hedging purposes and for non-hedging purposes, subject to applicable law.
An Option on a Futures Contract provides the holder with the right to enter into
a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an Option on a Futures Contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an Option on a Futures Contract may be terminated by the purchaser
or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
Options on Futures Contracts that are written or purchased by the Fund on U.S.
exchanges are traded on the same contract market as the underlying Futures
Contract, and, like Futures Contracts, are subject to regulation by the CFTC and
the performance guarantee of the exchange clearinghouse. In addition, Options on
Futures Contracts may be traded on foreign exchanges.
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 the difference is
maintained by the Fund in cash or securities in a segregated account with its
custodian. The Fund may cover the writing of put Options on Futures Contracts
(a) through sales of the underlying Futures Contract, (b) through segregation of
cash, short-term money market instruments or high quality debt securities 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
where the exercise price of the put held is less than the exercise price of the
put written if the difference is maintained by the Fund in cash, short-term
money market instruments or high quality debt securities in a segregated account
with its custodian. 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.
The writing of a call option on a Futures Contract for hedging purposes
constitutes a partial hedge against declining prices of the securities or other
instruments required to be delivered under the
7
<PAGE>
terms of 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 securities or other instruments required to be
delivered under the terms of 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 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 the 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 instead
of 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 changes in interest or exchange rates, the Fund
could, in lieu of selling Futures Contracts, purchase put options thereon. In
the event that such decrease 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 changes in interest or exchange rates, the Fund could
purchase call Options on Futures Contracts, rather than purchasing the
underlying Futures Contracts.
Forward Contracts on Foreign Currency
As noted in the Prospectus, the Fund may enter into forward foreign currency
exchange contracts ("Forward Contracts") for hedging and non-hedging purposes.
Forward Contracts may be used for hedging to attempt to minimize the risk to the
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies. The Fund intends to enter into Forward Contracts for hedging
purposes similar to those described above in connection with foreign currency
futures contracts. In particular, a Forward Contract to sell a currency may be
entered into in lieu of the sale of a foreign currency futures contract where
the Fund seeks to protect against an anticipated increase in the exchange rate
for a specific currency which could reduce the dollar value of portfolio
securities denominated in such currency. Conversely, the Fund may enter into a
Forward Contract to purchase a given currency to protect against a projected
increase in the dollar value of securities denominated in such currency which
the Fund intends to acquire. The Fund also may enter into a Forward Contract in
order to assure itself of a predetermined exchange rate in connection with a
fixed income security denominated in a foreign currency. In addition, the Fund
may enter into Forward Contracts for "cross hedging" purposes; e.g., the
purchase or sale of a Forward Contract on one type of currency as a hedge
against adverse fluctuations in the value of a second type of currency.
If a hedging transaction in Forward Contracts is successful, the decline in the
value of portfolio securities or other assets or the increase in the cost of
securities or other assets to be acquired may be offset, at least in part, by
profits on the Forward Contract. Nevertheless, by entering into such Forward
Contracts, the Fund may be required to forgo all or a portion of the benefits
which otherwise could have been obtained from favorable movements in exchange
rates or natural resources prices. , but will usually seek to close out
positions in such contracts by entering into offsetting transactions, which will
serve to fix the Fund's profit or loss based upon the value of the contracts at
the time the offsetting transaction is executed.
The Fund will also enter into transactions in Forward Contracts for other than
hedging purposes, which present greater profit potential but also involve
increased risk. For example, the Fund may purchase a given foreign currency
through a Forward Contract if, in the judgment of the Adviser, the value of such
currency is expected to rise relative to the U.S. dollar. Conversely, the Fund
may sell the currency through a Forward Contract if the Adviser believes that
its value will decline relative to the dollar.
The Fund will profit if the anticipated movements in foreign currency exchange
rates occurs, 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 and could involve significant risk of loss.
The Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of Forward Contracts by registered investment
companies, 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 maintain,
in a segregated account, cash, cash equivalents or high quality debt securities,
which will be marked to market on a daily basis, in an amount equal to the value
of its commitments under Forward Contracts. While these contracts are not
presently regulated by the Commodities Futures Trading Commission ("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
As noted in the Prospectus, the Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or Forward Contracts, will be utilized. 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 does
decline, the Fund will have the right to sell such currency for a fixed amount
in dollars and will 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
8
<PAGE>
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 will 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
forgo a portion or all of the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities will be
offset by the amount of the premium received.
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. Foreign currency options written by the
Fund will generally be covered in a manner similar to the covering of other
types of options. 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, 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 forgo all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
Risk Factors in Options, Futures and Forward Transactions
Risk of imperfect correlation of hedging instruments with the Fund's portfolio.
The Fund's abilities effectively to hedge all or a portion of its portfolio
through transactions in options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and options on foreign currencies depend on the
degree to which price movements in the underlying index or instrument correlate
with price movements in the relevant portion of the Fund's portfolio. In the
case of futures and options based on an index, the portfolio will not duplicate
the components of the index, and 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. The use of Forward
Contracts for "cross hedging" purposes may involve greater correlation risks. As
a result, the correlation probably will not be exact. Consequently, the Fund
bears the risk that the price of the portfolio securities being hedged will not
move in the same amount or direction as the underlying index or obligation.
For example, if the Fund purchases a put option on an index and the index
decreases less than the value of the hedged securities, the Fund would
experience a loss which is not completely offset by the put option. It is also
possible that there may be a negative correlation between the index or
obligation underlying an option or Futures Contract in which the Fund has a
position and the portfolio securities the Fund is attempting to hedge, which
could result in a loss on both the portfolio and the hedging instrument. In
addition, the Fund may enter into transactions in Forward Contracts or options
on foreign currencies in order to hedge against exposure arising from the
currencies underlying such forwards. In such instances, the Fund will be subject
to the additional risk of imperfect correlation between changes in the value of
the currencies underlying such forwards or options and changes in the value of
the currencies being hedged.
It should be noted that stock index futures contracts or options based upon a
narrower index of securities, such as those of a particular industry group, may
present greater risk than options or futures based on a broad market index. This
is due to the fact that a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a small number of
securities. Nevertheless, where the Fund enters into transactions in options or
futures on narrow-based indices for hedging purposes, movements in the value of
the index should, if the hedge is successful, correlate closely with the portion
of the Fund's portfolio or the intended acquisitions being hedged.
The trading of Futures Contracts, options and Forward Contracts for hedging
purposes entails the additional risk of imperfect correlation between movements
in the futures or option price and the price of the underlying index or
obligation. The anticipated spread between the prices may be distorted due to
the 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 options, futures and forward markets. In this regard, trading by
speculators in options, futures and Forward Contracts has in the past
occasionally resulted in market distortions, which may be difficult or
impossible to predict, particularly near the expiration of such contracts.
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 date of the Futures Contract or expiration
date of the option approaches.
Further, with respect to options on securities, options on stock indexes,
options on currencies and Options on Futures Contracts, the Fund is subject to
the risk of market movements between the time that the option is exercised and
the time of performance thereunder. This could increase the extent of any loss
suffered by the Fund in connection with such transactions.
In writing a covered call option on a security, index or futures contract, the
Fund also incurs the risk that changes in the value of the instruments used to
cover the position will not correlate closely with changes in the value of the
option or underlying index or instrument. For example, where the Fund covers a
call option written on a stock index through segregation of securities, such
securities may not match the composition of the index, and the
9
<PAGE>
Fund may not be fully covered. As a result, the Fund could be subject to risk of
loss in the event of adverse market movements.
The writing of options on securities, options on stock indices or Options on
Futures Contracts constitutes only a partial hedge against fluctuations in the
value of the Fund's portfolio. When the Fund writes an option, it will receive
premium income in return for the holder's purchase of the right to acquire or
dispose of the underlying obligation. In the event that the price of such
obligation does not rise sufficiently above the exercise price of the option, in
the case of a call, or fall below the exercise price, in the case of a put, the
option will not be exercised and the Fund will retain the amount of the premium,
less related transaction costs, which will constitute a partial hedge against
any decline that may have occurred in the Fund's portfolio holdings or any
increase in the cost of the instruments to be acquired.
Where the price of the underlying obligation moves sufficiently in favor of the
holder to warrant exercise of the option, however, and the option is exercised,
the Fund will incur a loss which may only be partially offset by the amount of
the premium it received. Moreover, by writing an option, the Fund may be
required to forgo the benefits which might otherwise have been obtained from an
increase in the value of portfolio securities or other assets or a decline in
the value of securities or assets to be acquired.
In the event of the occurrence of any of the foregoing adverse market events,
the Fund's overall return may be lower than if it had not engaged in the hedging
transactions.
It should also be noted that the Fund may enter into transactions in options
(except for options on foreign currencies), Futures Contracts, Options on
Futures Contracts and Forward Contracts not only for hedging purposes, but also
for non-hedging purposes intended to increase portfolio returns. Non-hedging
transactions in such investments involve greater risks and may result in losses
which may not be offset by increases in the value of portfolio securities or
declines in the cost of securities to be acquired. The Fund will only write
covered options, such that cash or securities necessary to satisfy an option
exercise will be segregated at all times, unless the option is 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. Nevertheless, the method
of covering an option employed by the Fund may not fully protect it against risk
of loss and, in any event, the Fund could suffer losses on the option position
which might not be offset by corresponding portfolio gains.
The Fund also may enter into transactions in Futures Contracts, Options on
Futures Contracts and Forward Contracts for other than hedging purposes, which
could expose the Fund to significant risk of loss if foreign currency exchange
rates, equity prices or interest rates do not move in the direction or to the
extent anticipated. In this regard, the foreign currency may be extremely
volatile from time to time, as discussed in the Prospectus and in this Statement
of Additional Information, and the use of such transactions for non-hedging
purposes could therefore involve significant risk of loss.
With respect to the writing of straddles on securities, the Fund incurs the risk
that the price of the underlying security will not remain stable, that one of
the options written will be exercised and that the resulting loss will not be
offset by the amount of the premiums received. Such transactions, therefore,
create an opportunity for increased return by providing the Fund with two
simultaneous premiums on the same security, but involve additional risk, since
the Fund may have an option exercised against it regardless of whether the price
of the security increases or decreases.
Risk of a potential lack of a liquid secondary market. Prior to exercise or
expiration, a futures or option position can only be terminated by entering into
a closing purchase or sale transaction. This requires a secondary market for
such instruments on the exchange on which the initial transaction was entered
into. While the Fund will enter into options or futures positions only if there
appears to be a liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular contracts at any specific time. In
that event, it may not be possible to close out a position held by the Fund, and
the Fund could be required to purchase or sell the instrument underlying an
option, make or receive a cash settlement or meet ongoing variation margin
requirements. Under such circumstances, if the Fund has insufficient cash
available to meet margin requirements, it will be necessary to liquidate
portfolio securities or other assets at a time when it is disadvantageous to do
so. The inability to close out options and futures positions, therefore, could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
and could result in trading losses.
The liquidity of a secondary market in a Futures Contract or option thereon may
be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures or option positions and requiring
traders to make additional margin deposits. Prices have in the past moved the
daily limit on a number of consecutive trading days.
The trading of Futures Contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse equipment failures,
government intervention, insolvency of a brokerage firm or clearinghouse or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Margin. Because of low initial margin deposits made upon the opening of a
futures or forward position and the writing of an option, such transactions
involve substantial leverage. As a result, relatively small movements in the
price of the contract can result in substantial unrealized gains or losses.
Where the Fund enters into such transactions for hedging purposes, any losses
incurred in connection therewith should, if the hedging strategy is successful,
be offset, in whole or in part, by increases in the value of securities or other
assets held by the Fund or decreases in the prices of securities or other assets
the Fund intends to acquire. Where the Fund enters into such transactions for
other than hedging purposes, the margin requirements associated with such
transactions could expose the Fund to greater risk.
10
<PAGE>
Trading and position limits. The exchanges on which futures and options are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). Further, the CFTC and the various contract markets have established
limits referred to as "speculative position limits" on the maximum net long or
net short position which any person may hold or control in a particular futures
or option contract. An exchange may order the liquidation of positions found to
be in violation of these limits and it may impose other sanctions or
restrictions. The Adviser does not believe that these trading and position
limits will have any adverse impact on the strategies for hedging the portfolio
of the Fund.
Risks of Options on Futures Contracts. 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 order to profit from an option purchased,
however, it may be necessary to exercise the option and to liquidate the
underlying Futures Contract, subject to the risks of the availability of a
liquid offset market described herein. The writer of an Option on a Futures
Contract is subject to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate with movements
in the price of the underlying security, index, currency or Futures Contract.
Risks of transactions related to foreign currencies and transactions not
conducted on U.S. exchanges. Transactions in Forward Contracts on foreign
currencies, as well as futures and options on foreign currencies and
transactions executed on foreign exchanges, are subject to all of the
correlation, liquidity and other risks outlined above. In addition, however,
such transactions are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on the
value of positions held by the Fund. Further, the value of such positions could
be adversely affected by a number of other complex political and economic
factors applicable to the countries issuing the underlying currencies.
Further, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying contracts thereon. As a result, the available information
on which trading systems will be based 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, events could occur in that market which will not be reflected in
the forward, futures or options markets until the following day, thereby making
it more difficult for the Fund to respond to such events in a timely manner.
Settlements of exercises of over-the-counter Forward Contracts or foreign
currency options generally must occur within the country issuing the underlying
currency, which in turn requires traders to accept or make delivery of such
currencies in conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships, fees, taxes or other
charges.
Unlike transactions entered into by the Fund in Futures Contracts and
exchange-traded options, options on foreign currencies, Forward Contracts and
over-the-counter options on securities are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) 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. 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.
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. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and the Fund could be required to retain options
purchased or written, or Forward Contracts entered into, until exercise,
expiration or maturity. This in turn could limit the Fund's ability to profit
from open positions or to reduce losses experienced, and could result in greater
losses.
Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearinghouse, and the Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market- makers in a particular currency or security, thereby
restricting the Fund's ability to enter into desired hedging transactions. The
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.
Options on securities, options on stock indexes, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions 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.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other
11
<PAGE>
securities traded on such exchanges. As a result, many of the protections
provided to traders on organized exchanges will be available with respect to
such transactions. In particular, all foreign currency option positions entered
into on a national securities exchange are cleared and guaranteed by the Options
Clearing Corporation (the "OCC"), thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a national
securities exchange may be more readily available than in the over-the-counter
market, potentially permitting the Fund to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For
example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
Policies on the use of futures and options on futures contracts. 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 Futures Contracts 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 on
such non-hedging positions does not exceed 5% of the liquidation value of the
Fund's assets. In addition, the Fund must comply with the requirements of
various state securities laws in connection with such transactions.
The Fund has adopted the additional restriction that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the value
of the Fund's total assets. Moreover, the Fund will not purchase put and call
options if as a result more than 5% of its total assets would be invested in
such options.
When the Fund purchases a Futures Contract, an amount of cash or securities will
be deposited in a segregated account with the Fund's custodian so that the
amount so segregated will at all times equal the value of the Futures Contract,
thereby insuring that the use of such futures is unleveraged.
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 held by a fund, cannot
exceed 15% of the fund's assets (the "SEC illiquidity ceiling"). 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 as such by the
Federal Reserve Bank of New York. Also, the contracts the Fund has in place with
such primary dealers 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 generally is 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 SEC illiquidity ceiling test imposed by the SEC
staff. The Fund may also write over-the-counter options with non-primary
dealers, including foreign dealers (where applicable), and will treat the assets
used to cover these options as illiquid for purposes of such SEC illiquidity
ceiling test.
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 Statement of Additional Information, means
the lesser of (i) more than 50% of the outstanding shares of the Trust or of a
class or series, as applicable, or (ii) 67% or more of the outstanding shares of
the Trust or of a series or class, as applicable, present at a meeting if
holders of more than 50% of the outstanding shares of the Trust or a series or
class, as applicable, are represented in person or by proxy). Except for
Investment Restriction (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 money in an amount in excess of 33-1/3% of its total assets, and
then only as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate an amount of its assets (taken at market value)
in excess of 15% of its total assets, in each case taken at the lower of cost or
market value. For the purpose of this restriction, collateral arrangements with
respect to options, Futures Contracts, Options on Futures Contracts, Forward
Contracts
12
<PAGE>
and options on foreign currencies, and payments of initial and variation margin
in connection therewith, are not considered a pledge of assets.
(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 of companies, such as real estate investment trusts, which
deal in real estate or interests therein and securities secured by real estate),
or mineral leases, commodities or commodity contracts (except contracts for the
future or forward delivery of securities or foreign currencies and related
options, and except Futures Contracts and Options on Futures Contracts) in the
ordinary course of its business. The Fund reserves the freedom of action to hold
and to sell real estate or mineral leases, commodities or commodity contracts
acquired as a result of the ownership of securities.
(4) Make loans to other persons except by the purchase of obligations in which
the Fund is authorized to invest and by entering into repurchase agreements;
provided that the Fund may lend its portfolio securities representing not in
excess of 30% of its total assets (taken at market value). Not more than 10% of
the Fund's total assets (taken at market value) may be invested in repurchase
agreements maturing in more than seven days. The Fund may purchase all or a
portion of an issue of debt securities distributed privately to financial
institutions. For these purposes the purchase of short-term commercial paper or
a portion or all of an issue of debt securities which are part of an issue to
the public shall not be considered the making of a loan.
(5) Purchase the securities of any issuer if (as to 50% of the value of its
total assets) such purchase, at the time thereof, would cause more than 5% of
its total assets (taken at market value) to be invested in the securities of
such issuer, other than U.S. Government securities.
(6) Purchase voting securities of any issuer if (as to 50% of the value of its
total assets) such purchase, at the time thereof, would cause more than 10% of
the outstanding voting securities of such issuer to be held by the Fund. For
this purpose all indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single class.
(7) Invest for the purpose of exercising control or management.
(8) Purchase or retain in its portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is a member, partner, officer or Director of the
Adviser, if after the purchase of the securities of such issuer by the Fund one
or more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value.
(9) 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 purchases and sales of securities and the Fund may make margin
deposits in connection with options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and options on foreign currencies.
(10) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities it 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 equivalent conditions.
(11) Purchase securities issued by any other registered investment company or
investment trust except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that the Fund will not purchase such securities if such purchase at the
time thereof would cause more than 10% of its total assets (taken at market
value) to be invested in the securities of such issuers; and, provided further,
that the Fund will not purchase securities issued by an open-end investment
company.
(12) Write, purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent the Fund from writing, purchasing and
selling puts, calls or combinations thereof with respect to securities, indexes
of securities or foreign currencies, and with respect to Futures Contracts.
(13) Issue any senior security (as that term is defined in the 1940 Act), if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder. For the purposes of this restriction,
collateral arrangements with respect to options, Futures Contracts and Options
on Futures Contracts and collateral arrangements with respect to initial and
variation margins are not deemed to be the issuance of a senior security.
As a non-fundamental policy, the Fund will not knowingly invest in securities
which are subject to legal or contractual restrictions on resale (other than
repurchase agreements), unless the Board of Trustees has determined that such
securities are liquid based upon trading markets for the specific security, if,
as a result thereof, more than 15% of the Fund's net assets (taken at market
value) would be so invested.
Other Operating Policies
The Fund will not invest more than 5% of its total assets in companies which,
including their respective predecessors, have a record of less than three years'
continuous operation.
In order to comply with certain state statutes, the Fund will not, as a matter
of operating policy, pledge, mortgage or hypothecate
13
<PAGE>
its portfolio securities if the percentage of securities so pledged, mortgaged
or hypothecated would exceed 33-1/3%.
These operating policies are not fundamental and may be changed without
shareholder approval.
3. MANAGEMENT OF THE FUND
The Board of Trustees of the Trust provides broad supervision over the affairs
of the Fund. The Adviser is responsible for the investment management of the
Fund's assets and the officers of the Trust are responsible for its operations.
The Trustees and officers of the Trust are listed below, together with their
principal occupations during the past five years. (Their titles may have varied
during that period.)
Trustees
A. KEITH BRODKIN*, Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(until September 30, 1991)
MARSHALL N. COHAN
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D.
Brigham and Women's Hospital, Chief of Cardiac Surgery;
Harvard Medical School, Professor of Surgery
Address: 75 Francis Street, Boston, Massachusetts
THE HON. SIR J. DAVID GIBBONS, KBE
Edmund Gibbons Limited, Chief Executive Officer; The Bank of N.T. Butterfield &
Son Ltd., Chairman
Address: 21 Reid Street, Hamilton, Bermuda
ABBY M. O'NEILL
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: 30 Rockefeller Plaza, Room 5600, New York, New York
WALTER E. ROBB, III
Benchmark Advisors, Inc. (corporate financial consultants), President and
Treasurer
Address: 110 Broad Street, Boston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
J. DALE SHERRATT
Insight Resources, Inc. (acquisition planning specialists), President (since
January 1990);
Address: One Liberty Square, Boston, Massachusetts
WARD SMITH
NACCO Industries (holding company), Chairman (prior to June 1994); Sundstrand
Corporation (diversified mechanical manufacturer), Director; Society Corporation
(bank holding company), Director (prior to April 1992); Society National Bank
(commercial bank); Director (prior to April 1992) Address: 5875 Landerbrook
Drive, Mayfield Heights, Ohio
Officers
W. THOMAS LONDON* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary
JAMES R. BORDEWICK, JR.* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel (since September 1990); associated with a major law firm (prior to
August 1990)
JAMES 0. YOST* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
*"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. Mr. Brodkin, the Chairman of MFD, Messrs. Shames and
Scott, Directors of MFD, and Mr. Cavan, the Secretary of MFD, hold similar
positions with certain other MFS affiliates. Mr. Bailey is a Director of Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), the
corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who
currently receive a fee of $1,250 per year plus $225 per meeting and 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 75 and if the Trustee has
completed at least five years of service, he would be entitled to annual
payments during his lifetime of up to 50% of such Trustee's average annual
compensation (based on the three years prior to his retirement) depending on his
length of service. A Trustee may also retire prior to age 75 and receive reduced
payments if he has completed at least five years of service. Under the plan, a
Trustee (or his beneficiaries) will also receive benefits for a period of time
in the event the Trustee is disabled or dies. These benefits will also be based
on the Trustee's average annual compensation and length of service. There is no
retirement plan provided by the Trust for the interested Trustees, except Mr.
Bailey. The Fund will accrue its allocable share of compensation expenses each
year to cover current years service and amortize past service cost.
Set forth in Appendix A--hereto is certain information concerning the cash
compensation paid to non-interested Trustees and Mr. Bailey and benefits
accrued, and estimated benefits payable, under the retirement plan.
14
<PAGE>
As of February 28, 1995, the Trustees and officers, as a group, owned less than
1% of the Fund's shares outstanding on that date.
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 liabilities to the Trust or its shareholders, it is finally adjudicated
that they engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices, or with respect to
any matter, unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined pursuant to the Declaration of Trust, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Investment Adviser
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.)
which is a subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
Investment Advisory Agreement
The Adviser manages the assets of the Fund pursuant to an Investment Advisory
Agreement with the Fund dated as of September 1, 1993 (the "Advisory
Agreement"). The Adviser provides the Fund with overall investment advisory and
administrative services, as well as general office facilities. Subject to such
policies as the Trustees may determine, the Adviser makes investment decisions
for the Fund. For these services and facilities, the Adviser receives a
management fee, computed and paid monthly, in an amount equal to the sum of
0.75% of the Fund's average daily net assets.
For the Fund's fiscal year ended November 30, 1992 the Fund's former investment
adviser, Lifetime Advisers, Inc., a Delaware corporation and a wholly owned
subsidiary of MFS ("LAI"), received $1,658,996, under its advisory agreement
with the Fund. For the Fund's fiscal year ended November 30, 1993 the Fund's
current investment adviser, MFS, together with LAI received in aggregate
$2,065,624, under their investment advisory agreements with the Fund. LAI had no
employees and relied on the Adviser to furnish it with overall administrative
services and general office facilities. For the Fund's fiscal year ended August
31, 1994, MFS received $1,952,229 under the Advisory Agreement.
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by the Fund in any fiscal year to the extent such expenses
exceed the most restrictive of such state expense limitations. The Adviser will
make appropriate adjustments to such reductions and reimbursements in response
to any amendment or rescission of the various state requirements.
The Fund pays all of its expenses (other than those assumed by the Adviser or
MFD) including Trustees fees discussed above; 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 share certificates, 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 Fund's Custodian, for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing of
prospectuses are borne by the Fund except that the Fund's 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
are allocated among the series in a manner believed by management of the Trust
to be fair and equitable. Payment by the Fund of brokerage commissions for
brokerage and research services of value to the Adviser in serving its clients
is discussed under the caption "Portfolio Transactions and Brokerage
Commissions" below.
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting its portfolio
transactions and, in general, administering its affairs.
The Advisory Agreement with the Fund will remain in effect until August 1, 1995,
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 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 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 term "MFS" and that
MFS may render services to others and may permit other fund clients to use the
term "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.
15
<PAGE>
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 and public offering price 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 Trustees have reviewed and approved as in the best
interests of the Fund and the shareholders the custodial arrangements with Chase
Manhattan Bank, N.A., for securities of the Fund held outside the United States.
The Custodian also serves as the dividend and distribution disbursing agent of
the Fund. The Custodian has contracted with the Adviser for the Adviser to
perform certain accounting functions related to options transactions for which
the Adviser receives remuneration on a cost basis.
Shareholder Servicing Agent
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agent Agreement with the Trust, dated as of September 10,
1986 (the "Agency Agreement"). 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 based on the net
assets of each class of shares the Fund, computed and paid monthly. 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. For
the fiscal year ended August 31, 1994, the Fund paid to the Shareholder
Servicing Agent fees of $500,161 under the Agency Agreement. State Street Bank
and Trust Company, the dividend and distribution disbursing agent for the Fund,
has contracted with the Shareholder Servicing Agent to administer and perform
certain dividend and distribution disbursing functions for the Fund.
Distributor
MFD, a wholly owned subsidiary of MFS, serves as the distributor for the
continuous offering of shares of the Fund pursuant to a Distribution Agreement
dated January 1, 1995 (the "Distribution Agreement"). Prior to January 1, 1995,
MFS Financial Services, Inc. ("FSI"), another wholly owned subsidiary of MFS,
was the Fund's distributor. Where this SAI refers to MFD in relation to the
receipt or payment of money with respect to a period or periods prior to January
1, 1995, such reference shall be deemed to include FSI, as the predecessor in
interest to MFD.
Class A Shares: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of the 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" in this Statement
of Additional Information). A group might qualify to obtain quantity sales
charge discounts (see "Investment and Withdrawal Programs" in this Statement of
Additional Information).
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain transactions as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because the
sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of 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 5% and MFD retains approximately 3/4 of 1% of the public
offering price. In addition, MFD pays a commission to dealers who initiate and
are responsible for purchases of $1 million or more as described in the
Prospectus.
Class B Shares: MFD acts as agent in selling Class B shares of the Fund to
dealers. The public offering price of Class B shares is their net asset value
next computed after the sale (see "Purchases" in the Prospectus).
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 Funds shares.
During the fiscal year ended August 31, 1994, MFD received sales charges of
$18,287 and dealers received sales charges of
16
<PAGE>
$111,235 (as their concession on gross sales charges of $129,522) for selling
Class A shares of the Fund; the Fund received $3,347,931 representing the
aggregate net asset values of such shares.
During the fiscal years ended August 31, 1994, November 30, 1993 and 1992 the
CDSC imposed on redemptions of Class B shares was approximately $221,844,
$362,000 and $346,000, respectively.
The Distribution Agreement will remain in effect until August 1, 1995 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 Restrictions") and in either case, by a
majority of the Trustees who are not parties to such 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
employees of the Adviser, who are appointed and supervised by its senior
officers. Changes in the Fund's investments are reviewed by the Board of
Trustees. The Fund's portfolio manager may serve other clients of the Adviser or
any subsidiary of MFS in a similar capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities, such as government securities, which are
principally traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the Adviser
normally seeks to deal directly with the primary market makers, unless in its
opinion, better prices are available elsewhere. In the case of securities
purchased from underwriters, the cost of such securities generally includes a
fixed underwriting commission or concession. Securities firms or futures
commission merchants may receive brokerage commissions on transactions involving
options, Futures Contracts and Options on Futures Contracts and the purchase and
sale of underlying securities upon exercise of options. The brokerage
commissions associated with buying and selling options may be proportionately
higher than those associated with general securities transactions. From time to
time, soliciting dealer fees are available to the Adviser on the tender of the
Fund's portfolio securities in so-called tender or exchange offers. Such
soliciting dealer fees are in effect recaptured for the Fund by the Adviser. At
present no other recapture arrangements are in effect.
Under the 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
the Adviser's overall responsibilities to the Fund or to its 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 purchasing or selling securities, and the
availability 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, 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 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
through such broker- dealers, but at present, unless otherwise directed by the
Fund, a commission higher than one charged elsewhere will not be paid to such a
firm solely because it provided Research to the Adviser. The Trustees (together
with the Trustees of the other MFS Funds) have directed the Adviser to allocate
a total of $20,000 of commission business from the MFS Funds to the Pershing
Division of Donaldson, Lufkin & Jenrette as consideration for the annual renewal
of the Lipper Directors' Analytical Data Service (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 that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To the
extent the Fund's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid, 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
17
<PAGE>
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
expenses which would be incurred if it should attempt to develop comparable
information through its own staff.
For the Fund's fiscal year ended August 31, 1994, total brokerage commissions of
$1,382,311 were paid on total transactions (other than U.S. Government
securities, purchase options transactions and short-term obligations) of
$573,327,855. For the Fund's fiscal year ended November 30, 1993, total
brokerage commissions of $790,279 were paid on total transactions of
$659,754,551. For the Fund's fiscal year ended November 30, 1992, total
brokerage commissions of $129,981 were paid on total transactions (other than
U.S. Government securities, purchased options transactions and short-term
obligations) of $105,627,591. Not all of the Fund's transactions are equity
security transactions which involve the payment of brokerage commissions. During
the fiscal year ended August 31, 1994, the Fund acquired and sold securities
issued by Merrill Lynch Co. Inc., and Morgan Stanley Group Inc., regular
broker-dealers of the Fund. During the Fund's fiscal year ended August 31, 1994,
the Fund acquired and retained securities issued by Charles Schwab Corp., a
regular broker of the Fund, which securities had a value of $4,621,875 at the
end of such period.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or MFS or any subsidiary of MFS. 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 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, it is believed that the Fund's ability to participate
in volume transactions will produce better executions for the Fund.
5. SHAREHOLDER SERVICES
Investment and Withdrawal Programs--The Fund makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and, in certain
cases, in the Prospectus. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
Letter of Intent: If a shareholder (other than a group purchaser described
below) anticipates purchasing $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 Fund's 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 or 36-month period, as applicable) the
shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
Right of Accumulation: A shareholder qualifies for cumulative quantity discounts
on the purchase of Class A shares when that shareholder's new investment,
together with the current offering price value of all the holdings of all
classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank
collective
18
<PAGE>
investment fund) reaches a discount level (see "Purchases" in the Prospectus for
the sales charges on quantity purchases). 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 the 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.
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.
Systematic Withdrawal Plan: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments, as
designated on the Account Application and based upon the value of his account.
Each payment under a Systematic Withdrawal Plan ("SWP") must be at least $100,
except in certain limited circumstances. The aggregate withdrawals of Class B
shares made 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
shares will be made in the following order: (i) any "Free Amount"; (ii) to the
extent necessary, any "Reinvested Shares"; and (iii) to the extent necessary,
the "Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B 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
CSDC. 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 having an aggregate value of at least $10,000
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 by written
instruction to the Shareholder Servicing Agent may deposit into the account
additional shares of the Fund, change the payee or change the amount of each
payment. The Shareholder Servicing Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but one could be instituted by the Shareholder Servicing Agent on
60 days' notice in writing to the shareholder in the event that the Fund ceases
to assume the cost of these services. The Fund may terminate any SWP for an
account if the value of the account falls below $5,000 as a result of share
redemptions (other than as a result of a SWP) or an exchange of shares of the
Fund for shares of another MFS Fund. Any SWP may be terminated at any time by
either the shareholder or the Fund.
Invest by Mail: Additional investments of $50 or more in the Fund 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 exchange their shares for the same class of shares of the
other MFS Funds (if available for sale) under the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of shares
of other MFS Funds selected by the shareholder. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to four different funds
effective on the seventh day of each month or of every third month, depending
whether monthly or quarterly exchanges are elected by the shareholder. If the
seventh day of the month is not a business day, the transaction will be
processed on the next business day. Generally, the initial exchange will occur
after receipt and processing by the Shareholder Servicing Agent of an
application in good order. Exchanges will continue to be made from a
shareholder's account in any MFS Fund as long as the balance of the account is
sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to be
made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before an
exchange is scheduled, such funds may not be available for
19
<PAGE>
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
the month, the Exchange Change Request will be effective for the following
month's transfer.
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 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 such shares are
acquired through direct purchase of 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
the 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 or 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 12 months of the initial
purchase in the case of 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 any loss realized on the original redemption for federal income tax
purposes. Please see your tax adviser for further information.
Exchange Privilege--Subject to the requirements set forth below, some or all of
the shares in an account for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any of
the other MFS Funds (if available for sale) at net asset value. Exchanges will
be made only after instructions in writing or by telephone (an "Exchange
Request") are received for an established account by the Shareholder Servicing
Agent.
Each Exchange Request must be in proper form (i.e., if in writing signed by the
record owner(s) exactly as the shares are registered; if by telephone proper
account identification is given by the dealer or shareholder of record), and
each exchange must involve either shares having an aggregate value of at least
$1,000 ($50 in the case of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by MFS Service Center, Inc.) 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 an 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 of 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 the Shareholder Servicing Agent by facsimile
subject to the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other MFS Fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of 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 MFS Funds, 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
20
<PAGE>
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 state- specific
shares of each series of MFS Municipal Series Trust may only benefit residents
of such states. Investors should consult with their own tax advisers to be sure
this is an appropriate investment based on their residency and each state's
income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations, (see "Purchases" in the Prospectus).
Tax-Deferred Retirement Plans--Shares of the Fund are available for purchase by
all types of tax-deferred retirement plans. MFD makes available through
investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non-employed
spouses who desire to make limited contributions to a tax-deferred retirement
program and, if eligible, to receive a federal income tax deduction for amounts
contributed); Simplified Employee Pension (SEP-IRA) Plans; Retirement Plans
Qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public school
systems and certain nonprofit 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 and holding period
of the Fund's portfolio assets. Because the Fund intends to distribute all of
its net investment income and net realized capital gains to shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay any federal income or excise taxes,
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.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local income taxes, on the dividends and capital gain distributions
they receive from the Fund. Dividends from ordinary income and any distributions
from net short-term capital gains (whether paid in cash or reinvested in
additional shares) are taxable to shareholders as ordinary income for federal
income tax purposes. A portion of the Fund's ordinary income dividends (but none
of its capital gain distribution) is normally eligible for the dividends
received deduction for corporations if the recipient otherwise qualifies for
that deduction with respect to its holding of Fund shares. Availability of the
deduction to particular corporate shareholders is subject to certain limitations
and deducted amounts may be subject to the alternative minimum tax and result in
certain basis adjustments. Distributions of net capital gains (i.e., the excess
of net long-term capital gains over 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, regardless of how
long they have owned shares in the Fund. Fund dividends declared in October,
November, or December and paid the following January will be taxable to
shareholders as if received on December 31 of the year in which they are
declared.
Any dividend or distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the dividend or distribution.
Shareholders purchasing shares shortly before the record date of any taxable
dividend or other 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'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. 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 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 redemption 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 without payment of an additional sales charge (including purchases by
exchange or by reinvestment) of Class A shares of the Fund or
21
<PAGE>
of another MFS Fund (or other shares of an MFS Fund generally sold subject to a
sales charge).
Any investment in zero coupon securities, deferred interest bonds,
payment-in-kind bonds, certain stripped securities, and certain securities
purchased at a market discount will cause the Fund to realize 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 and Forward Contracts 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 such day, and any gain or loss
associated with such 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 generally will be
treated as ordinary income or losses. The holding of foreign currencies and
investment by the Fund in certain "passive foreign investment companies" may be
limited in order to avoid imposition of a tax on the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source; the Fund does not
expect to be able to pass through to its shareholders foreign tax credits and
deductions with respect to foreign taxes paid by the Fund. The United States has
entered into tax treaties with many foreign countries that may entitle the Fund
to a reduced rate or an exemption from foreign tax on such income; the Fund
intends to qualify for treaty reduced rates where available. It is impossible to
determine the effective rate of foreign tax in advance since the amount of the
Fund's assets to be invested within various countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on taxable dividends and
other payments made to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund with
the U.S. Internal Revenue Service within the time period applicable to such
claims. The Fund is also required in certain circumstances to apply backup
withholding at a rate of 31% on taxable dividends and redemption proceeds paid
to any shareholder (including a Non-U.S. person) who does not furnish to the
Fund certain information and certifications or who is otherwise subject to
backup withholding. Backup withholding will not, however, be applied to payments
which have been subject to 30% withholding. Distributions received from the Fund
by Non-U.S. Persons may also be subject to tax under the laws of their own
jurisdiction.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes in certain states. The Fund intends to advise
shareholders of the extent, if any, to which its distributions consist of such
interest. Shareholders are urged to consult their tax advisers regarding the
possible exclusion of such portion of their dividends for state and local income
tax purposes as well as regarding the tax consequences of an investment in the
Fund.
7. DISTRIBUTION PLANS
Class A Distribution Plan: The Trustees have adopted a Distribution Plan
relating to Class A shares (the "Class A 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 Class A Distribution
Plan would benefit the Fund and its Class A shareholders. The Class A
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
the Fund's fixed costs are spread over a larger net asset base. Also, an
increase in net assets may lessen the adverse effects that could result were the
Fund required to liquidate portfolio securities to meet redemptions.
The Class A Distribution Plan provides that the Fund will pay MFD up to (but not
necessarily all of) an aggregate of 0.35% of the average daily net assets
attributable to the Class A shares annually in order that MFD may pay expenses
on behalf of the Fund related to the distribution and servicing of its Class A
shares. The expenses to be paid by MFD on behalf of the Fund include a service
fee to securities dealers which enter into a sales agreement with MFD of up to
0.25% per annum of the portion of the Fund's average daily net assets
attributable to the Class A shares owned by investors for whom that securities
dealer is the holder or dealer of record. These payments are partial
consideration for personal services and/or account maintenance performed by such
dealers with respect to Class A shares. MFD may from time to time reduce the
amount of the service fee paid for shares sold prior to a certain date. MFD will
also retain a distribution fee of 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares as partial consideration for services
performed and expenses incurred in the performance of MFD's obligations as to
Class A shares under the Distribution Agreement with the Fund. Any remaining
funds may be used to pay for other distribution related expenses as defined in
the Prospectus. Service fees may be reduced for a securities dealer that is the
holder or dealer of record for an investor who owns shares of the Fund
22
<PAGE>
having an aggregate net asset value at or above a certain dollar level. No
service fee will be paid (i) to any securities dealer who is the holder or
dealer of record for investors who own shares having an aggregate net asset
value less than $750,000, or such other amount as may be determined from time to
time by MFD (MFD, however, may waive this minimum amount requirement from time
to time if the dealer satisfies certain criteria), or (ii) to any insurance
company which has entered into an agreement with the Fund and MFD that permits
such insurance company to purchase 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
are entitled to receive all service fees payable under the Class A Distribution
Plan for which there is no dealer of record or for which qualification standards
have not been met as partial consideration for personal services and/or account
maintenance services performed by MFD or its affiliates for shareholder
accounts. Certain banks and other financial institutions that have agency
agreements with MFD will receive agency transaction and service fees that are
the same as commissions and service fees to dealers. For the fiscal year ended
August 31, 1994, the expenses under the Class A Distribution Plan amounted to
$328,311 (equal to 0.35% of its average daily net assets attributable to Class A
shares) relating to the distribution and servicing of its Class A shares, of
which MFD retained $81,227 and securities dealers of the Fund and certain banks
and other financial institutions received $247,084.
The Class A Distribution Plan will remain in effect until August 1, 1995, 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
the Plan ("Class A Distribution Plan Qualified Trustees"). The Class A
Distribution Plan 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 Class A
Distribution Plan may be terminated at any time by vote of a majority of the
Class A Distribution Plan Qualified Trustees or by vote of the holders of a
majority of the Fund's Class A shares (as defined in "Investment Restrictions").
Agreements under the Class A 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 Class A Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the Fund's Class A
shares. The Class A Distribution Plan may not be amended to increase materially
the amount of permitted distribution expenses without the approval of a majority
of the Fund's Class A shares (as defined in "Investment Restrictions") and may
not be materially amended in any case without a vote of the Trustees and a
majority of the Class A Distribution Plan Qualified Trustees. No Trustee who is
not an "interested person" has any financial interest in the Class A
Distribution Plan or in any related agreement.
Class B Distribution Plan: The Trustees have adopted a Distribution Plan
relating to Class B shares (the "Class B Distribution Plan") pursuant to Section
12(b) of the 1940 Act and Rule, after having concluded that there was a
reasonable likelihood that the Class B Distribution Plan would benefit that Fund
and its Class B shareholders. The Class B 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 the Fund's fixed costs are spread
over a larger net asset base. Also, an increase in net assets may lessen the
adverse effects that could result were the Fund required to liquidate portfolio
securities to meet redemptions. There is, however, no assurance that the net
assets of the Fund will increase or that the other benefits referred to above
will be realized.
The Class B Distribution Plan provides that the Fund shall pay MFD, as the
Fund's distributor for its Class B shares, a daily distribution fee equal on an
annual basis to 0.75% of the Fund's average daily net assets attributable to
Class B shares and will pay MFD a service fee of up to 0.25% per annum of the
Fund's average daily net assets attributable to Class B shares (which MFD will
in turn pay to securities dealers which enter into a sales agreement with MFD at
a rate of up to 0.25% per annum of the Fund's average daily net assets
attributable to Class B shares owned by investors for whom that securities
dealer is the holder or dealer of record). This service fee is intended to be
additional consideration for all personal services and/or account maintenance
services rendered by the dealer with respect to Class B shares. MFD will advance
to dealers the first-year service fee at a rate equal to 0.25% of the amount
invested. As compensation therefor, 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 for additional service fees with respect to such shares
commencing in the thirteenth month following purchase. Except in the case of the
first year service fee, no service fee will be paid to any securities dealer who
is the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined from time to time by MFD. MFD, however, may waive this minimum amount
requirement from time to time if the dealer satisfies certain criteria. Dealers
may from time to time be required to meet certain other criteria in order to
receive service fees. MFD or its affiliates are entitled to retain all service
fees payable under the Class B Distribution Plan for which there is no dealer of
record or for which qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
performed by MFD or its affiliates for shareholder accounts.
The purpose of distribution payments to MFD under the Class B 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, of
personnel, travel, office expenses and equipment. The Class B Distribution Plan
also provides that MFD will receive all CDSCs attributable to Class B shares.
(See "Distribution Plans" and "Purchases" in the Prospectus.)
23
<PAGE>
In accordance with the Rule, all agreements relating to the Class B 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 Trustees who are
not "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Class B Distribution Plan or
in any agreement related to such Plan ("Class B Distribution Plan Qualified
Trustees"). The Class B Distribution Plan further provides that the selection
and nomination of Class B Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. For
the fiscal year ended August 31, 1994, expenses under the Class B Distribution
Plan amounted to $1,633,991 (equal to 1.00% of its average daily net assets
attributable to Class B shares) relating to the distribution and servicing of
its Class B shares, of which MFD received $66,240 and securities dealers of the
Fund and certain banks and other financial institutions received $1,567,751.
General: The Class B Distribution Plan will remain in effect until August 1,
1995, 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 Class B Distribution Plan Qualified Trustees. The Class B
Distribution Plan requires that the Fund 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 Class B Distribution Plan
may be terminated at any time by vote of a majority of the Class B Distribution
Plan Qualified Trustees or by vote of the holders of a majority of the Class B
shares of the Fund (as defined in "Investment Restrictions" above). The Class B
Distribution Plan may not be amended to increase materially the amount of
permitted distribution expenses without the approval of Class B shareholders and
may not be materially amended in any case without a vote of the majority of both
the Trustees and the Class B Distribution Plan Qualified Trustees. No Trustee
who is not an interested person of the Fund has any financial interest in the
Class B 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 Statement
of Additional Information, 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, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. This determination is made once during each
such day as of the close of regular trading on 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. 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. Debt securities (other than
short-term obligations) in the Fund's portfolio are valued on the basis of
valuations furnished by a pricing service which utilizes both dealer- supplied
valuations and electronic data processing techniques which take into account
appropriate factors such as institutional- sized trading in similar groups of
securities, yields, 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.
Short-term obligations, if any, in the Fund's portfolio are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Short-term securities with a remaining maturity in excess of 60 days will be
valued based upon dealer supplied valuations. Portfolio securities and over-
the-counter options and Forward Contracts, for which there are no quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees. A share's net asset value is effective for
orders received by the dealer prior to its calculation and received by MFD, in
its capacity as the Fund's distributor, prior to the close of the 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 purchased on and after
September 1, 1993) 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 current maximum sales charge (currently 5.75% ) 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 sales charge or CDSC. The average annual total rate of return for Class
B shares, reflecting the CDSC, for the one-year and five-year periods ended
August 31, 1994 and for the period from December 29, 1986 (the Fund's
commencement of investment operations) to August 31, 1994 was -2.09%, 8.36% and
13.45%, respectively. The average annual total rates of return for Class B
shares, not giving effect to the CDSC, for the one-year and five year periods
ended August 31, 1994 and for the period from December 29, 1986 (the Fund's
commencement of investment operations)
24
<PAGE>
to August 31, 1994 was 1.91%, 8.65% and 13.45%, respectively. The Fund's average
total rate of return for Class A shares, reflecting the initial sales charges,
for the period from September 20, 1993 (commencement of offering of this class
of shares) to August 31, 1994, was 4.14%.
Performance Results--The performance results for Class B shares below, based on
an assumed initial investment of $10,000 in Class B shares, cover the period
from December 29, 1986 through December 31, 1994. It has been assumed that
dividend and capital gain distributions were reinvested in additional shares.
Any performance results 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 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 total rates of return should be considered when
comparing the total rate of return of the Fund to total rates of return
published for other investment companies or other investment vehicles. Total
rate of return reflects the performance of both principal and income. Current
net asset value and account balance information may be obtained by calling
1-800-MFS-TALK (637-8255).
MFS Managed Sectors Fund B
<TABLE>
<CAPTION>
Year Ended Direct Capital Gain Dividend Total
December 31 Investment Reinvestment Reinvestment Value
<S> <C> <C> <C> <C>
1986 $ 9,846 $ 0 $ 0 $ 9,846
1987 11,846 0 42 11,888
1988 12,353 0 178 12,531
1989 17,230 0 301 17,531
1990 14,876 0 260 15,136
1991 23,738 0 414 24,152
1992 23,707 971 413 25,091
1993 20,276 5,339 400 26,015
1994 18,092 5,924 1,078 25,094
</TABLE>
Explanatory notes: The results shown in the table take into account the Rule
12b-1 fees but not the CDSC. No adjustment has been made for any income taxes
payable by shareholders.
From time to time the Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial
World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Saloman 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
may use charts and graphs to illustrate the past performance of various indices
such as those mentioned above and illustrations using hypothetical rates of
return to illustrate the effects of compounding and tax-deferral. The Fund may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not assure a profit or guard against a loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals.
MFS Firsts: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as the first mutual fund
in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund to make full
public disclosure of its operations in shareholder reports.
-- 1932 -- One of the first internal research departments is established to
provide in-house analytical capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund to register
under the Securities Act of 1933.
-- 1936 -- Massachusetts Investors Trust is the first mutual fund to let
shareholders 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 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 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.
25
<PAGE>
-- 1990 -- MFS(R) World Total Return Fund is the first global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging markets fund to
offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard Trust, the first
trust to invest in companies deemed to be union-friendly by an Advisory Board
of senior labor officials, senior managers of companies with significant
labor contracts, academics and other national labor leaders of experts.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES The Trust's 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 one 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 two
classes of shares of each of the Trust's two series, Class A shares and Class B
shares. Each share of a class of the Fund represents an equal proportionate
interest in the assets of the Fund allocable to that class. Upon liquidation of
the Fund, shareholders of each class are entitled to share pro rata in the net
assets of the Fund allocable to such class available for distribution to
shareholders. The Trust reserves the right to create and issue additional series
or classes of shares, in which case the shares of each class would participate
equally in the earnings, dividends and assets allocable to that class of the
particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have under certain circumstances the right to remove one or more Trustees in
accordance with the provisions of Section 16(c) of the 1940 Act. No material
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of the Trust's shares. Shares have no pre-emptive or conversion
rights (except as described in "Purchases Conversion of Class B Shares" in the
Prospectus). Shares are fully paid and non- assessable. The Trust may enter into
a merger or consolidation, or sell all or substantially all of its assets (or
all or substantially all of the assets belonging to any series of the Trust), if
approved by the vote of the holders of two-thirds of the Trust's outstanding
shares voting as a single class, or of the affected series of the Trust, as the
case may be, except that if the Trustees of the Trust 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 (as defined in "Investment
Restrictions") will be sufficient. The Trust or any series of the Trust may also
be terminated (i) upon liquidation and distribution of its assets, if approved
by the vote of the holders of two-thirds of its outstanding shares, or (ii) by
the Trustees by written notice to the shareholders of the Trust or the affected
series. 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 it shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, Trustees, officers, employees and agents covering
possible tort or 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 willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
10. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche, LLP are the Fund's independent certified public accountants.
The Portfolio of Investments at August 31, 1994, the Statement of Assets and
Liabilities at August 31, 1994, the Statement of Operations for the nine months
ended August 31, 1994 and the year ended November 30, 1993, the Statement of
Changes in Net Assets for the nine months ended August 31, 1994 and for each of
the years in the two-year period ended November 30, 1993, the Financial
Highlights table for the nine months ended August 31, 1994 and for each of the
years in the seven-year period ended November 30, 1993, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance upon the report of Deloitte & Touche LLP independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this Statement of Additional Information.
26
<PAGE>
Appendix A
<TABLE>
Trustee Compensation Table
<CAPTION>
Retirement Benefit Estimated Total Trustee Fees
Trustee Fees Accrued as part of Credited Years of from Fund and Fund
Trustee from Fund(1) Fund Expense(1) Service(2) Complex(3)
<S> <C> <C> <C> <C>
Richard B. Bailey $2,617 $ 525 10 $226,221
Marshall N. Cohan 3,517 1,566 14 147,274
Dr. Lawrence Cohn 2,842 153 18 133,524
Sir David Gibbons 2,842 1,095 13 132,024
Abby M. O'Neill 2,617 327 10 125,924
Walter E. Robb, III 3,517 1,790 15 147,274
J. Dale Sherratt 3,517 175 20 147,274
Ward Smith 3,517 417 13 147,274
<FN>
(1) For fiscal year ended August 31, 1994
(2) Based on normal retirement age of 75
(3) For calendar year 1994. All Trustees served as Trustees of 36 funds within the MFS fund complex
(having aggregate net assets at December 31, 1994, of approximately $9.7 billion) except
Mr. Bailey, who served as Trustee of 56 funds within the MFS fund complex (having aggregate
net assets at December 31, 1994, of approximately $24.4 billion).
</FN>
</TABLE>
<TABLE>
Estimated Annual Benefits Payable by Fund upon Retirement(4)
<CAPTION>
Average Years of Service
Trustee Fees 3 5 7 10 or more
<S> <C> <C> <C> <C>
$2,400 $360 $600 $ 840 $1,200
2,700 405 675 945 1,350
3,000 450 750 1,050 1,500
3,300 495 825 1,155 1,650
3,600 540 900 1,260 1,800
3,900 585 975 1,365 1,950
<FN>
(4) Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</FN>
</TABLE>
27
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address
P.O. Box 2281, Boston, MA 02107-9906
Independent Accountants
Deloitte & Touche, LLP
125 Summer Street, Boston, MA 02110
MFS(R)
Managed Sectors
Fund
500 Boylston Street
Boston, MA 02116
(MFS LOGO) MMS-13 4/95/.5M 08/208
<PAGE>
[LOGO] ANNUAL REPORT FOR
YEAR ENDED
AUGUST 31, 1994
MFS(R) MANAGED SECTORS FUND
Front Cover:
A 6 1/8" by 7 1/2" photo of cars.
<PAGE>
<TABLE>
<CAPTION>
MFS(R) MANAGED SECTORS FUND
<S> <C>
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Richard B. Bailey Boston, Massachusetts 02116-3741
Private Investor; PORTFOLIO MANAGER
Former Chairman and Director (until 1991), Kenneth J. Enright*
Massachusetts Financial Services Company TREASURER
Marshall N. Cohan W. Thomas London*
Private Investor; ASSISTANT TREASURER
Former President and Treasurer James O. Yost*
(until 1989), Skane Knit, Inc. SECRETARY
Lawrence H. Cohn, M.D. Stephen E. Cavan*
Chief of Cardiac Surgery, Brigham and ASSISTANT SECRETARY
Women's Hospital; Professor of Surgery, James R. Bordewick, Jr.*
Harvard Medical School SHAREHOLDER SERVICE CENTER
The Hon. Sir J. David Gibbons, KBE MFS Service Center, Inc.
Chairman, Bank of N.T. Butterfield & Son Ltd., Hamilton, P.O. Box 2281
Bermuda Boston, MA 02107-9906
Abby M. O'Neill For general information, call toll free:
Private Investor; 1-800-225-2606 any business day from
Director, Rockefeller Financial Services, Inc. 8 a.m. to 8 p.m. Eastern time.
(Investment Advisers) For service to speech- or hearing-impaired,
Walter E. Robb, III call toll free: 1-800-637-6576 any business
President and Treasurer, day from 9 a.m. to 5 p.m. Eastern time.
Benchmark Advisors, Inc. (To use this service, your phone must be
(Financial Consultants) equipped with a Telecommunications Device
Arnold D. Scott* for the Deaf.)
Senior Executive Vice President, For share prices, account balances and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
Jeffrey L. Shames* (1-800-637-8255) anytime from a touch-tone
President and Chief Equity Officer, telephone.
Massachusetts Financial Services Company CUSTODIAN
J. Dale Sherratt State Street Bank and Trust Company
Former Chairman and Chief Executive Officer AUDITORS
(until 1989), The Kendall Company; Deloitte & Touche LLP
President, Insight Resources, Inc.
Ward Smith
Former Chairman and Director (until 1994),
NACCO Industries;
Director, Sundstrand Corporation
Cover photo: Through their wide range of
investments, MFS mutual funds help you share in
*Affiliated with the Investment Adviser America's growth.
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
In our last report we mentioned that the Fund's fiscal year has changed from
November 30 to August 31. Therefore, this annual report will cover the nine-
month period ended August 31, 1994. During this period, the stock market has
exhibited a high degree of volatility, with no clear market leadership.
Investors have struggled to sort out the Federal Reserve Board's apparent
commitment to restrain inflation by raising short-term interest rates and the
potential negative impact that these higher rates may have on the economic
recovery currently underway. Sector rotations between growth and cyclical stocks
have come as often as those between large- and small-capitalization issues, and
high price-to-earnings stocks have been an area of particular vulnerability.
Although the Fund has made some changes, we have remained disciplined throughout
this volatile period, which we believe is transitory in nature. During the
nine-month period ended August 31, 1994, Class A shares of the Fund provided a
total return of + 5.12%, while Class B shares had a total return of +4.47%.
Both of these figures assume the reinvestment of distributions but exclude the
effects of any sales charges. During this same period, the Standard & Poor's 500
Composite Index (S&P 500), a popular, unmanaged index of common stock
performance, returned +5.12%. A discussion of the Fund's performance relative
to the S&P 500 may be found in the Portfolio Performance and Strategy section of
this letter. Complete performance information for the Fund is provided on pages
three and four of this report.
Economic Environment
The economic expansion, now in its fourth year, has established firmer
underpinnings as employers finally have begun to step up hiring levels.
Increased employment, along with continued strong capital spending by businesses
and strengthening overseas economies, particularly in Europe, should ensure at
least trend-line real (adjusted for inflation) U.S. economic growth (2 1/2% to
3% as measured by gross domestic product). While the economy, particularly
housing, benefited from unusually low interest rates late last year, yields have
risen significantly this year, which should help restrain, but not curtail, the
economic expansion. Other continuing moderating influences are higher personal
income taxes, high consumer debt levels, and the impact on employment of
corporate restructurings and concerns over the cost of health care reform.
Stock Market
The stock market has had several months of disappointing performance during 1994
as rising interest rates have helped put downward pressure on stock prices.
Though prices have declined, earnings reports from many leading companies and
industries have shown remarkable improvement. Areas such as technology, gaming
and health care (particularly health maintenance organizations), which were
depressed earlier in the year, have rebounded recently as the market has
responded favorably to indications of slowing economic growth and controlled
inflation. Should interest rates stabilize somewhat over the next few months, we
believe the encouraging earnings reports will result in improving stock market
performance.
Portfolio Performance and Strategy
As mentioned earlier, the total return of the Fund's Class A shares equaled that
of the S&P 500 during the nine months ended August 31, 1994, while the total
return on the Class B shares was slightly below that benchmark. Normally, the
volatility and lack of leadership in the stock market which we discussed above
would tend to favor the broader-based S&P 500 or more diversified mutual funds.
Despite the fact that the Fund's assets are non-diversified and, therefore, are
concentrated in a limited number of market sectors, our relatively heavy
weightings in energy and technology bolstered the Fund's overall performance so
that it was on a par with the overall market. Our energy holdings provided
strong relative performance early in 1994, while our technology holdings
benefited from what appears to have been a typical, albeit late, summer rally.
The Fund's investments are currently allocated to the same five sectors
outlined in our semiannual report, although we did shift some of our holdings
away from auto and housing and financial institutions into technology and
leisure. We continue to have a large exposure to companies making technological
advances in the telecommunications industry, particularly in the cellular and
media software areas. In addition to our Blockbuster Entertainment position, we
have purchased stocks of companies such as Broderbund, Sierra On-Line and
Electronic Arts, all leaders in the creation of education and entertainment
software for the home and office. We have augmented core technology positions in
Intel and Microsoft with the additions of Motorola, Oracle, Compaq and Sybase.
Finally, we continue to have a large exposure to the cellular industry through
our holdings in Rogers Communications, Telephone and Data Systems, Airtouch and
LIN Broadcasting. Together, this broadly defined area represents over 40% of the
Fund's net assets.
The Fund's energy weighting still represents a significant investment in
the oil service segment of the industry. This group had strong relative
performance during the volatile first half of 1994. We expect positive absolute
performance correlating to rising oil and gas prices as we enter the winter
heating season. We have consolidated our holdings in the gaming industry, but
are confident that it continues to offer very favorable long-term prospects as
more states look to gaming for increased revenues. Although gaming companies
have had a very difficult year to date, we expect that a number of positive
events will unfold during the rest of 1994 and 1995, providing the basis for
strong earnings growth for many years. Valuations of financial services stocks
continue to look attractive relative to their growth rates. However, we have
recently taken a more cautious stance toward this group due to investors'
concerns regarding rising interest rates. In the auto and housing sector, we are
maintaining positions in General Motors, Ford, Volkswagen and Michelin. We
expect all four companies to benefit from cost cutting and from recovering
European economies.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[A 1 1/2" by 1 5/8" photo of A. Keith Brodkin, Chairman and President]
[A 1 1/2" by 1 5/8" photo of Kenneth J. Enright, Portfolio Manager]
A. Keith Brodkin Kenneth J. Enright
Chairman and President Portfolio Manager
September 7, 1994
<PAGE>
PORTFOLIO MANAGER PROFILE
Ken Enright has been a member of the MFS invesment staff since 1986. A
graduate of Boston State College and of the Babson College Graduate School of
Business Administration, he began his career at MFS in the Research Department
and was named Assistant Vice President - Investments in 1987 and Vice President
- Investments in 1988. Mr. Enright became Portfolio Manager of MFS Managed
Sectors Fund in 1993. He is a Chartered Financial Analyst (C.F.A.).
OBJECTIVE AND POLICIES
Objective: The Fund's investment objective is to seek capital appreciation.
Dividend income, if any, is incidental to the Fund's objective. To achieve its
objective, the Fund varies the weighting of its portfolio among 15 industry
sectors, which include autos and housing, consumer goods and services, defense
and aerospace, energy, financial services, foreign securities, healthcare, heavy
industry, leisure, machinery and equipment, precious metals and natural
resources, retailing, technology, transportation and utilities.
Policies: As much as 50% of the Fund's assets may be invested in one sector or
in cash. Generally, at least 90% of the Fund's assets will be invested in up to
five of the industry sectors or in cash.
TAX FORM SUMMARY
In January 1995, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1994.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
For the nine-month period ended August 31, 1994, the distributions from short-
term gains of Class A and Class B shares were $0.062 and $0.028, respectively.
Distributions from long-term capital gain for both Class A and Class B shares
was $2.767 for the nine-month period ended August 31, 1994.
PERFORMANCE
The information on the following page illustrates the historical performance of
MFS Managed Sectors Fund (Class B) in comparison to various market indicators.
Fund results in the graph do not reflect the deduction of any contingent
deferred sales charge (CDSC) since the CDSC is not applicable after a six-year
period. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. You cannot invest in an index. All results reflect the reinvestment of
all dividends and capital gains.
Please note that effective September 20, 1993, Class A shares were offered.
Information on Class A share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from January 1, 1987 to August 31, 1994)
----------------------
[Line graph representing the growth of a $10,000 investment for the
life-of-class period ended August 31, 1994. The graph is scaled from $5,000 to
$30,000 in $5,000 segments. The years are marked from 1987 to 1994. There are
three lines drawn to scale. One is a solid line representing Managed Sectors
Fund Class B, a second line of short dashes represents the S&P 500, and a third
line of long dashes represents the Consumer Price Index.
Managed Sectors Fund Class B $26,762
S&P 500 $25,099
Consumer Price Index $13,481
----------------------
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
12/29/86<F1>-
1 Year 3 Years 5 Years 8/31/94
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Managed Sectors Fund (Class B) with CDSC<F3> -1.45% + 8.69% + 8.36% +13.45%
--------------------------------------------------------------------------------------------------------------
MFS Managed Sectors Fund (Class B) without CDSC +1.91% + 9.53% + 8.65% +13.45%
--------------------------------------------------------------------------------------------------------------
MFS Managed Sectors Fund (Class A) including 5.75% sales charge -2.09%<F2> -- -- --
--------------------------------------------------------------------------------------------------------------
MFS Managed Sectors Fund (Class A) at net asset value +3.91%<F2> -- -- --
--------------------------------------------------------------------------------------------------------------
Average specialty/miscellaneous funds +8.75% +15.77% +10.72% +12.79%
--------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +5.46% + 9.44% + 9.58% +12.75%
--------------------------------------------------------------------------------------------------------------
Consumer Price Index<F4> +2.90% + 2.94% + 3.64% + 3.97%
--------------------------------------------------------------------------------------------------------------
In the above table, we have included the average annual total returns of all
specialty/miscellaneous funds (including the Fund) tracked by Lipper Analytical
Services, Inc. (an independent firm which reports mutual fund performance) for
the applicable time periods (23, 21, 18 and 18 funds for the 1-, 3- and 5-year
periods ended August 31, 1994, and for the period from January 1, 1987 through
August 31, 1994, respectively). Because these returns do not reflect any
applicable sales charges, we have also included the Fund's results at net asset
value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual fund
will vary with changes in market conditions, and shares, when redeemed, may be
worth more or less than their original cost.
<FN>
<F1> Commencement of offering of Class B shares. Benchmark comparisons begin on
January 1, 1987.
<F2> Aggregate total return from September 20, 1993 (commencement of offering of
Class A shares).
<F3> These returns reflect the current maximum Class B CDSC of 4%, 3%, and 2%
for the 1-, 3-, and 5-year periods, respectively, and 0% for the period
commencing December 29, 1986.
<F4> The Consumer Price Index is a popular measure of change in prices.
</FN>
</TABLE>
<PAGE>
PORTFOLIO OF INVESTMENTS - August 31, 1994
Common Stocks - 99.6%
--------------------------------------------------------------------------------
Issuer Shares Value
--------------------------------------------------------------------------------
Automotive and Housing - 8.3%
Ford Motor Co. 150,000 $ 4,387,500
General Motors Corp. 225,000 11,306,250
Michelin (France) 162,000 7,111,756
Volkswagen AG (Germany) 16,000 5,049,060
------------
$ 27,854,566
--------------------------------------------------------------------------------
Energy - 18.4%
Apache Corp. 210,000 $ 5,302,500
BJ Services Co.* 152,000 2,926,000
Freeport-McMoRan, Inc. 250,000 4,312,500
Freeport-McMoRan Copper & Gold, Inc. 4,738 109,566
McMoRan Oil & Gas Co.* 19,770 72,902
Noble Drilling Corp.* 495,000 3,403,125
Occidental Petroleum Corp. 625,000 13,906,250
Schlumberger Ltd. 184,900 10,539,300
Snyder Oil Corp. 188,100 3,550,387
Tidewater, Inc. 588,700 13,319,337
Weatherford International, Inc.* 240,000 2,910,000
Western Company of North America* 120,000 1,335,000
------------
$ 61,686,867
--------------------------------------------------------------------------------
Financial Institutions - 8.7%
Advanta Corp. 90,000 $ 2,655,000
Aetna Life & Casualty Co. 133,000 6,566,875
Equitable of Iowa Cos. 110,000 4,290,000
First Interstate Bancorp 62,000 4,952,250
MBIA, Inc. 85,000 5,206,250
Travelers, Inc. 148,204 5,483,548
------------
$ 29,153,923
--------------------------------------------------------------------------------
Leisure - 35.0%
Airtouch Communications, Inc.* 222,000 $ 6,271,500
Argosy Gaming Corp.* 426,800 7,362,300
Blockbuster Entertainment Corp. 635,000 16,430,625
Eastman Kodak Co. 100,000 4,975,000
International Game Technology 254,500 5,948,937
LIN Broadcasting Corp.* 65,000 8,710,000
Promus Cos., Inc.* 450,000 16,537,500
Rogers Communications, Inc. (Canada)* 1,337,900 22,509,499
Tele-Communications, Inc.* 210,000 4,738,125
Telephone & Data Systems, Inc. 475,800 20,697,300
Times Mirror Co. 105,000 3,451,875
------------
$117,632,661
--------------------------------------------------------------------------------
Technology - 19.8%
Broderbund Software, Inc.* 87,500 $ 4,856,250
Compaq Computer Corp.* 140,000 5,232,500
Electronic Arts, Inc.* 288,000 5,112,000
Intel Corp. 250,000 16,437,500
Microsoft Corp.* 90,900 5,283,563
Motorola, Inc. 105,000 5,670,000
Oracle Systems Corp.* 125,000 5,335,938
Sierra On-Line, Inc.*++ 401,900 8,741,325
Sybase, Inc.* 85,000 3,697,500
Synoptics Communications, Inc.* 368,400 5,940,450
------------
$ 66,307,026
--------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
--------------------------------------------------------------------------------
Issuer Shares Value
--------------------------------------------------------------------------------
Other - 9.4%
Boise Cascade Corp. 120,100 $ 3,442,090
Jefferson Smurfit Corp.* 280,000 5,705,000
McDonnell Douglas Corp. 25,000 2,956,250
Phar-Mor, Inc.*+# 98,000 263,620
Santa Fe Pacific Corp. 160,000 3,440,000
Telefonos de Mexico S.A., ADR 133,000 8,345,750
Union Carbide Corp. 120,000 4,125,000
WMX Technologies, Inc. 105,000 3,150,000
------------
$ 31,427,710
--------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $297,005,459) $334,062,753
--------------------------------------------------------------------------------
Short-Term Obligation - 0.7%
--------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
--------------------------------------------------------------------------------
Ford Motor Credit Corp., due 9/01/94, at
Amortized Cost $2,500 $ 2,500,000
--------------------------------------------------------------------------------
Total Investments (Identified Cost, $299,505,459) $336,562,753
Other Assets, Less Liabilities - (0.3)% (1,010,164)
--------------------------------------------------------------------------------
Net Assets - 100.0% $335,552,589
--------------------------------------------------------------------------------
*Non-income producing security.
+SEC Rule 144A restriction.
++Affiliated issuer.
# Security priced by management.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
------------------------------------------------------------------------------
August 31, 1994
------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $291,592,396) $ 327,821,428
Affiliated issuers (identified cost, $7,913,063) 8,741,325
-------------
Total investments at value (identified
cost, $299,505,459) $ 336,562,753
Cash 99,451
Receivable for investments sold 9,562,318
Receivable for Fund shares sold 130,158
Dividends receivable 295,835
Other assets 4,986
-------------
Total assets $ 346,655,501
-------------
Liabilities:
Payable for investments purchased $ 9,489,253
Payable for Fund shares reacquired 1,187,340
Payable to affiliates -
Management fee 6,855
Shareholder servicing agent fee 1,781
Distribution fee 142,650
Accrued expenses and other liabilities 275,033
-------------
Total liabilities $ 11,102,912
-------------
Net assets $ 335,552,589
-------------
Net assets consist of:
Paid-in capital $ 279,385,189
Unrealized appreciation on investments and
translation ofassets and liabilities in
foreign currencies 37,057,535
Accumulated undistributed net realized gain
on investments and foreign currency transactions 19,135,268
Accumulated net investment loss (25,403)
-------------
Total $ 335,552,589
-------------
Shares of beneficial interest outstanding 25,095,980
-------------
Class A shares:
Net asset value and redemption price per share
(net assets of $121,497,762 / 9,062,715 shares of
beneficial interest outstanding) $13.41
-----
Offering price per share (100/94.25) $14.23
-----
Class B shares:
Net asset value, redemption price, and offering price per share
(net assets of $214,054,827 / 16,033,265 shares of beneficial
interest outstanding) $13.35
-----
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
and Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
--------------------------------------------------------------------------------
Nine Months Ended Year Ended
August 31, 1994 November 30, 1993
--------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 3,107,949 $ 1,324,893
Interest 132,831 547,106
------------ ------------
Total investment income $ 3,240,780 $ 1,871,999
------------ ------------
Expenses -
Management fee $ 1,952,229 $ 2,065,624
Trustees' compensation 33,722 30,816
Shareholder servicing agent
fee (Class A) 140,685 41,581
Shareholder servicing agent
fee (Class B) 359,476 551,417
Distribution and service
fee (Class A) 328,311 97,023
Distribution and service
fee (Class B) 1,633,991 2,506,440
Custodian fee 141,849 122,382
Postage 72,571 85,872
Printing 69,016 68,322
Legal fees 50,106 65,702
Auditing fees 49,098 45,101
Miscellaneous 305,066 289,730
------------ ------------
Total expenses $ 5,136,120 $ 5,970,010
------------ ------------
Net investment loss $ (1,895,340) $ (4,098,011)
------------ -----------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) identified cost basis -
Investment transactions $ 21,217,575 $ 71,019,513
Foreign currency transactions (192,386) 253,170
------------ ------------
Net realized gain (loss) on investments $ 21,025,189 $ 71,272,683
------------ ------------
Change in unrealized appreciation (depreciation) -
Investments $ (3,397,866) $(57,428,379)
Translation of assets and liabilities
in foreign currencies 407 57
------------ ------------
Net unrealized gain (loss) on investments $ (3,397,459) $(57,428,322)
------------ ------------
Net realized and unrealized gain (loss)
on investments and foreign currency $ 17,627,730 $ 13,844,361
------------ ------------
Increase (decrease) in net assets
from operations $ 15,732,390 $ 9,746,350
------------ ------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------------------------------
Nine Months Ended Year Ended November 30,
August 31, 1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (1,895,340) $ (4,098,011) $ (4,070,583)
Net realized gain (loss) on investments
and foreign currency transactions 21,025,189 71,272,683 18,409,658
Net unrealized gain (loss)
on investments and foreign currency (3,397,459) (57,428,322) 22,550,365
-------------- -------------- --------------
Increase (decrease) in net
assets from operations $ 15,732,390 $ 9,746,350 $ 36,889,440
-------------- -------------- --------------
Distributions declared to shareholders -
From net realized gain on investments (Class A) $ (25,297,254) -- --
From net realized gain on investments (Class B) (41,826,829) (9,939,582) --
-------------- -------------- --------------
Total distributions declared to shareholders $ (67,124,083) $ (9,939,582) --
-------------- -------------- --------------
Fund share (principal)
transactions -
Net proceeds from sale of shares $ 33,660,185 $ 52,495,365 $ 103,260,454
Issued in connection with the acquisition
of MFS Managed Sectors Fund -- 142,671,119 --
Net asset value of shares
issued to shareholders in
reinvestment of distributions 59,894,378 8,938,772 --
Cost of shares reacquired (75,771,270) (84,243,954) (80,889,229)
-------------- -------------- --------------
Increase (decrease) in net
assets from Fund share
transactions $ 17,783,293 $ 119,861,302 $ 22,371,225
-------------- -------------- --------------
Total increase (decrease) in net assets $ (33,608,400) $ 119,668,070 $ 59,260,665
Net assets:
At beginning of period 369,160,989 249,492,919 190,232,254
-------------- -------------- --------------
At end of period (including (accumulated
net investment loss) and accumulated
undistributed net investment income of
$(25,403), $233,258 and $ (6,282,802),
respectively) $ 335,552,589 $ 369,160,989 $ 249,492,919
-------------- -------------- --------------
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
---------------------------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Year Ended Ended Year Ended November 30,
August 31 November 30 August 31, ------------------------
1994 1993<F4> 1994 1993 1992
---------------------------------------------------------------------------------------------------------
Class A Class B
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of
period $ 15.50 $ 15.68 $ 15.49 $ 15.42 $ 13.00
------ ------ ------ ------ ------
Income from investment operations<F6>--
Net investment loss $ (0.03) $ (0.02) $ (0.10) $ (0.25) $ (0.24)
Net realized and unrealized
gain (loss) on investments 0.77 (0.16) 0.75 0.94 2.66
------ ------ ------ ------ ------
Total from investment
operations $ 0.74 $ (0.18) $ 0.65 $ 0.69 $ 2.42
------ ------ ------ ------ ------
Less distributions declared to
shareholders from net realized gain $ (2.83) $ -- $ (2.79) $ (0.62) $ --
------ ------ ------ ------ ------
Net asset value - end of period $ 13.41 $ 15.50 $ 13.35 $ 15.49 $ 15.42
------ ------ ------ ------ ------
Total return<F5> 5.12%<F2> (5.99)%<F1> 4.47%<F2> 4.50% 18.62%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.52%<F1> 1.59%<F1> 2.26%<F1> 2.21% 2.37%
Net investment loss (0.26)%<F1> (0.75)%<F1> (1.01)%<F1> (1.55)% (1.85)%
Portfolio turnover 76% 106% 76% 106% 22%
Net assets at end of period (000
omitted) $121,498 $136,179 $214,055 $232,982 $249,493
<PAGE>
<CAPTION>
Financial Highlights
-----------------------------------------------------------------------------------------------------
Year Ended November 30, 1991 1990 1989 1988 1987<F3>
-----------------------------------------------------------------------------------------------------
Class B
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.23 $ 11.32 $ 7.86 $ 6.94 $ 6.50
------ ------- ------ ------ -----
Income from investment operations -
Net investment income (loss) $ (0.12) $ (0.03) $ 0.03 $ 0.09 $ 0.03
Net realized and unrealized gain
(loss) on investments 3.89 (2.06) 3.51 0.89 0.42
------ ------- ------ ------ -----
Total from investment operations $ 3.77 $ (2.09) $ 3.54 $ 0.98 $ 0.45
------ ------- ------ ------ -----
Less distributions declared to
shareholders from net investment
income $ -- $ -- $ (0.08) $ (0.06) $(0.01)
------ ------- ------ ------ -----
Net asset value - end of period $ 13.00 $ 9.23 $ 11.32 $ 7.86 $ 6.94
------ ------- ------ ------ -----
Total return 40.85% (18.46)% 45.35% 14.06% 7.47%<F1>
Ratios (to average net assets)/
Supplemental data:
Expenses 2.44% 2.50% 2.52% 2.31% 2.25%<F1>
Net investment income (loss) (1.00)% (0.27)% 0.37% 1.08% 0.09%<F1>
Portfolio turnover 59% 79% 84% 146% 163%
Net assets at end of period (000
omitted) $190,232 $152,132 $180,416 $137,311 $134,762
<FN>
<F1> Annualized.
<F2> Not annualized.
<F3> For the period from the commencement of investment operations, December 29,
1986 to November 30, 1987.
<F4> For the period from the commencement of offering of Class A shares,
September 20, 1993 to November 30, 1993.
<F5> Total returns for Class A shares do not include the sales charge. If the
sales charge had been included, the results would have been lower.
<F6> Per share data for the period ended August 31, 1994 is based on average
shares outstanding.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Managed Sectors Fund (the Fund) is a non-diversified series of MFS(R) Series
Trust I (the Trust). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. Effective September 20, 1993, the
Trustees of the Fund voted to change its name from MFS Lifetime Managed Sectors
Fund to MFS Managed Sectors Fund and simultaneously commenced offering Class A
and Class B shares. During 1994 the Fund changed its year end from November 30
to August 31, and financial statements are thus being presented for the
nine-month period ended August 31, 1994.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency and
translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the- counter options are
valued by brokers through the use of a pricing model which takes into account
closing bond valuations, implied volatility and short-term repurchase rates.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Foreign Currency Translation - Investment valuations, other assets and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Futures Contracts - The Fund may enter into financial futures contracts for the
delayed delivery of securities, currency or contracts based on financial indices
at a fixed price on a future date. The Fund is required to deposit either in
cash or securities an amount equal to a certain percentage of the contract
amount. Subsequent payments are made or received by the Fund each day, depending
on the daily fluctuations in the value of the underlying security, and are
recorded for financial statement purposes as unrealized gains or losses by the
Fund. The Fund's investment in financial futures contracts is designed to hedge
against anticipated future changes in interest or exchange rates or securities
prices. The Fund may also invest in financial futures contracts for non-hedging
purposes. Should interest or exchange rates or securities prices move
unexpectedly, the Fund may not achieve the anticipated benefits of the financial
futures contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At August 31, 1994, the Fund had no securities on loan.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The Fund will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend and interest payments received in additional securities are
recorded on the ex-dividend or ex-interest date in an amount equal to the value
of the security on such date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return, and consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Foreign taxes
have been provided for on interest and dividend income earned on foreign
investments in accordance with the applicable country's tax rates and to the
extent unrecoverable are recorded as a reduction of investment income.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated realized gains.
During the nine months ended August 31, 1994, $1,636,679 was reclassified from
paid-in capital to accumulated net investment loss and $5,780,184 was
reclassified from accumulated net realized gain on investments and foreign
currency transactions, to paid-in-capital, due to differences between book and
tax accounting for investment losses and distributions of realized gains. This
change had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers both Class A
and Class B shares. Class A shares were first offered to the public on September
20, 1993. The two classes of shares differ in their shareholder servicing agent,
distribution and service fees. Shareholders of each class also bear certain
expenses that pertain only to that particular class. All shareholders bear the
common expenses of the Fund pro rata, based on the average daily net assets of
each class, without distinction between share classes. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses, including shareholder servicing and distribution fees.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee, computed daily and paid monthly at an effective annual rate of
0.75% of average daily net assets, amounted to $1,952,229 and $2,065,624 for the
period ended August 31, 1994 and the year ended November 30, 1994, respectively.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Financial Services, Inc. (FSI)
and MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit
plan for all of its independent Trustees. Included in Trustees' compensation is
a net periodic pension expense of $8,739 and $8,903, for the period ended August
31, 1994 and the year ended November 30, 1993, respectively.
Distributor - FSI, a wholly owned subsidiary of MFS, as distributor, received
$18,287 as its portion of the sales charge on sales of Class A shares of the
Fund. The Trustees have adopted separate distribution plans for Class A and
Class B shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
The Class A Distribution Plan provides that the Fund will pay FSI up to 0.35% of
its average daily net assets attributable to Class A shares annually in order
that FSI may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with FSI of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to FSI of up to 0.10%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers and payments to FSI wholesalers for sales at or above a
certain dollar level, and other such distributions-related expenses that are
approved by the Fund. Fees incurred under the Distribution Plan during the
period ended August 31, 1994 and the year ended November 30, 1993 were 0.35% of
average daily net assets attributable to Class A shares on an annualized basis
and amounted to $328,311 and $97,023 (of which FSI retained $81,227 and
$27,883).
The Class B Distribution Plan provides that the Fund will pay FSI a monthly
distribution fee, equal to 0.75% annually, and a quarterly service fee of up to
0.25% per annum, of the Fund's average daily net assets attributable to Class B
shares which FSI will pay to securities dealers that enter into a sales
agreement with FSI at a rate of up to 0.25% per annum of the Fund's average
daily net assets attributable to Class B shares. The service fee is intended to
be additional consideration for services rendered by the dealer with respect to
Class B shares. Fees incurred under the Distribution Plan during the period
ended August 31, 1994 and the year ended November 30, 1993 were 1.00% of average
daily net assets attributable to Class B shares on an annualized basis and
amounted to $1,633,991 and $2,506,440, respectively (of which FSI retained
$66,240 and $18,800, respectively).
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a share
redemption within 12 months following the share purchase. A contingent deferred
sales charge is imposed on shareholder redemptions of Class B shares in the
event of a share redemption within six years of purchase. FSI receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the period ended August 31, 1994 and the year ended November 30, 1993
were approximately $221,844 and $362,000, respectively, for Class B shares.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$140,685 and $359,476 for Class A and Class B shares, respectively, for its
services as shareholder servicing agent for the period ended August 31, 1994 and
$41,581 and $551,417 for Class A and Class B shares, respectively, for the year
ended November 30, 1993. The fee is calculated as a percentage of average daily
net assets of each class of shares at an effective annual rate of up to 0.15%
and up to 0.22%, attributable to Class A and Class B shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $258,449,398 and $314,878,457, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $300,010,523
-----------
Gross unrealized appreciation $ 47,605,293
Gross unrealized depreciation 11,053,063
-----------
Net unrealized appreciation (depreciation) $ 36,552,230
-----------
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 20, 1993*
August 31, 1994 to November 30, 1993
-------------------------------- --------------------------------
Shares Amount Shares Amount
Class A Shares
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 723,889 $10,294,043 120,486 $ 1,946,843
Shares issued in connection with the
acquisition of MFS Managed Sectors Fund -- -- 9,100,413 142,671,119
Shares issued to shareholders in
reinvestment of distributions 1,680,518 22,115,635 -- --
Shares reacquired (2,124,598) (28,117,869) (437,993) (6,986,200)
-------------- --------------- ------------- ----------------
Net increase (decrease) 279,809 $ 4,291,809 8,782,906 $137,631,762
-------------- --------------- ------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
August 31, 1994 November 30, 1993 November 30, 1992
-------------------------------- --------------------------------- ---------------------------------
Shares Amount Shares Amount Shares Amount
Class B Shares
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,769,946 $23,366,142 3,337,222 $ 50,548,522 7,199,511 $103,260,454
Shares issued
to shareholders
in reinvestment
of distributions 2,868,472 37,778,743 584,152 8,938,772 -- --
Shares reacquired (3,645,250) (47,653,401) (5,063,674) (77,257,754) (5,645,899) (80,889,229)
-------------- --------------- -------------- ---------------- -------------- ----------------
Net increase
(decrease) 993,168 $13,491,484 (1,142,300) $ (17,770,460) 1,553,612 $ 22,371,225
-------------- --------------- -------------- ---------------- -------------- ----------------
</TABLE>
Commencement of offering of Class A shares.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $300 million, collectively.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
period ended August 31, 1994 and the year ended November 30, 1993 was $4,498 and
$4,537, respectively.
<PAGE>
(7) Transactions in Securities of Affiliated Issuers
Under the Investment Company Act of 1940, issuers affiliated with the Fund are
those in which the Fund's holdings represent 5% or more of the outstanding
voting securities of the issuer. A summary of the Fund's transactions in the
securities of these issuers during the nine months ended August 31, 1994 is set
forth below.
<TABLE>
<CAPTION>
Acquisitions Dispositions Ending Realized
Beginning ------------------------- ------------------------ Share Gain Dividend Ending
Affiliate Shares Shares Cost Shares Cost Amount (Loss) Income Value
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sierra On-Line,
Inc. -- 401,900 $7,913,063 -- $ -- 401,900 $ -- $ -- $8,741,325
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(8) Restricted Securities
The Fund may not invest more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At August 31, 1994,
the Fund owned the following restricted security (constituting 0.08% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that this security be
registered. The value of this security is determined in good faith by or at the
direction of the Trustees. This security may be offered and sold to "qualified
institutional buyers" under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Description Date of Acquisition Shares Cost Value
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Phar-Mor, Inc. 4/22/92 - 5/05/92 98,000 $2,854,000 $263,620
</TABLE>
(9) Acquisitions
At close of business on September 20, 1993, the Fund acquired all of the assets
and liabilities of MFS Managed Sectors Fund (MMS). The acquisition was
accomplished by a tax-free exchange of 9,100,413 Class A shares of the Fund
(valued at $142,671,119), for the 10,372,042 shares of MMS. MMS's net assets on
that date ($142,671,119), including $23,513,889 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund after the
acquisition were $397,298,434.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust I and Shareholders of MFS Managed Sectors
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Managed Sectors Fund as of August 31, 1994,
the related statement of operations for the nine months ended August 31, 1994
and the year ended November 30, 1993, the statement of changes in net assets for
the nine months ended August 31, 1994 and the years ended November, 1993 and
1992, and the financial highlights for the nine months ended August 31, 1994 and
for each of the years in the seven-year period ended November 30, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1994 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Managed Sectors
Fund at August 31, 1994, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 7, 1994
--------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) MANAGED BULK RATE
SECOTRS FUND U.S. POSTAGE
P A I D
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
[LOGO]
MMS-2 10/94/50m 08/208
<PAGE>
<TABLE>
<S> <C>
MFS(R) Managed Sectors Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Cash Reserve Fund MFS(R) Alabama Municipal Bond Fund
MFS(R) World Asset Allocation Fund MFS(R) Arkansas Municipal Bond Fund
MFS(R) Emerging Growth Fund MFS(R) California Municipal Bond Fund
MFS(R) Capital Growth Fund MFS(R) Florida Municipal Bond Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Georgia Municipal Bond Fund
MFS(R) Intermediate Income Fund MFS(R) Louisiana Municipal Bond Fund
MFS(R) High Income Fund MFS(R) Maryland Municipal Bond Fund
MFS(R) Municipal High Income Fund MFS(R) Massachusetts Municipal Bond Fund
MFS(R) Money Market Fund MFS(R) Mississippi Municipal Bond Fund
MFS(R) Government Money Market Fund MFS(R) New York Municipal Bond Fund
MFS(R) Municipal Bond Fund MFS(R) North Carolina Municipal Bond Fund
MFS(R) OTC Fund MFS(R) Pennsylvania Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) South Carolina Municipal Bond Fund
MFS(R) Research Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) World Total Return Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) Virginia Municipal Bond Fund
MFS(R) World Equity Fund MFS(R) Washington Municipal Bond Fund
MFS(R) World Governments Fund MFS(R) West Virginia Municipal Bond Fund
MFS(R) Value Fund MFS(R) Growth Opportunities Fund
MFS(R) Strategic Income Fund MFS(R) Government Mortgage Fund
MFS(R) World Growth Fund MFS(R) Government Securities Fund
MFS(R) Bond Fund Massachusetts Investors Growth Stock Fund
MFS(R) Limited Maturity Fund MFS(R) Government Limited Maturity Fund
Massachusetts Investors Trust
</TABLE>
Supplement to the Current Prospectus
Effective as of January 1, 1995, MFS Fund Distributors, Inc. ("MFD") has
replaced MFS Financial Services, Inc. ("FSI") as the Fund's distributor. Both
MFD and FSI are wholly-owned subsidiaries of Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser.
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) The sponsoring organization must demonstrate to the satisfaction of MFD
that either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirement plan of Class A shares of the Funds will be in an
amount of at least $250,000 within a reasonable period of time, as determined by
MFD in its sole discretion; and
(ii) A contingent deferred sales charge of 1% will be imposed on such
purchases in the event of certain redemption transactions within 12 months
following such purchases.
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale.
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an
administrative services agreement with MFD or one or more of its affiliates to
perform certain administrative services, subject to certain operational
requirements specified from time to time by MFD or one or more of its
affiliates.
(Over)
<PAGE>
Class A shares of the Fund (except of the MFS municipal bond funds
identified above) may be purchased at net asset value by retirement plans
qualified under Section 401(k) of the Code through certain broker-dealers and
other financial institutions which have entered into an agreement with MFD which
includes certain minimum size qualifications for such retirement plans and pro-
vides that the broker-dealer or other financial institution will perform certain
administrative services with respect to the plan's account.
The CDSC on Class A and Class B shares will be waived upon redemption by a
retirement plan where the redemption proceeds are used to pay expenses of the
retirement plan or certain expenses of participants under the retirement plan
(e.g., participant account fees), provided that the retirement plan's sponsor
subscribes to the MFS Fundamental 401(k) Plan(SM) or another similar
recordkeeping system made available by MFS Service Center, Inc. (the
"Shareholder Servicing Agent").
The CDSC on Class A and B shares will be waived upon the transfer of
registration from shares held by a retirement plan through a single account
maintained by the Shareholder Servicing Agent to multiple Class A and B share
accounts, respectively, maintained by the Shareholder Servicing Agent on behalf
of individual participants in the retirement plan, provided that the retire-
ment plan's sponsor subscribes to the MFS Fundamental 401(k) Plan(SM) or another
similar recordkeeping system made available by the Shareholder Servicing Agent.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
The current Prospectus discloses that "Class A shares of the Fund may also
be purchased at net asset value where the purchase is in an amount of $3 million
or more and where the dealer and FSI enter into an agreement in which the dealer
agrees to return any commission paid to it on the sale (or a pro rata portion
thereof) as described above if the shareholder redeems his or her shares within
one year of purchase. (Shareholders who purchase shares at NAV pursuant to these
conditions are called ("$3 Million Shareholders")." This policy is terminated
effective as of the date of this Supplement and the above-referenced language,
and all references to "$3 Million Shareholders," are deleted from the
Prospectus.
From time to time, MFD may pay dealers 100% of the applicable sales charge
on sales of Class A shares of certain specified Funds sold by such dealer
during a specified sales period. In addition, MFD or its affiliates may, from
time to time, pay dealers an additional commission equal to 0.50% of the net
asset value of all of the Class B shares of certain specified Funds sold by such
dealer during a specified sales period.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to reinvest all dividends
and other distributions reinvested in additional shares.
From time to time, MFS may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fees charged by the custodian of the Fund's assets).
The date of this Supplement is January 13, 1995.
MFS-16-1/95/605M
<PAGE>
<TABLE>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS(R) TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) GOVERNMENT MONEY MARKET FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) CASH RESERVE FUND
MFS(R) EMERGING GROWTH FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) INCOME & OPPORTUNITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD GROWTH FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) MONEY MARKET FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) RESEARCH FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) MUNICIPAL INCOME FUND
</TABLE>
Supplement to the Current Prospectus
Effective immediately, the Funds have expanded their policies with respect
to exchanges effected by market timers to be as follows:
FSI may enter into an agreement with shareholders who intend to make
exchanges among certain classes of certain MFS Funds (as determined by FSI)
which follow a timing pattern, and with individuals or entities acting on
such shareholders' behalf (collectively, "market timers"), setting forth
the terms, procedures and restrictions with respect to such exchanges. In
the absence of such an agreement, it is the policy of the Fund and FSI to
reject or restrict purchases by market timers if (i) more than two exchange
purchases are effected in a timed account in the same calendar quarter or
(ii) a purchase would result in shares being held in timed accounts by
market timers representing more than (x) one percent of the Fund's net
assets or (y) specified dollar amounts in the case of certain MFS Funds
which may include the Fund and which may change from time to time. The Fund
and FSI each reserve the right to request market timers to redeem their
shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
The date of this Supplement is April 1, 1994.
MFS-1 6F-4/94/500M
<PAGE>
MFS(R) CASH RESERVE FUND
(a series of MFS SERIES TRUST I)
Supplement to be affixed to the current
Prospectus for distribution in Iowa
For Class B shares purchased after September 1, 1993, a contingent deferred
sales charge declining from 4% to 0% will be imposed if the investor redeems
within six years from the date of purchase. In addition, the Class is subject to
an annual distribution and service fee of 1% of its average daily net assets.
The date of this Supplement is April 1, 1994.
MCR-161A-4/94/7M
<PAGE>
MFS(R)
CASH RESERVE
FUND
(COVER ARTWORK)
PROSPECTUS
April 1, 1994
<PAGE>
MFS(R) CASH
RESERVE FUND
(A member of the MFS Family of Funds(R))
PROSPECTUS
April 1, 1994
Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
Page
1. The Fund 2
2. Expense Summary 2
3. Condensed Financial Information 4
4. Investment Objective and Policies 4
5. Investment Techniques 5
6. Management of the Fund 6
7. Information Concerning Shares of the Fund 7
Purchases 7
Exchanges 10
Redemptions and Repurchases 10
Distribution Plans 13
Distributions 14
Tax Status 14
Description of Shares, Voting Rights and Liabilities 15
Performance Information 15
8. Shareholder Services 16
Appendix A 18
Appendix B 19
Appendix C 20
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS CASH RESERVE FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of MFS Cash Reserve Fund (the "Fund") is to provide
as high a level of current income as is considered consistent with the
preservation of capital and liquidity. The Fund is a diversified series of
MFS Series Trust I (the "Trust"), an open-end management investment company.
The minimum initial investment generally is $1,000 per account (see
"Purchases"). The Fund's investment adviser and distributor are Massachusetts
Financial Services Company and MFS Financial Services, Inc., respectively,
both of which are located at 500 Boylston Street, Boston, Massachusetts
02116.
Investments in the Fund are neither insured nor guaranteed by the U.S.
Government and there is no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share. In addition, shares of the Fund
are not deposits or obligations of, or guaranteed or endorsed by, any bank
and the shares are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency.
This Prospectus sets forth concisely the information concerning the Trust and
Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
a Statement of Additional Information, dated April 1, 1994, which contains
more detailed information about the Trust and the Fund and is incorporated
into this Prospectus by reference. See page 17 for a further description of
the information set forth in the Statement of Additional Information. A copy
of the Statement of Additional Information may be obtained without charge by
contacting the Shareholder Servicing Agent (see back cover for address and
phone number).
Investors should read this Prospectus and retain it for future reference.
<PAGE>
1. THE FUND
The Fund is 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 on July 30, 1986 (the "Trust"). The Trust
presently consists of two series of shares, each of which represents a
portfolio with separate investment policies. Shares of the Fund are
continuously sold to the public and the Fund then uses the proceeds to buy
securities for its portfolio. Two classes of shares of the Fund currently are
offered to the general public. Class A shares are offered at net asset value
and subject to a Distribution Plan providing for a distribution fee and a
service fee. Class B shares are offered at net asset value without an initial
sales charge but subject to a contingent deferred sales charge (a "CDSC") and
a Distribution Plan providing for a distribution fee and a service fee which
are greater than the Class A distribution fee and service fee; Class B shares
will convert to Class A shares approximately eight years after purchase.
The Trust's Board of Trustees provides broad supervision over the affairs of
the Fund. Massachusetts Financial Services Company, a Delaware corporation
("MFS" or the "Adviser"), is the Fund's investment adviser. A majority of the
Trustees are not affiliated with the Adviser. Prior to September 1, 1993,
Lifetime Advisers, Inc. ("LAI"), a Delaware corporation and a wholly owned
subsidiary of MFS, was the investment adviser for the Fund. The Adviser is
responsible for the management of the Fund's assets and the officers of the
Trust are responsible for the Fund's operations. The Adviser manages the
portfolio from day to day in accordance with the Fund's investment objective
and policies. The Trust also offers to buy back (redeem) the Fund's shares
from Fund shareholders at any time at net asset value, less any applicable
CDSC.
2. EXPENSE SUMMARY
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Initial Sales Charge Imposed on Purchases (as a percentage of offering price) 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) 0.00% 4.00%
Annual Operating Expenses (as a percentage of average net assets):(1)
Management Fees (after applicable fee reduction)(2) 0.45% 0.45%
Rule 12b-1 Fees (after applicable fee reduction) 0.00%(3) 1.00%(4)
Other Expenses 0.48%(5) 0.55%
Total Operating Expenses (after applicable fee reduction)(6) 0.93% 2.00%
<FN>
(1) For Class B shares, percentages are based on fees incurred during the fiscal
year ended November 30, 1993. For Class A shares, which were initially offered
on September 7, 1993, percentages are based on Class B expenses adjusted for
Class specific expenses.
(2) Absent any management fee reduction, management fees would have been 0.55%.
(3) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"), which provides that it will pay distribution/services fees
aggregating up to (but not necessarily all of) 0.35% per annum of the average
daily net assets attributable to the Class A shares (see "Distribution Plans").
After a substantial period of time, distribution and service expenses paid under
this Plan may total more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge. Payments will
commence under the Class A Distribution Plan on the date on which the value of
the net assets of the Fund attributable to Class A shares first equals or
exceeds $40 million, at which time the Fund's distributor will waive payment of
0.10% payable under the Class A Distribution Plan (See "Distribution Plans").
(4) The Fund has adopted a Distribution Plan for its Class B shares (the "Class
B Distribution Plan") in accordance with Rule 12b-1 under the 1940 Act which
provides that it will pay distribution/service fees aggregating up to 1.00% per
annum of the average daily net assets attributable to the Class B shares (see
"Distribution Plans"). After a substantial period of time, distribution and
service expenses paid under this Plan, together with any CDSC, may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
(5) Based on Class B expenses incurred during the last fiscal year except
for the shareholder servicing agent fees component of "Other Expenses" which
has been estimated for Class A shares.
(6) Absent any fee reductions, total operating expenses would have been 1.03%
for Class A shares and 2.10% for Class B shares. If the Distribution Plan had
been in full effect for Class A, total operating expenses would have been 1.38%.
</FN>
</TABLE>
<PAGE>
Example of Expenses
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
Period Class A Class B
(1)
1 year $ 9 $ 60 $ 20
3 years 30 93 63
5 years 51 128(2) 108(2)
10 years 114 205 205
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years
after purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund
will bear directly or indirectly. More complete descriptions of the following
Fund expenses are set forth in the following sections: (i) varying
CDSCs--"Purchases"; (ii) management fees--"Investment Adviser"; and (iii)
Rule 12b-1 (i.e., distribution plan) fees--"Distribution Plans."
The "Example" set forth above should not be considered a representation of
past or future expenses of the Fund; actual expenses may be greater or less
than those shown.
Each class of shares of the Fund has been created primarily for the
convenience of shareholders seeking a temporary investment vehicle pending an
investment in the same class of shares of a Fund in the MFS Family of Funds.
However, other money market funds managed by MFS have lower expense ratios
than the Fund and, unlike the Fund, are not subject to a Distribution Plan
and, with respect to Class B shares, impose no CDSC upon redemption.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which is
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche, independent certified public
accountants, as experts in accounting and auditing.
Financial Highlights
<TABLE>
<CAPTION>
Year Ended November 30, 1993# 1993 1992 1991 1990 1989 1988 1987+
Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------ ------ ------
Net investment income $0.01 $0.01++ $0.02++ $0.04++ $0.06 $0.07 $0.06 $0.04
Less distributions declared to
shareholders from net investment
income (0.01) (0.01) (0.02) (0.04) (0.06) (0.07) (0.06) (0.04)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value--end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ====== ======
Total return 0.53%** 1.16% 1.79% 4.56% 6.12% 7.34% 5.85% 4.42%*
Ratios (to average net assets)/
Supplemental data:
Expenses 0.92%* 2.00%++ 2.22%++ 2.04%++ 2.23% 2.24% 2.06% 2.06%*
Net investment income 2.26%* 1.19%++ 1.83%++ 4.53%++ 6.06% 7.10% 5.59% 5.59%*
Net assets at end of period ($000
omitted) $49 $155,274 $125,439 $161,040 $203,314 $146,885 $139,518 $83,845
<FN>
+For the period from the commencement of investment operations, December 29, 1986 to November 30, 1987.
*Annualized.
**Not annualized.
#For the period from the commencement of offering of Class A shares, September 7, 1993 to November 30, 1993.
++The investment adviser did not impose all of its management fee for the periods indicated. If this fee had been incurred by
the Fund, the net investment income per share and the ratios would have been:
Net investment income -- $ 0.01 $ 0.02 $ 0.04 -- -- -- --
Ratios (to average net assets):
Expenses 1.02% 2.10% 2.32% 2.13% -- -- -- --
Net investment income 2.10% 1.09% 1.73% 4.44% -- -- -- --
</FN>
</TABLE>
4. INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide as high a level of current income as is considered
consistent with the preservation of capital and liquidity. The Fund seeks to
achieve its investment objective by investing primarily (i.e., at least 80%
of its assets under normal circumstances) in the following instruments:
(i) obligations issued or guaranteed as to interest and principal by the U.S.
Government or any agency, authority or instrumentality thereof (including
repurchase agreements collateralized by such securities);
(ii) obligations of banks (including certificates of deposit and bankers'
acceptances) which at the date of investment have capital, surplus and
undivided profits (as of the date of their most recently published financial
statements) in excess of $100 million; and obligations of other banks or
savings and loan associations if such obligations are insured by the Federal
Deposit Insurance Corporation ("FDIC"), provided that not more than 10% of
the total assets of the Fund will be invested in such insured obligations;
<PAGE>
(iii) commercial paper which at the date of investment is rated A-1 by
Standard & Poor's Ratings Group ("S&P") or P-1 by Moody's Investors Service,
Inc. ("Moody's"), or, if not rated, is issued or guaranteed as to payment of
principal and interest by companies which at the date of investment have an
outstanding debt issue rated AA or better by S&P or Aa or better by Moody's; and
(iv) short-term (maturing in 13 months or less) corporate obligations which at
the date of investment are rated AA or better by S&P or Aa or better by Moody's.
The Fund may also invest up to 20% of its total assets in debt instruments not
specifically described in (i) through (iv) above, provided that such instruments
are deemed by the Trustees to be of comparable high quality and liquidity. The
Fund may invest its assets in the U.S. dollar-denominated securities of foreign
issuers and in the securities of foreign branches of U.S. banks such as
negotiable certificates of deposit (Eurodollars). Since the portfolio of the
Fund may contain such securities, an investment therein may involve a greater
degree of risk than an investment in a fund which invests only in debt
obligations of U.S. domestic issuers, due to the possibility that there may be
less publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions, war or expropriation. The Fund may
invest up to 75% of its assets in all finance companies as a group, all banks
and bank holding companies as a group and all utility companies as a group, when
in the opinion of the Adviser yield differentials and money market conditions
suggest such investments are advisable and when cash is available for such
investment and instruments are available for purchase which fulfill the Fund's
objectives in terms of quality and marketability.
For a further description of the instruments and ratings discussed above and
a description of the risks associated with such investments, see Appendices
A, B and C to this Prospectus.
All the assets of the Fund will be invested in obligations which mature in
less than 13 months and generally these investments will be held to maturity;
however, securities collateralizing repurchase agreements may have maturities
in excess of 13 months. The Fund will, to the extent feasible, make portfolio
investments primarily in anticipation of or in response to changing economic
and money market conditions and trends. Under regulations currently in
effect, the average maturity of the investments of the Fund may not exceed 90
days. The Fund does not intend to enter into options transactions.
For a discussion of the manner in which the Fund will calculate its yield,
see the Statement of Additional Information.
The investment objective and policies described above may be changed without
shareholder approval.
5. INVESTMENT TECHNIQUES Lending of Securities: The Fund may make loans of its
portfolio securities. Such loans will usually be made only to member banks of
the Federal Reserve System and member firms (and subsidiaries thereof) of the
New York Stock Exchange and would be required to be secured continuously by
collateral in cash, cash equivalents 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 continue to collect the equivalent of the
interest on the securities loaned and would also receive either interest
(through investment of cash collateral) or a fee (if the collateral is U.S.
government securities).
Repurchase Agreements: The Fund may enter into repurchase agreements in order to
earn additional income on available cash or as a temporary defensive measure.
Under a repurchase agreement the Fund acquires securities subject to the
seller's agreement to repurchase at a specified time and price. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Fund's right to liquidate the securities
may be restricted (during which time the value of the securities could decline).
As discussed in the Statement of Additional Information, the Fund has adopted
certain procedures which are intended to minimize any such risk.
Portfolio Trading
The Fund intends to manage its portfolio by buying and selling securities to
help attain its investment objective. This may result in increases or
decreases in the Fund's current income available for distribution to the
Fund's shareholders and in the holding
<PAGE>
by the Fund of debt securities which sell at moderate to substantial premiums
or discounts from face value. The Fund will engage in portfolio trading if it
believes a transaction, net of costs (including custodian charges), will help
in attaining its investment objective. (See "Portfolio Transactions and
Brokerage Commissions" in the Statement of Additional Information.)
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD") and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of other investment company
clients of MFS Financial Services, Inc. ("FSI"), the Trust's distributor, as
a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. For a further discussion of portfolio trading, see the
Statement of Additional Information.
The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Fund's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may not be changed without
shareholder approval (see "Investment Restrictions" in the Statement of
Additional Information). 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.
6. MANAGEMENT OF THE FUND
Investment Adviser--MFS manages the Fund pursuant to an Investment Advisory
Agreement dated September 1, 1993 (the "Advisory Agreement"). The Adviser
provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Geoffrey L. Kurinsky has been
the Fund's portfolio manager since January 1, 1992. Mr. Kurinsky, a Senior
Vice President of the Adviser, has been an Investment Analyst with the
Adviser since 1987. 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 0.55% of the Fund's average daily net assets
for its then-current fiscal year. The Adviser agreed voluntarily to reduce
its fee with respect to the Fund to 0.45% of the Fund's average daily net
assets. This temporary fee reduction for the Fund may be rescinded at any
time by the Adviser, upon written notice to the Fund, as to fees accruing
after the date of such rescission.
For the Fund's fiscal year ended November 30, 1993 the Fund's current
investment adviser, MFS, together with the Fund's former investment adviser,
Lifetime Advisers, Inc. (a wholly owned subsidiary of MFS) received
management fees under the Fund's Advisory Agreements of $665,052 before a
reduction of $111,576.
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 Union Standard Trust, MFS Institutional Trust, MFS/Sun Life Series Trust,
Sun Growth Variable Annuity Fund, Inc. and seven variable accounts, each of
which is a registered investment company established by Sun Life Assurance
Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the
sale of Compass-2 and Compass-3 combination fixed/variable annuity contracts.
The MFS Asset Management Group, a division of the Adviser, provides
investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $34.9 billion on behalf of approximately 1.4 million investor
accounts as of February 28, 1994. As of such date, the MFS organization managed
approximately $9.9 billion of assets invested in equity securities and
approximately $21.5 billion of assets invested in fixed income securities.
Approximately $4.3 billion of the assets managed by MFS are invested in
securities of foreign issuers and non-U.S. dollar denominated securities of U.S.
issuers. MFS is a subsidiary of Sun Life of Canada (U.S.), which in turn is a
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Directors
of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D. McNeil
and John R. Gardner. Mr. Brodkin is the Chairman, Mr. Shames is the President
and Mr. Scott is the Secretary and a Senior Executive
<PAGE>
Vice President of MFS. Messrs. McNeil and Gardner are the Chairman and
President, respectively, of Sun Life. Sun Life, a mutual life insurance
company, is one of the largest international life insurance companies and has
been operating in the United States since 1895, establishing a headquarters
office here in 1973. The executive officers of MFS report to the Chairman of
Sun Life. A. Keith Brodkin, the Chairman of MFS, is the Chairman and
President of the Trust. W. Thomas London, Stephen E. Cavan, James R.
Bordewick, Jr. James O. Yost and Linda J. Hoard, all of whom are officers of
MFS, are officers of the Trust.
Distributor--FSI, a wholly owned subsidiary of MFS, is the distributor of shares
of the Fund and also serves as distributor for each of the other MFS Funds.
Shareholder Servicing Agent--MFS Service Center, Inc. ("MFSC" or the
"Shareholder Servicing Agent"), a wholly owned subsidiary of MFS, performs
transfer agency, certain dividend disbursing agency and other services for the
Trust.
7. INFORMATION CONCERNING SHARES OF THE FUND
Purchases Shares of the Fund may be purchased at net asset value through any
securities dealer, certain banks and other financial institutions having selling
agreements with FSI. Non-securities dealer financial institutions will receive
(in the case of Class B shares) transaction fees that are the same as commission
fees to dealers. Securities dealers and other financial institutions may charge
their customers fees relating to investments in the Fund.
The Fund offers two classes of shares which bear distribution fees in different
forms and amounts and which, in the case of Class B shares, are offered subject
to a CDSC:
Class A shares. Class A shares are offered at net asset value per share.
Class B shares: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC as follows:
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
First 4%*
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
*Class B shares purchased between January 1, 1993 and August 31, 1993 will be
subject to a CDSC of 5% in the event of a redemption within the first year
after purchase.
For Class B shares purchased prior to January 1, 1993, the Fund imposes a
CDSC as a percentage of redemption proceeds as follows:
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
First 6%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
<PAGE>
No CDSC is paid upon an exchange of shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the
time of the original purchase of the exchanged shares. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge" for further discussion of the
CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Internal Revenue Code of 1986, as amended
(the "Code")) of any investor, provided the account is registered (i) in the
case of a deceased individual, solely in the deceased individual's name, (ii)
in the case of a disabled individual, solely or jointly in the disabled
individual's name or (iii) in the name of a living trust for the benefit of
the deceased or disabled individual. The CDSC on Class B shares will also be
waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other
retirement plan qualified under section 401(a), 401(k) or 403(b) of the Code,
due to death or disability, or in the case of required minimum distributions
from any such retirement plan due to attainment of age 70-1/2. The CDSC on
Class B shares will be waived in the case of distributions from a retirement
plan qualified under Section 401(a) or 401(k) of the Code due to (i) returns
of excess contribution to the plan, (ii) retirement of a participant in the
plan, (iii) a borrowing from the plan (repayments of borrowings, however,
will constitute new sales for purposes of assessing the CDSC), (iv)
"financial hardship" of the participant in the plan, as that term is defined
in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to
time, and (v) termination of employment of the participant in the plan
(excluding, however, a partial or other termination of the plan). The CDSC on
Class B shares will also be waived upon redemptions by (i) officers of the
Trust, (ii) any of the subsidiary companies of Sun Life, (iii) eligible
Directors, officers, employees (including retired employees) and agents of
MFS, Sun Life or any of their subsidiary companies, (iv) any trust, pension,
profit-sharing or any other benefit plan for such persons, (v) any trustees
and retired trustees of any investment company for which FSI serves as
distibutor or principal underwriter and (vi) certain family members of such
individuals and their spouses, provided in each case that the shares will not
be resold except to the Fund. The CDSC on Class B shares will also be waived
in the case of redemptions by any employee or registered representative of
any dealer or other financial institution which has a sales agreement with
FSI or its affiliate, by certain family members of any such employee or
representative and his or her spouse, by any trust, pension, profit-sharing
or other retirement plan for the sole benefit of such employee or
representative and by clients of the MFS Asset Management Group. A retirement
plan qualified under section 401(a) or 401(k) of the Internal Revenue Code of
1986, as amended, (a "Retirement Plan") that has invested its assets in Class
B shares of one or more of the MFS Family of Funds (the "MFS Funds") for more
than 10 years from the later to occur of (i) January 1, 1993 or (ii) the date
the Retirement Plan first invests its assets in Class B shares of one or more
of the funds in the MFS Funds will have the CDSC on Class B shares waived in
the case of a redemption of all the Retirement Plan's shares (including any
Class A shares) in all MFS Funds (i.e., all the assets of the Retirement Plan
invested in the MFS Funds are withdrawn), except that if, immediately prior
to the redemption, the aggregate amount invested by the Retirement Plan in
Class B shares of the MFS Funds (excluding the reinvestment of distributions)
during the prior four year period equals 50% or more of the total value of
the Retirement Plan's assets in the MFS Funds, then the CDSC will not be
waived. The CDSC on Class B shares may also be waived in connection with the
acquisition or liquidation of the assets of other investment companies or
personal holding companies.
Conversion of Class B Shares. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Distribution Plan
applicable to Class B shares. 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 shareholder's total
<PAGE>
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.
General: Except as described below, the minimum initial investment is $1,000
per account and the minimum additional investment is $50 per account.
Accounts being established for monthly automatic investment 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 FSI.
The Fund reserves the right to cease offering shares at any time.
A shareholder whose shares are held in the name of, or controlled by, an
investment dealer might not receive many of the services from the Fund (such
as certain recordkeeping services) that the Fund ordinarily provides.
The Fund and FSI each reserve the right to reject any specific purchase order
or to restrict purchases by a particular purchaser (or group of related
purchasers) for any reason. For example, the Fund or FSI may reject or
restrict purchases of the Fund's shares by a particular purchaser or group
when a pattern of frequent purchases and sales of shares of the Fund is
evident, or if the purchase and sale orders are, or a subsequent abrupt
redemption might be, of a size that would disrupt management of the Fund. The
Fund and FSI intend specifically to exercise this right in order to reject or
restrict purchases by market timers (including asset allocators) and the
shareholder(s) whose accounts are exchanged periodically based on an
arrangement with or advice from such persons or whose transactions seem to
follow a timing pattern. In particular, action may be taken if: (i) more than
two exchange purchases are effected in a timed account in the same calendar
quarter; or (ii) a purchase would result in shares being held in timed
accounts by an individual or firm representing more than (x) one percent of
the Fund's net assets or (y) specified dollar amounts in the case of certain
funds in the MFS Funds, which may include the Fund and which may change from
time to time. The Fund and FSI each reserve the right to request holders of
timed accounts to redeem their shares at net asset value, less any CDSC
otherwise applicable, if either of these restrictions is violated.
The Fund intends to be as fully invested at all times as is reasonably
practicable in order to maximize the yield on its assets. The money markets
in which the Fund will purchase and sell portfolio securities normally
require immediate settlement of transactions in federal funds. Accordingly,
in order to make investments which will immediately generate income, the Fund
must have federal funds available to it (i.e., monies credited to its
custodian bank by a Federal Reserve Bank). AN ORDER FOR THE PURCHASE OF
SHARES OF THE FUND IS ACCEPTED EITHER IMMEDIATELY UPON RECEIPT OF FEDERAL
FUNDS OR A "FEDERAL RESERVE DRAFT" OR ON THE SECOND BUSINESS DAY AFTER
RECEIPT OF A CHECK, BANK DRAFT, MONEY ORDER OR OTHER SIMILAR NEGOTIABLE
INSTRUMENT. Therefore, a non-federal funds investment will remain idle for
two business days after it is received by the Shareholder Servicing Agent.
Information on how to procure a "Federal Reserve Draft" is available at any
national bank or any state bank which is a member of the Federal Reserve
System. (Checks drawn on the U.S. Treasury are not federal funds.)
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A and Class B shares.
The Glass-Steagall Act prohibits national banks from engaging in the business
of underwriting, selling or distributing securities. Although the scope of
the prohibition has not been clearly defined, FSI believes that such Act
should not preclude banks from entering into agency agreements with FSI (as
described above). If, however, a bank were prohibited from so acting, the
Trustees would consider what actions, if any, would be necessary to continue
to provide efficient and effective shareholder services.
<PAGE>
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 Subject to the requirements set forth below, some or all of the
Class B shares in an account for which payment has been received by the Fund
(i.e.,) an established account) may be exchanged for Class B shares of any of
the other MFS Funds (if available for sale) at net asset value. Class A shares
may be redeemed and Class A shares of any of the other MFS Funds acquired at net
asset value plus their normal sales charge (if available for sale). Class A
shares of the Fund acquired by exchange from any of the other MFS Funds or by
automatic investment of dividends from other MFS Funds may be exchanged for
Class A shares of any of such other MFS Fund (if available for sale) at net
asset value. Shares of one class may not be exchanged for shares of any other
class. Exchanges will be made 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). 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 MFS Service Center, Inc.) or all the
shares in the account. If the Exchange Request is received by the Shareholder
Servicing Agent on any business day prior to the close of regular trading on the
New York Stock Exchange (the "Exchange"), the exchange usually will occur on
that day if all the requirements set forth above have been complied with at that
time. No more than five exchanges may be made in any one Exchange Request by
telephone. Additional information concerning this exchange privilege and
prospectuses for any of the other MFS Funds may be obtained from investment
dealers or the Shareholder Servicing Agent. A shareholder should read the
prospectus of the other MFS Fund and consider the differences in objectives and
policies before making any exchange. For federal and (generally) state income
tax purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder making
the exchange. Exchanges by telephone are automatically available to most
non-retirement plan accounts and certain retirement plan accounts. For further
information regarding exchanges by telephone see Redemptions and
Repurchases--"Redemptions By Telephone." The exchange privilege (or any aspect
of it) may be changed or discontinued and is subject to certain limitations,
including certain restrictions on purchases by market timer accounts (see
"Purchases").
Redemptions and Repurchases
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value or by selling such shares to the Fund through a dealer (a
repurchase). Certain purchases may, however, be subject to a CDSC in the
event of certain redemption transactions (see "Contingent Deferred Sales
Charge" below). For the convenience of shareholders, the Fund has arranged
for different procedures for redemption and repurchase. The proceeds of a
redemption or repurchase will normally be available within seven days, except
for shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks); payment of redemption
proceeds may be delayed for 15 days from the purchase date in an effort to
assure that such check has cleared.
A. Redemption By Mail--Each shareholder has the right to redeem all or any
portion of the shares in his account by mailing or delivering to the
Shareholder Servicing Agent (see back cover for address) a stock power with a
written request for redemption or a letter of instructions, all in "good
order" for transfer. "Good order" generally means that a stock power, written
request for redemption, letter of instructions or share certificate must be
endorsed by the record owner(s) exactly as the shares are registered and the
signature(s) must be guaranteed in the manner set forth below under the
caption "Signature Guarantee". In addition, in some cases, "good order" may
require the furnishing of additional documents. The Shareholder Servicing
Agent may make certain de minimis exceptions to the above requirements for
redemption. Within seven days after receipt of a redemption request by the
Shareholder Servicing Agent in "good order", the Fund will make payment in
cash of the net asset value of the shares next determined after such
redemption request was received, reduced by the amount of any applicable CDSC
<PAGE>
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 the Exchange is
restricted, or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists (see "Tax Status").
B. Redemption By Telephone--Each shareholder may redeem an amount from his
account by telephoning 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 commercial bank and account number to receive the proceeds of such
redemption, and sign the Account Application Form with the signature(s)
guaranteed in the manner set forth below under the caption "Signature
Guarantee". The proceeds of such a redemption, reduced by the amount of any
applicable CDSC described above and the amount of any income tax required to
be withheld, are mailed by check to the designated account, without charge.
As a special service, investors may arrange to have proceeds in excess of
$1,000 wired in federal funds to the designated account. If a telephone
redemption request is received by the Shareholder Servicing Agent by the
close of regular trading on the Exchange on any business day, shares will be
redeemed at the closing net asset value of the Fund on that day. Subject to
the conditions described in this section, proceeds of a redemption are
normally mailed or wired on the next business day following the date of
receipt of the order for redemption. The Shareholder Servicing Agent will not
be responsible for any losses resulting from unauthorized telephone
transactions if it follows reasonable procedures designed to verify the
identity of the caller. The Shareholder Servicing Agent will request personal
or other information from the caller, and will normally also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately after their receipt.
C. Repurchase Through a Dealer--If a shareholder desires to sell his shares
at their net asset value through his securities dealer (a repurchase), the
shareholder can place a repurchase order with his dealer, who may charge the
shareholder a fee. Net asset value is calculated on the day the dealer places
the order with FSI, as the Fund's agent. If the dealer receives the
shareholder's order prior to the close of regular trading on the Exchange and
communicates it to FSI on the same day before FSI closes for business, the
shareholder will receive the net asset value calculated on that day reduced
by the amount of any applicable CDSC and the amount of any income tax
required to be withheld.
D. Redemption By Check--Only Class A shares may be redeemed by check. A
shareholder (except a $3 Million Shareholder) owning Class A shares of the
Fund may elect to have a special account with State Street Bank and Trust
Company (the "Bank") for the purpose of redeeming Class A shares from his or
her account by check. The Bank will provide each Class A shareholder, upon
request, with forms of checks drawn on the Bank. Checks may be made payable
in any amount not less than $500. Shareholders wishing to avail themselves of
this redemption by check privilege should so request on their Account
Application, must execute signature cards (for additional information, see
the Account Application) with signature guaranteed in the manner set forth
under the caption "Signature Guarantee". Additional documentation will be
required from corporations, partnerships, fiduciaries or other such
institutional investors. All checks must be signed by the shareholder(s) of
record exactly as the account is registered before the Bank will honor them.
The shareholders of joint accounts may authorize each shareholder to redeem
by check. The check may not draw on monthly dividends which have been
declared but not distributed. Shareholders who purchase Class A shares by
check (including certified checks or cashier's checks) may write checks
against those shares only after they have been on the Fund's books for 15
days. When such a check is presented to the Bank for payment, a sufficient
number of full and fractional shares will be redeemed to cover the amount of
the check, any applicable CDSC and the amount of any income tax required to
be withheld. If the amount of the check plus any applicable CDSC and the
amount of any income tax required to be withheld is greater than the value of
the Class A shares held in the shareholder's account, the check will be
returned unpaid, and the shareholder may be subject to extra charges. To
avoid dishonor of checks due to fluctuation in account value, shareholders
are advised against redeeming all or most of their account by check. Checks
should not be used to close a Fund account because when the check is written,
the shareholder will not know the exact total value of the account on the day
the check clears. There is presently no charge to the shareholder for the
maintenance of this special account or for the clearance of any checks, but
the Fund and the Bank reserve the right to impose such charges or to modify
or terminate the redemption by check privilege at any time.
<PAGE>
Signature Guarantee: In order to protect shareholders against fraud to the
greatest extent possible, the Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must be guaranteed by an eligible bank, broker,
dealer, credit union, national securities exchange, registered securities
association, clearing agency or savings association. Signature guarantees
shall be accepted in accordance with policies established by the Shareholder
Servicing Agent.
Shareholders of the Fund who have redeemed their Class B shares have a
one-time right to reinvest the redemption proceeds in Class B 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 Class B shares credited for
any CDSC paid are then redeemed within six years of the initial purchase a
CDSC will be imposed upon redemption. Shareholders of the Fund who have
acquired Class A shares of the Fund by exchange from any other MFS Fund or by
automatic investment of dividends from other MFS Funds and who have redeemed
such Class A shares have a one-time right to reinvest the redemption proceeds
in Class A shares of any of the MFS Funds (if shares of that 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 Reinvestment Privilege. If
the Class A shares credited for any CDSC paid are then redeemed within twelve
months of the initial purchase, a CDSC will be imposed upon redemption. Such
purchases under the Reinstatement Privilege are subject to all limitations in
the Statement of Additional Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of securities
(instead of cash) from the 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
transaction charges when converting the securities to cash.
Due to the relatively high cost of maintaining small accounts, the Fund
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $500 because of redemptions,
except in the case of accounts 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"). Shareholders will be notified that the value
of their account is less than the minimum investment requirement and allowed
60 days to make an additional investment before the redemption is processed.
No CDSC will be imposed with respect to such involuntary redemptions.
Contingent Deferred Sales Charge--Investments in Class B shares ("Direct
Purchases") will be subject to a CDSC for a period of six calendar years.
Class B shares 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 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 Class B shares account
represented by Direct Purchases exceeds the sum of the six calendar year
aggregations of Direct Purchases may be redeemed without charge ("Free
Amount"). Moreover, no CDSC is ever assessed on additional Class B shares
acquired through the automatic reinvestment of dividends or capital gain
distributions ("Reinvested Shares").
Therefore, at the time of redemption of Class B shares, (i) any Free Amount is
not subject to the CDSC, and (ii) the amount of redemption equal to the
then-current value of Reinvested Shares is not subject to the CDSC, but (iii)
any amount of the redemption in excess of the aggregate of the then-current
value of Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC
will first be applied against the amount of Direct Purchases which will result
in any such charge being imposed at the lowest possible rate. The CDSC to be
imposed upon redemptions will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration.
<PAGE>
Distribution Plans
The Trustees have adopted separate distribution plans for Class A and Class B
shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder
(the "Rule"), after having concluded that there is a reasonable likelihood
that the plans would benefit the Fund and its shareholders.
Class A Distribution Plan. The Class A Distribution Plan provides that the
Fund will pay FSI a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% per annum of the average daily net assets
attributable to Class A shares in order that FSI may pay expenses on behalf
of the Fund related to the distribution and servicing of Class A shares. The
expenses to be paid by FSI on behalf of the Fund include a service fee to
securities dealers which enter into a sales agreement with FSI of up to 0.25%
per annum of the Fund's average daily net assets attributable to Class A
shares that are owned by investors for whom such securities dealer is the
holder or dealer of record. This fee is intended to be partial consideration
for all personal services and/or account maintenance services rendered by the
dealer with respect to Class A shares. FSI may from time to time reduce the
amount of the service fee paid for shares sold prior to a certain date. FSI
may also retain a distribution fee of 0.10% per annum of the Fund's average
daily net assets attributable to Class A shares as partial consideration for
services performed and expenses incurred in the performance of FSI's
obligations under its distribution agreement with the Fund. In addition, to
the extent that the aggregate of the foregoing fees does not exceed 0.35% per
annum of the average daily net assets of the Fund attributable to Class A
shares, the Fund is permitted to pay other distribution-related expenses.
Payments under the Class A Distribution Plan will commence when the value of
the net assets of the Fund attributable to Class A shares first equals or
exceeds $40 million, at which time FSI will waive the 0.10% distribution fee
to which it is entitled under the plan until such time as the payment of this
fee is approved by the Trust's Board of Trustees. Fees payable under the
Class A Distribution Plan are charged to, and therefore reduce, income
allocated to Class A shares. Service fees may be reduced for a securities
dealer that is the holder or dealer of record for an investor who owns shares
of the Fund having a net asset value at or above a certain dollar level.
Dealers may from time to time be required to meet certain criteria in order
to receive service fees. FSI or its affiliates are entitled to retain all
service fees payable under the Class A Distribution Plan for which there is
no dealer of record or with respect to accounts for which qualification
standards have not been met as partial consideration for personal services
and/or account maintenance services performed by FSI or its affiliates for
shareholder accounts. Certain banks and other financial institutions that
have agency agreements with FSI will receive service fees that are the same
as service fees to dealers.
Class B Distribution Plan. The Class B Distribution Plan provides that the
Fund will pay FSI a daily distribution fee equal on an annual basis to 0.75%
of the Fund's average daily net assets attributable to Class B shares and may
pay FSI a service fee of up to 0.25% per annum of the Fund's average daily
net assets attributable to Class B shares (which FSI will in turn pay to
securities dealers which enter into a sales agreement with FSI at a rate of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class B shares owned by investors for whom that securities dealer is the
holder or dealer of record). This service fee is intended to be additional
consideration for all personal services and/or account maintenance services
rendered by the dealer with respect to Class B shares. Fees payable under the
Class B Distribution Plan are charged to, and therefore reduce, income
allocated to Class B shares. The Class B Distribution Plan also provides that
FSI will receive all CDSCs attributable to Class B shares (see "Redemptions
and Repurchases"), which do not reduce the distribution fee. FSI will pay
commissions to dealers of 3.75% of the purchase price of Class B shares
purchased through dealers. FSI will also advance to dealers the first year
service fee at a rate equal to 0.25% of the purchase price of such shares
and, as compensation therefor, FSI may retain the service fee paid by the
Fund with respect to such shares for the first year after purchase.
Therefore, the total amount paid to a dealer upon the sale of shares is 4.00%
of the purchase price of the shares (commission rate of 3.75% plus a service
fee equal to 0.25% of the purchase price). Dealers will become eligible for
additional service fees with respect to such shares commencing in the
thirteenth month following the purchase. Dealers may from time to time be
required to meet certain criteria in order to receive service fees. FSI or
its affiliates are entitled to retain all service fees payable under the
Class B Distribution Plan with respect to accounts for which there is no
dealer of record or for which qualification standards have not been met as
partial consideration for personal services and/or account maintenance
services performed by FSI or
<PAGE>
its affiliates for shareholder accounts. The purpose of the distribution
payments to FSI under the Class B Distribution Plan is to compensate FSI for
its distribution services to the Fund. Since FSI's compensation is not
directly tied to its expenses, the amount of compensation received by FSI
during any year may be more or less than its actual expenses. For this
reason, this type of distribution fee arrangement is characterized by the
staff of the SEC as being of the "compensation" variety. However, the Fund is
not liable for any expenses incurred by FSI in excess of the amount of
compensation it receives. The expenses incurred by FSI, including commissions
to dealers, are likely to be greater than the distribution and service fees
for the next several years, but thereafter such expenses may be less than the
amount of the distribution and service fees. Certain banks and other
financial institutions that have agency agreements with FSI will receive
agency transaction and service fees that are the same as commissions and
service fees to dealers.
Distributions
The net income of each class of shares of the Fund is determined each day
during which the New York Stock Exchange is open for trading. This
determination is made once during each such day as of the close of regular
trading on such Exchange. All the net income, as defined in the Statement of
Additional Information, of each class so determined is declared as a dividend
to shareholders of record of that class at the time of such determination.
Shares purchased become entitled to dividends declared as of the first day
following the date of investment. Dividends are generally distributed with
respect to each class of shares on the last business day of each month in the
form of additional shares of that class at the rate of one share (and
fraction thereof) for each one dollar (and fraction thereof) of dividend
income attributable to that class, or, at the election of the shareholder, in
cash; except that if a shareholder redeems the entire amount in his account
with the Fund at any time during the month, all dividends declared by the
Fund during the month through the date of redemption will be paid to him at
the same time as the proceeds from the redemption of his shares. (For
taxation information on distributions, see "Tax Status" below.) Distributions
paid by the Fund with respect to Class A shares will generally be greater
than those paid with respect to Class B shares because expenses attributable
to Class B shares will generally be higher.
Securities are valued at amortized cost, which the Trustees have determined
in good faith constitutes fair value for the purposes of complying with the
1940 Act. This valuation method will continue to be used until such time as
the Trustees determine that it does not constitute fair value for such
purposes. The determination of the net income of each class of shares of the
Fund is made each day just prior to the determination of the net asset value
per share of each class of shares of the Fund (i.e., the value of the net
assets attributable to that class divided by the number of shares of the
class outstanding). The net income of each class of shares is declared as a
dividend each time the net income of the class is determined. Consequently,
the net asset value per share of each class of shares remains at $1.00 per
share immediately after each such determination and dividend declaration. Any
increase in the value of a shareholder's investment in the Fund, representing
the reinvestment of dividend income, is reflected by an increase in the
number of shares of the Fund in his account.
It is expected that each class of shares of the Fund will have a positive net
income at the time of each determination thereof. If for any reason the net
income of the Fund determined at any time is a negative amount, the Fund will
first offset the negative amount with respect to each shareholder account
from the dividends declared during the month with respect to such account.
Then, to the extent necessary, the Fund will reduce the number of its
outstanding shares by treating each of its shareholders as having contributed
to its capital that number of full and fractional shares in the account of
such shareholder which represents his proportion of such excess. Each
shareholder will be deemed to have agreed to such contribution in these
circumstances by his investment in the Fund. This procedure will permit the
net asset value per share of each class of shares of the Fund to be
maintained at a constant $1.00 per share.
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 has elected and intends to
qualify each year as a "regulated investment company" under Subchapter M of
the Code, and to make distributions to its shareholders in accordance with
the timing requirements set out in the Code. It is expected that the Fund
will not be required to pay any entity level federal income or excise taxes,
although foreign-source income earned by the Fund may be subject to foreign
withholding taxes.
<PAGE>
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 in additional shares. Since the
investment income of the Fund is derived from interest rather than dividends, no
portion of the dividends or distributions paid by the Fund will qualify for the
dividends-received deduction for corporations. Shareholders may not have to pay
state or local taxes on dividends derived from interest on U.S. Government
obligations. Investors should consult with their tax advisors in this regard.
Shortly after the end of each calendar year, each shareholder will receive a
statement setting forth the federal income tax status of all dividends and
distributions for each calendar year, including the portion taxable as ordinary
income, the portion taxable as long-term capital gains, the portion representing
interest on U.S. Government obligations, the portion, if any, representing a
return of capital (which is generally free of current taxes but results in a
basis reduction), and the amount, if any, of federal income tax withheld will be
sent to each shareholder.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and certain other payments that are subject to such withholding and
are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable
treaty. The Fund is also required in certain circumstances to apply backup
withholding of 31% of taxable dividends 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 which 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 advisor as to the tax consequences of an
investment in the Fund.
Description of Shares, Voting Rights and Liabilities
The Fund, one of two series of the Trust, has two classes of shares, entitled
Class A and Class B Shares of Beneficial Interest (without par value). The
Trust has reserved the right to create and issue additional classes and
series of shares, in which case shares of each class 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 would be entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election or
selection of Trustees and accountants. Additionally, each class of shares of
a series will vote separately on any material increases in the fees under its
Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of
the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the Statement of Additional Information).
Each share of each class of the Fund represents an equal proportionate
interest in the Fund, subject to the liabilities of that class, with each
other share of the Fund. 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 a series of the Fund be liquidated,
the 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.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business
trust may, under certain circumstances, be held personally liable as partners
for its obligations. However, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance (e.g., fidelity bonding and errors and omissions
insurance) existed and the Trust itself was unable to meet its obligations.
Performance Information
From time to time, the Fund may advertise its yield and effective yield for
each class of shares. Both yield and effective yield are based on historical
earnings and are not intended to indicate future performance. The yield of a
class of shares of the Fund refers to the income allocable to that class
generated by an investment in the Fund over a seven-day period (which period
<PAGE>
will be stated in the advertisement). This income is then annualized; that
is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment in the class of
shares of the Fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment. The yield and effective yield calculations for Class B
shares assumes no CDSC is paid.
These yield quotations should not be considered as representative of the
yield of a class of shares of the Fund in the future. The yield of shares of
the Fund will vary based on the type, quality, and maturities of the
securities held in the portfolio, and fluctuations in short-term interest
rates; in addition to the foregoing, the yield of a particular class will
vary based on changes in the expenses of the Fund and expenses allocated to
particular classes. For a discussion of the manner in which the Fund will
calculate its yield, see the Statement of Additional Information. In addition
to information provided in shareholder reports, the Fund may, in its
discretion, from time to time, make a list of all or a portion of its
holdings available to investors upon request.
8. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of the Fund should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
Account and Confirmation Statements--Each shareholder will receive
confirmation statements showing the transaction activity in his account.
Cancelled checks, if any, will be sent to shareholders monthly. At the end of
each calendar year, each shareholder will receive income tax information
regarding reportable dividends and capital gain distributions for that year
(see "Tax Status").
Distribution Options--The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
--Dividends reinvested in additional shares. This option will be assigned
if no other option is specified.
--Dividends in cash.
Reinvestments (net of any tax withholding) will be made in additional full
and fractional shares at the net asset value in effect at the close of
business on the record date. Dividends and capital gain distributions in
amounts less than $10 will automatically be reinvested in additional shares
of the Fund. Any request to change a distribution option must be received by
the Shareholder Servicing Agent by a reasonable period of time prior to the
payment date for a dividend in order to be effective for that dividend. 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 and may be changed or discontinued at any time by a shareholder
or the Fund.
Distribution Investment Program: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of distributions of dividends and capital gain
distributions from the same class of another MFS Fund. Furthermore,
distributions made by the Fund may be automatically invested at net asset
value in shares of the same class of another MFS Fund, if shares of such fund
are available for sale (and without any applicable CDSC).
Systematic Withdrawal Plan: A shareholder (except a $3 Million Shareholder)
may direct the Shareholder Servicing Agent to send him (or anyone he
designates) regular periodic payments, as designated on the Account
Application and based upon the value of his account. Each payment under a
Systematic Withdrawal Plan ("SWP") must be at least $100, except in certain
limited circumstances. The aggregate withdrawals of Class B shares in any
year pursuant to a SWP 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.
Dollar Cost Averaging Programs--
Automatic Investment Plan: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or
investment dealers.
<PAGE>
Automatic Exchange Plan: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of other MFS Funds under the Automatic Exchange Plan. The Automatic Exchange
Plan provides for automatic transfers of funds from the shareholder's account
in an MFS Fund for investment in the same class of shares of other MFS Funds
selected by the shareholder. Under the Automatic Exchange Plan, transfers of
at least $50 each may be made to up to four different funds. A shareholder
should consider the objectives and policies of a fund and review its
prospectus before electing to transfer money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
transfer transactions under the Automatic Exchange Plan. However, transfers
of shares of MFS Money Market Fund, MFS Government Money Market Fund and
Class A shares of the Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, a transfer is treated
as a sale of the shares transferred and, therefore, could result in a capital
gain or loss to the shareholder making the transfer. See the Statement of
Additional Information for further information concerning the Automatic
Exchange Plan. Investors should consult their tax advisers for information
regarding the potential capital gain and loss consequences of transactions
under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should
consider his financial ability to continue his purchases through periods of
low price levels.
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 Statement of Additional Information, dated April 1, 1994, contains
more detailed information about the Trust and the Fund, including information
related to (i) investment policies and restrictions, (ii) the Trustees,
officers and investment adviser, (iii) portfolio trading, (iv) the Fund's
shares, including rights and liabilities of shareholders, (v) tax status of
distributions, (vi) the Distribution Plans, 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.
<PAGE>
APPENDIX A
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES, AUTHORITIES OR INSTRUMENTALITIES
U.S. Government Obligations--are issued by the Treasury and include bills,
certificates of indebtedness, notes and bonds. Agencies and instrumentalities
of the U.S. Government are established under the authority of an act of
Congress and include, but are not limited to, the Tennessee Valley Authority,
the Bank for Cooperatives, the Farmers Home Administration, Federal Home Loan
Banks, Federal Intermediate Credit Banks and Federal Land Banks, as well as
those listed below.
Federal Farm Credit Consolidated Systemwide Notes and Bonds--are bonds issued
by a cooperatively owned nationwide system of banks and associations
supervised by the Farm Credit Administration. These bonds are not guaranteed
by the U.S. Government.
Maritime Administration Bonds--are bonds issued by the Department of
Transportation of the U.S. Government.
FHA Debentures--are debentures issued by the Federal Housing Administration
of the U.S. Government and are fully and unconditionally guaranteed by the
U.S. Government.
GNMA Certificates--are mortgage-backed securities, with timely payment
guaranteed by the full faith and credit of the U.S. Government, which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Each mortgage loan included in the pool is also insured or
guaranteed by the Federal Housing Administration, the Veterans Administration
or the Farmers Home Administration.
Federal Home Loan Mortgage Corporation Bonds--are bonds issued and guaranteed
by the Federal Home Loan Mortgage Corporation and are not guaranteed by the
U.S. Government.
Federal Home Loan Bank Bonds--are bonds issued by the Federal Home Loan Bank
System and are not guaranteed by the U.S.Government.
Financing Corporation Bonds and Notes--are bonds and notes issued and
guaranteed by the Financing Corporation.
Federal National Mortgage Association Bonds--are bonds issued and guaranteed
by the Federal National Mortgage Association and are not guaranteed by the
U.S. Government.
Resolution Funding Corporation Bonds and Notes--are bonds and notes issued
and guaranteed by the Resolution Funding Corporation.
Student Loan Marketing Association Debentures--are debentures backed by the
Student Loan Marketing Association and are not guaranteed by the U.S.
Government.
Tennessee Valley Authority Bonds and Notes--are bonds and notes issued and
guaranteed by the Tennessee Valley Authority.
Some of the foregoing obligations, such as Treasury bills and GNMA
pass-through certificates, are supported by the full faith and credit of the
U.S. Government; others, such as securities of FNMA, by the right of the
issuer to borrow from the U.S. Treasury; still others, such as bonds issued
by SLMA, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government will provide financial
support to instrumentalities sponsored by the U.S. Government as it is not
obligated by law, in certain instances, to do so.
Although this list includes a description of the primary types of U.S.
Government agency, authorities or instrumentality obligations in which the
Fund intends to invest, the Fund may invest in obligations of U.S. Government
agencies or instrumentalities other than those listed above.
<PAGE>
APPENDIX B
DESCRIPTION OF SHORT-TERM INVESTMENTS OTHER THAN
U.S. GOVERNMENT OBLIGATIONS
Certificates of Deposit--are certificates issued against funds deposited in a
bank (including eligible foreign branches of U.S. banks), are for a definite
period of time, earn a specified rate of return and are normally negotiable.
Bankers' Acceptances--are marketable short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
Commercial Paper--refers to promissory notes issued by corporations in order
to finance their short-term credit needs.
Corporate Obligations--include bonds and notes issued by corporations in
order to finance long-term credit needs.
A-1 and P-1 Commercial Paper Ratings
Description of S&P and Moody's highest commercial paper ratings:
The rating "A" is the highest commercial paper rating assigned by S&P, and
issues so rated are regarded as having the greatest capacity for timely
payment. Issues in the "A" category are delineated with the numbers 1, 2 and
3 to indicate the relative degree of safety. The A-1 designation indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. Those A-1 issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated P-1 have a superior ability for repayment. P-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structure with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial markets
and assured sources of alternate liquidity.
<PAGE>
APPENDIX C
Description of Bond Ratings
The ratings of Moody's and S&P represent their opinions as to the quality of
various debt instruments. It should be emphasized, however, that ratings are
not absolute standards of quality. Consequently, debt instruments with the
same maturity, coupon and rating may have different yields while debt
instruments of the same maturity and coupon with different ratings may have
the same yield.
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
the Aaa securities.
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.
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.
Standard & Poor's Ratings Group
AAA: Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
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
categories.
NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.
<PAGE>
--------------------------------------------------------------------------------
The MFS Family of Funds(R) -- America's Oldest Mutual Fund Group
--------------------------------------------------------------------------------
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. for free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully efore investing or sending money.
------------------------------------------
Stock Funds
------------------------------------------
Massachusetts Investors Trust
------------------------------------------
Massachusetts Investors Growth Stock Fund
------------------------------------------
MFS(R) Capital Growth Fund
------------------------------------------
MFS(R) Emerging Growth Fund*
------------------------------------------
MFS(R) Gold & Natural Resources Fund
------------------------------------------
MFS(R) Growth Opportunities Fund
------------------------------------------
MFS(R) Managed Sectors Fund
------------------------------------------
MFS(R) OTC Fund
------------------------------------------
MFS(R) Research Fund
------------------------------------------
MFS(R) Value Fund
------------------------------------------
MFS(R) World Equity Fund
------------------------------------------
MFS(R) World Growth Fund
------------------------------------------
------------------------------------------
Stock and Bond Funds
------------------------------------------
MFS(R) Total Return Fund
------------------------------------------
MFS(R) Utilities Fund
------------------------------------------
MFS(R) World Total Return Fund
------------------------------------------
------------------------------------------
Bond Funds
------------------------------------------
MFS(R) Bond Fund
------------------------------------------
MFS(R) Government Limited Maturity Fund
------------------------------------------
MFS(R) Government Mortgage Fund
------------------------------------------
MFS(R) Government Securities Fund
------------------------------------------
MFS(R) High Income Fund
------------------------------------------
MFS(R) Income & Opportunity Fund
------------------------------------------
MFS(R) Intermediate Income Fund
------------------------------------------
MFS(R) Limited Maturity Fund
------------------------------------------
MFS(R) World Governments Fund
------------------------------------------
------------------------------------------
Tax-Free Bond Funds
------------------------------------------
MFS(R) Municipal Bond Fund
------------------------------------------
MFS(R) Municipal High Income Fund**
------------------------------------------
MFS(R) Municipal Income Fund
------------------------------------------
MFS(R) Municipal Limited Maturity Fund
------------------------------------------
MFS(R) Municipal Series Trust (AL, AR, CA, FL,
GA, LA, MD, MA, MS, NY, NC, PA, SC, TN, TX, VA, WA, WV)
------------------------------------------
------------------------------------------
Money Market Funds
------------------------------------------
MFS(R) Cash Reserve Fund
------------------------------------------
MFS(R) Government Money Market Fund
------------------------------------------
MFS(R) Money Market Fund
------------------------------------------
* Closed to new investors, commencing January 14, 1994.
** Closed to new investors.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Distributor
MFS Financial Services, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: 800-225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906
Independent Accountants
Deloitte & Touche
125 Summer Street, Boston, MA 02110
(MFS LOGO)
MFS(R) CASH
RESERVE FUND
500 Boylston Street, Boston, MA 02116
MCR-1-4/94/47M 01/201
MFS(R)
CASH
RESERVE
FUND
Prospectus
April 1, 1994
<PAGE>
MFS CASH RESERVE FUND
(a series of MFS SERIES TRUST I)
Supplement to be affixed to the current
Prospectus for distribution in Iowa
For shares designated as Class B purchased after September 1, 1993, a contingent
deferred sales charge declining from 4% to 0% will be imposed if the investor
redeems within six years from the date of purchase. In addition, the Class is
subject to an annual distribution and service fee of 1% of its average daily net
assets.
The date of this Supplement is April 1, 1995.
<PAGE>
MFS WORLD ASSET ALLOCATION FUND
(a series of MFS Series Trust I)
Supplement to be affixed to the current Prospectus for distribution in Ohio
Prospective Ohio investors should note the following:
a. This prospectus must be delivered to the investor prior to consummation of
the sale;
b. Ohio regulations prohibit the investment of more than 15% of a Fund's total
assets in the securities of issuers which are restricted as to disposition. The
Fund may invest up to 50% of its assets in restricted securities, including Rule
144A securities, which have been deemed to be liquid by the Board of Trustees.
The date of this Supplement is April 1, 1995.
<PAGE>
MFS WORLD ASSET ALLOCATION FUND
(a series of MFS Series Trust I)
Supplement to be affixed to the current
Prospectus for distribution in Vermont
The Fund's investments in foreign fixed income securities may include securities
in any of the rating categories (and comparable unrated securities) including
securities in lower rating categories. Please see Risk Factors for further
information.
The date of this supplement is April 1, 1995.
<PAGE>
(MFS LOGO)
MFS(R) CASH
RESERVE FUND STATEMENT OF
ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) April 1, 1995
Page
1. Definitions 2
2. Investment Techniques 2
3. Investment Restrictions 2
4. Management of the Fund 3
Trustees 4
Officers 4
Investment Adviser 5
Custodian 6
Shareholder Servicing Agent 6
Distributor 6
5. Portfolio Transactions and Brokerage Commissions 6
6. Shareholder Services 7
Investment and Withdrawal Programs 7
Exchange Privilege 9
Tax-Deferred Retirement Plans 9
7. Tax Status 10
8. Net Income and Distributions 10
9. Performance Information 11
10. Distribution Plans 12
11. Description of Shares, Voting Rights and Liabilities 14
12. Independent Accountants and Financial Statements 15
MFS CASH RESERVE FUND
A Series of MFS Series Trust I
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated April 1, 1995. This Statement of Additional Information 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 Statement of Additional Information is NOT a prospectus and is authorized
for distribution to prospective investors only if preceded or accompanied by a
current prospectus.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS(R) Cash Reserve Fund, a series of MFS Series
Trust I (the "Trust"), a Massachusetts business
trust. The Trust was previously known as "MFS
Lifetime Managed Sectors Fund" prior to August 1,
1993. On August 3, 1992, the Trust changed its name
from "Lifetime Managed Sectors Trust." The Cash
Reserve Fund is the successor to MFS Lifetime Money
Market Fund, which was reorganized as a series of
the Trust on September 7, 1993.
"MFS" or the -- Massachusetts Financial Services Company, a
"Adviser" Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus, dated April 1, 1995, of the Fund.
2. INVESTMENT TECHNIQUES
The investment policies and techniques are described in the Prospectus. In
addition, certain of the Fund's investment policies are described in greater
detail below.
Securities Lending
The Fund may seek to increase its income by lending portfolio securities. Such
loans will usually be made only to member banks of the Federal Reserve System
and to member firms (and subsidiaries thereof) of the New York Stock Exchange
(the "Exchange") and would be required to be secured continuously by collateral
in cash, cash equivalents, 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 and would also receive compensation based on investment of the
collateral. 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 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
20% of the value of the Fund's total assets.
Repurchase Agreements
As described in the Prospectus, the Fund may enter into repurchase agreements
with sellers who are member firms (or subsidiaries thereof) of the Exchange,
members of the Federal Reserve System, recognized primary U.S. Government
securities dealers or institutions which the Adviser has determined to be of
comparable creditworthiness. The securities that the Fund purchases and holds
through its agent are U.S. Government securities, the values, including accrued
interest, of which are equal to or greater than the repurchase price agreed to
be paid by the seller. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a standard rate due to the Fund
together with the repurchase price on repurchase. In either case, the income to
the Fund is unrelated to the interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the 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 the seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value, including
accrued interest, of the securities (which are marked to market every business
day) is required to be greater than the repurchase price, and the Fund has the
right to make margin calls at any time if the value of the securities falls
below the agreed upon margin.
3. 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 Statement of Additional Information, means the lesser of (i) more than
50% of the outstanding shares of the Trust (or of a series or a class, as
applicable) or (ii) 67% or more of the outstanding shares of the Trust (or of a
series or a class, as applicable) present at a meeting if holders of more than
50% of the outstanding shares of the Trust (or of a series or a class, as
applicable) are represented in person or by proxy). Except for Investment
Restriction (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 money in an amount in excess of 33-1/3% of its total assets, and
then only as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate an amount of its assets (taken at market value)
<PAGE>
in excess of 15% of its total assets, in each case taken at the lower of cost or
market value.
(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) Invest more than 25% of its total assets (taken at market value) in any one
industry; provided, however, that (a) there is no limitation in respect to
investments in obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and (b) the Fund may invest up to 75% of its
assets in all finance companies as a group, all bank and bank holding companies
as a group and all utility companies as a group when in the opinion of the
Adviser yield differentials and money market conditions suggest and when cash is
available for such investment and instruments are available for purchase which
fulfill the Fund's objective in terms of quality and marketability.
(4) Purchase or sell real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein and securities secured by real estate),
or mineral leases, commodities or commodity contracts in the ordinary course of
its business. The Fund reserves the freedom of action to hold and to sell real
estate or mineral leases, commodities or commodity contracts acquired as a
result of the ownership of securities.
(5) Make loans to other persons except by the purchase of obligations in which
the Fund is authorized to invest and by entering into repurchase agreements;
provided that the Fund may lend its portfolio securities representing not in
excess of 30% of its total assets (taken at market value). Not more than 10% of
the Fund's total assets (taken at market value) may be invested in repurchase
agreements maturing in more than seven days. The Fund may purchase all or a
portion of an issue of debt securities distributed privately to financial
institutions. For these purposes the purchase of short-term commercial paper or
a portion or all of an issue of debt securities which are part of an issue to
the public shall not be considered the making of a loan.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market value) to
be invested in the securities of such issuer, other than securities issued or
guaranteed by the United States, any state or political subdivision thereof, or
any political subdivision of any such state, or any agency or instrumentality of
the United States, any state or political subdivision thereof, or any political
subdivision of any such state.
(7) Purchase securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities) if such
purchase, at the time thereof, would cause the Fund to hold more than 10% of any
class of securities of such issuer. For this purpose all indebtedness of an
issuer maturing in less than one year shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class.
(8) Invest for the purpose of exercising control or management.
(9) Purchase or retain in its portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is a member, partner, officer or Director of the
Adviser, if after the purchase of the securities of such issuer by the Fund one
or more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value.
(10) 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 purchases and sales of securities.
(11) Make short sales of securities.
(12) Purchase securities issued by any other registered investment company or
investment trust except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that the Fund will not purchase such securities if such purchase at the
time thereof would cause more than 10% of its total assets (taken at market
value) to be invested in the securities of such issuers; and, provided further,
that the Fund will not purchase securities issued by an open-end investment
company.
(13) Write, purchase or sell any put or call option.
(14) Issue any senior security (as that term is defined in the 1940 Act), if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.
As a non-fundamental policy, the Fund will not knowingly invest in securities
which are subject to legal or contractual restrictions on resale (other than
repurchase agreements), unless the Board of Trustees has determined that such
securities are liquid based upon trading markets for the specific security, if,
as a result thereof, more than 10% of the Fund's total assets (taken at market
value) would be so invested.
Other Operating Policies
The Fund will not invest more than 5% of its total assets in companies which,
including their respective predecessors, have a record of less than three years'
continuous operation.
In order to comply with certain state statutes, the Fund will not, as a matter
of operating policy, pledge, mortgage or hypothecate its portfolio securities if
the percentage of securities so pledged, mortgaged or hypothecated would exceed
33-1/3%.
These operating policies are not fundamental and may be changed without
shareholder approval.
4. MANAGEMENT OF THE FUND
The Board of Trustees of the Trust provides broad supervision over the affairs
of the Fund. The Adviser is responsible for the
<PAGE>
management of the Fund's assets, and the officers of the Trust are responsible
for its operations. The Trustees and officers of the Trust are listed below,
together with their principal occupations during the past five years. Their
titles may have varied during that period.
Trustees
A. KEITH BRODKIN*, Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*,
Private Investor; Massachusetts Financial Services Company, former Chairman
(until September 30, 1991)
MARSHALL N. COHAN
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D.
Brigham and Women's Hospital, Chief of Cardiac Surgery; Harvard Medical School,
Professor of Surgery
Address: 75 Francis Street, Boston, Massachusetts
THE HON. SIR J. DAVID GIBBONS, KBE
Edmund Gibbons Limited, Chief Executive Officer; The Bank of N.T. Butterfield &
Son Ltd., Chairman
Address: 21 Reid Street, Hamilton, Bermuda
ABBY M. O'NEILL
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: 30 Rockefeller Plaza, Room 5600,
New York, New York
WALTER E. ROBB, III
Benchmark Advisors, Inc. (corporate financial consultants), President and
Treasurer
Address: 110 Broad Street, Boston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
J. DALE SHERRATT
Insight Resources, Inc. (acquisition planning specialists), President (since
January 1990)
Address: One Liberty Square, Boston, Massachusetts
WARD SMITH
NACCO Industries (holding company), Chairman (prior to June 1994); Sundstrand
Corporation (diversified mechanical manufacturer), Director; Society Corporation
(bank holding company), Director, (prior to April 1992); Society National Bank
(commercial bank), Director, prior to April 1992 Address: 5875 Landerbrook
Drive, Mayfield Heights, Ohio.
Officers
W. THOMAS LONDON*, Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN*, Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary
JAMES R. BORDEWICK, JR.*, Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel (since September 1990); associated with a major law firm (prior to
August 1990)
JAMES O. YOST*, Assistant Treasurer
Massachusetts Financial Services Company, Vice President
*"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 MFS affiliates
or with certain other funds of which MFS or a subsidiary is the investment
adviser or distributor. Mr. Brodkin, the Chairman of MFD, Messrs. Shames and
Scott, Directors of MFD, and Mr. Cavan, the Secretary of MFD, hold similar
positions with certain other MFS affiliates. Mr. Bailey is a Director of Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), the
corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who
currently receive a fee of $1,250 per year plus $225 per meeting and committee
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 75 and if the Trustee has completed at
least five years of service, he would be entitled to annual payments during his
lifetime of up to 50% of such Trustee's average annual compensation (based on
the three years prior to his retirement) depending on his length of service. A
Trustee may also retire prior to age 75 and receive reduced payments if he has
completed at least five years of service. Under the plan, a Trustee (or his
beneficiaries) will also receive benefits for a period of time in the event the
Trustee is disabled or dies. These benefits will also be based on the Trustee's
average annual compensation and length of service. There is no retirement plan
provided by the Trust for the interested Trustees except Mr. Bailey. The Fund
will accrue its allocable share of compensation expenses each year to cover
current years service and amortize past service cost.
Set forth in Appendix A hereto is certain information concerning the cash
compensation paid to non-interested Trustees and Mr. Bailey and benefits
accrued, and estimated benefits payable under, the retirement plan.
As of February 28, 1995, the Trustees and officers, as a group, owned less than
1% of the Fund's shares outstanding on that date.
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 liabilities to the Trust or its shareholders, it is finally adjudicated
that they engaged in willful misfea-
<PAGE>
sance, bad faith, gross negligence or reckless disregard of the duties involved
in their offices, or with respect to any matter, unless it is adjudicated that
they did not act in good faith in the reasonable belief that their actions were
in the best interest of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined pursuant to
the Declaration of Trust, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties.
Investment Adviser
MFS, together with its predecessor organizations, has a history of money
management dating from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.)
which in turn is a subsidiary of Sun Life Assurance Company of Canada ("Sun
Life").
The Adviser manages the assets of the Fund pursuant to an Investment Advisory
Agreement with the Fund dated as of September 1, 1993 (the "Advisory
Agreement"). The Adviser provides the Fund with overall investment advisory and
administrative services, as well as general office facilities. Subject to such
policies as the Trustees may determine, the Adviser makes investment decisions
for the Fund. For these services and facilities, the Adviser receives a
management fee, computed and paid monthly, in an amount equal to the sum of
0.55% of the Fund's average daily net assets. The Adviser agreed voluntarily to
reduce its fee with respect to the Fund to 0.45% of the Fund's average daily net
assets. This temporary fee reduction for the Fund may be rescinded at any time
by the Adviser, upon written notice to the Fund, as to fees accruing after the
date of such rescission.
For the Fund's fiscal year ended November 30, 1992 the Fund's former investment
adviser, Lifetime Advisers, Inc., a Delaware corporation and a wholly owned
subsidiary of MFS ("LAI"), received $837,079 (before a reduction of $150,426),
under its advisory agreement with the Fund. For the Fund's fiscal year ended
November 30, 1993 the Fund's current investment adviser, MFS, together with LAI
received in aggregate $665,052 (before a reduction of $111,576), under their
investment advisory agreements with the Fund. LAI had no employees and relied on
the Adviser to furnish it with overall administrative services and general
office facilities. For the Fund's fiscal year ended August 31, 1994, MFS
received $806,328 (before a reduction of $147,532) under its advisory agreement
with the Fund.
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by the Fund in any fiscal year to the extent such expenses
exceed the most restrictive of such state expense limitations. The Adviser will
make appropriate adjustments to such reductions and reimbursements in response
to any amendment or rescission of the various state requirements.
The Fund pays all expenses of the Fund (other than those assumed by MFS or MFD)
including: Trustee fees discussed above; governmental fees; interest charges;
taxes; membership dues in the Investment Company Institute allocable to that
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 share certificates, 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 Fund's Custodian,
for all services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of shares of the Fund; and expenses of shareholder meetings. Expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses are borne by the Fund
except that the Fund's 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 are allocated among the series in a
manner believed by management of the Trust to be fair and equitable. For a list
of the Fund's expenses, including the compensation paid to the Trustees who are
not officers of the Adviser for the fiscal year ended August 31, 1994, see
"Statement of Operations" in the Fund's Annual Report to shareholders dated
August 31, 1994 incorporated by reference into this Statement of Additional
Information. Payment by the Fund of brokerage commissions for brokerage and
research services of value to the Adviser in serving its clients is discussed
under the caption "Portfolio Transactions and Brokerage Commissions" below.
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting its portfolio
transactions and, in general, administering its affairs (with the exception of
the services, facilities and personnel provided by the Shareholder Servicing
Agent or the Custodian, see below).
The Advisory Agreement with the Fund will remain in effect until August 1, 1995,
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 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 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 term "MFS" and that
MFS may render services to others and may permit other fund clients to use the
term "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 neg-
<PAGE>
ligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Advisory Agreement.
Custodian
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest 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 shares of each class and public offering price 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 serves as the dividend and
distribution disbursing agent of the Fund. The Custodian has contracted with the
Adviser for the Adviser to perform certain accounting functions related to
options transactions for which the Adviser receives remuneration on a cost
basis.
Shareholder Servicing Agent
MFS Service Center, Inc. ("MFSC" or the "Shareholder Servicing Agent"), a wholly
owned subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to
a Shareholder Servicing Agent Agreement with the Fund, dated as of September 10,
1986 (the "Agency Agreement"). 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 based on the net
assets attributable to each class of shares of the Fund, computed and paid
monthly. 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. For the fiscal year ended August 31, 1994, the Fund paid to the
Shareholder Servicing Agent fees of $326,366 under its Agency Agreement. State
Street Bank and Trust Company, the dividend and distribution disbursing agent
for the Fund, has contracted with the Shareholder Servicing Agent to administer
and perform certain dividend and distribution disbursing functions for the Fund.
Distributor
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, as amended
and restated April 14, 1993 (the "Distribution Agreement"). Prior to January 1,
1995, MFS Financial Services, Inc. ("FSI"), another wholly owned subsidiary of
MFS, was the Fund's distributor. Where the SAI refers to MFD in relation to the
receipt or payment of money with respect to a period or periods prior to January
1, 1995, such reference shall be deemed to include FSI, as the predecessor in
interest to MFD.
Class A Shares: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares is their net asset value
next computed after the sale.
Class B Shares: MFD acts as agent in selling Class B shares of the Fund to
dealers. The public offering price of Class B shares is their net asset value
next computed after the sale (see "Purchases" in the Prospectus).
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 fiscal period ended August 31, 1994 and the fiscal years ended
November 30, 1993 and 1992, the CDSC imposed on redemption of Class B shares was
$535,000, $780,000 and $1,430,000, respectively.
The Distribution Agreement will remain in effect until August 1, 1995 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 Restrictions") and in either case, by a
majority of the Trustees who are not parties to such 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.
5. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by
employees of the Adviser, who are appointed and supervised by its senior
officers. Changes in the Fund's investments are reviewed by the Board of
Trustees. The Fund's portfolio manager may serve other clients of the Adviser or
any subsidiary of MFS in a similar capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities, such as government securities, which are
principally traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), the Adviser
normally seeks to deal directly with the primary market makers, unless in its
opinion, better prices are available elsewhere. In the case of securities
purchased from underwriters, the cost of such securities generally includes a
fixed underwriting commission or concession. From time to time, soliciting
dealer fees are available to the Adviser on the tender of the Fund's portfolio
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for the Fund by the Adviser. At present no other
recapture arrangements are in effect.
Under the Advisory Agreement and as permitted by Section 28(e) of the Securities
Exchange Act of 1934, the Adviser may cause
<PAGE>
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 the Adviser's overall responsibilities to the Fund or
to its 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 purchasing or selling securities, and the
availability 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, 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 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
through such broker-dealers, but at present, unless otherwise directed by the
Fund, a commission higher than one charged elsewhere will not be paid to such a
firm solely because it provided Research to the Adviser. The Trustees (together
with the Trustees of the other MFS Funds) have directed the Adviser to allocate
a total of $20,000 of commission business from the MFS Funds to the Pershing
Division of Donaldson, Lufkin and Jenrette as consideration for the annual
renewal of the Lipper Directors' Analytical Data Service (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. Results of this effort are sometimes used by the
Adviser as a consideration in the selection of brokers to execute portfolio
transactions. However, the Adviser is unable to quantify the amount of
commissions which will be paid as a result of such Research because a
substantial number of transactions will be effected through brokers which
provide Research but which were selected principally because of their execution
capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To the
extent the Fund's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid, 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
expenses which would be incurred if it should attempt to develop comparable
information through its own staff.
Most of the transactions of the Fund are principal transactions and thus do not
involve the payment of brokerage commissions. For the Fund's fiscal years ended
August 31, 1994 and for the fiscal years ended 1993 and 1992, no brokerage
commissions were paid by the Fund.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or MFS or any subsidiary of MFS. 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 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, it is believed that the Fund's ability to participate
in volume transactions will produce better executions for the Fund.
6. SHAREHOLDER SERVICES
Investment and Withdrawal Programs
The Fund makes available programs designed to enable shareholders to add to
their investment or withdraw from it with a minimum of paper work, as described
below. The programs involve no extra charge to shareholders and may be changed
or discontinued at any time by a shareholder or the Fund.
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.
<PAGE>
Systematic Withdrawal Plan: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments, as
designated on the Account Application and based upon the value of his account.
Each payment under a Systematic Withdrawal Plan ("SWP") must be at least $100,
except certain limited circumstances. The aggregate withdrawals of Class B
shares in any year pursuant to a SWP generally are limited to 10% of the value
of the account at the time of the establishment of the SWP. SWP payments are
drawn from the proceeds of share redemptions (which would be a return of
principal and, if reflecting a gain, would be taxable). Redemptions of Class B
shares will be made in the following order: (i) any "Free Amount"; (ii) to the
extent necessary, any "Reinvested Shares"; and (iii) to the extent necessary,
the "Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B 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 (e.g., Class A shares purchased by exchange from another MFS Fund that
imposes 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 having an aggregate value of at least $10,000
either must be held on deposit by, or certificates for such shares must be
deposited with, the Shareholder Servicing Agent. The shareholder by written
instruction to the Shareholder Servicing Agent may deposit into the account
additional shares of the Fund, change the payee or change the amount of each
payment. The Shareholder Servicing Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but one could be instituted by the Shareholder Servicing Agent on
60 days' notice in writing to the shareholder in the event that the Fund ceases
to assume the cost of these services. The Fund may terminate any SWP for an
account if the value of the account falls below $5,000 as a result of share
redemptions (other than as a result of a SWP) or an exchange of shares of the
Fund for shares of another MFS Fund. Any SWP may be terminated at any time by
either the shareholder or the Fund.
Invest by Mail: Additional investments of $50 or more in the Fund may be made at
any time either 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.
Automatic Exchange Plan: Shareholders having account balances of at least $5,000
in any MFS Fund may exchange their shares for the same class of shares of other
MFS Funds (if available for sale) under the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic monthly or quarterly exchanges of
funds from the shareholder's Fund account for investment in the same class of
shares of other MFS funds, selected by the shareholder. Under the Automatic
Exchange Plan, exchanges of at least $50 each may be made to up to four
different funds effective on the seventh day of each month or of every third
month, depending on 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 the 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 the 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 the month, the Exchange
Change Request will be effective for the following month's transfer.
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: Holders of Class B shares 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 the Fund in the case where such
shares are acquired through direct purchase or reinvested dividends) who have
redeemed their shares have a one-time right to reinvest the redemption proceeds
in the same class of shares of
<PAGE>
any of the MFS Funds (if such 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 the 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 for certain Class A share
purchases, a CSDC 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 any loss realized on the
original redemption for federal income tax purposes. Please consult your tax
adviser for further information.
Exchange Privilege
Subject to the requirements set forth below and the limitations described under
"Exchanges" in the Prospectus, some or all of the shares in an account for which
payment has been received by the Fund (i.e., an established account) may be
exchanged for the shares of the same class of any other MFS Fund (if available
for sale) at net asset value. Exchanges will be made after instructions in
writing or by telephone (an "Exchange Request") are received for an established
account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing signed by the
record owner(s) exactly as the shares are registered; if by telephone proper
account identification is given by the dealer or shareholder of record), and
each exchange must involve either shares having an aggregate value of at least
$1,000 ($50 in the case of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by MFS Service Center, Inc.) or all
the shares in the account. Each exchange involves the redemption of 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 an Exchange Request is received by the
Shareholder Servicing Agent in writing or by telephone on any business day prior
to the close of regular trading on the Exchange, the exchange usually will occur
on that day if all of 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 MFS 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 the Fund acquired through direct purchase and dividends
reinvested prior to June 1, 1992) have the right to exchange their shares for
shares of the MFS Funds, subject to the conditions, if any, set forth in their
respective prospectuses. In addition, unitholders of the MFS Fixed Fund (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.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations, including certain restrictions on purchases
by market timer accounts (see "Purchases" in the Prospectus).
Tax-Deferred Retirement Plans
Shares of the Fund are available for purchase by all types of tax-deferred
retirement plans. MFD makes available through investment dealers plans and/or
custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their
non-employed spouses who desire to make limited contributions to a
tax-deferred retirement program and, if eligible, to receive a federal
income tax deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain nonprofit 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
<PAGE>
and distributions will be reinvested automatically. For further details with
respect to any plan, including fees charged by MFD, the trustee or the
custodian, 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.
7. 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 and holding period
of the Fund's portfolio assets. Because the Fund intends to distribute all of
its net investment income and net realized capital gains to shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay any federal income or excise taxes,
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. As long as the Fund qualifies as a
regulated investment company under the Code, it will not be subject to any
Massachusetts excise or income taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local income taxes on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions from
net short-term capital gains, whether paid to shareholders in cash or additional
shares, are taxable to the Fund's shareholders as ordinary income for federal
income tax purposes regardless of how long they have owned shares in the Fund.
Since the investment income of the Fund is derived from interest rather than
dividends, no portion of the dividends paid by the Fund will qualify for the
dividends-received deduction for corporations. Dividends of the Fund that are
declared in October, November, or December to shareholders of record in such a
month, and paid the following January will be taxable to shareholders as if
received on December 31 of the year in which they are declared. The Fund will
notify shareholders regarding the federal tax status of its distributions after
the end of each calendar year.
Special tax considerations apply with respect to foreign investments of the
Fund. For example, foreign exchange gains and losses realized by the Fund
generally will be treated as ordinary income or losses. Investment by the Fund
in certain "passive foreign investment companies" may be limited in order to
avoid imposition of a tax on the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source; the Fund does not
expect to be able to pass through to shareholders foreign tax credits with
respect to such foreign taxes. The United States has entered into tax treaties
with many foreign countries which entitle the Fund to a reduced rate of foreign
tax or an exemption from foreign tax on such income; the Fund intends to qualify
for treaty reduced rates of tax where available. It is impossible, however, to
determine the effective rate of foreign tax in advance since the amount of the
Fund's assets to be invested within various countries is not known.
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 tax at the rate of 30% on any dividends or other payments made to
Non-U.S. Persons that are subject to such withholding regardless of whether a
lower treaty rate may be permitted. Any amounts overwithheld may be recovered by
such persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period applicable to such claims. The Fund is also required in
certain circumstances to apply backup withholding at a rate of 31% on taxable
dividends and redemption proceeds paid to any shareholder (including a Non-U.S.
Person) who does not furnish to the Fund certain information and certifications
or who is otherwise subject to backup withholding. However, backup withholding
will not be applied to payments which have been subject to 30% withholding.
Distributions received from the Fund by Non-U.S. Persons may also be subject to
tax under the laws of their own jurisdiction.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. The Fund intends to advise shareholders of
the extent, if any, to which its distributions consist of such interest.
Shareholders are urged to consult their tax advisors regarding the possible
exclusion of such dividends for state and local income tax purposes as well as
regarding the tax consequences of an investment in the Fund.
8. NET INCOME AND DISTRIBUTIONS
As described in "Distributions" in the Prospectus, the net income attributable
to each class of shares of the Fund is determined each day during which the
Exchange is open for trading. (As of the date of this Statement of Additional
Information, 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,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.) (For taxation information on distributions,
see "Tax Status" above.)
For this purpose, the net income attributable to each class of shares of the
Fund (from the time of the immediately preceding determination thereof) shall
consist of (i) all interest income attributable to that class accrued on the
portfolio assets of the Fund, (ii) less all actual and accrued expenses
attributable to that class determined in accordance with generally accepted
accounting principles, and (iii) plus or minus net realized gains and losses and
net unrealized appreciation or depreciation on the assets of the Fund
attributable to that class. Interest income shall include discount earned
(includ-
<PAGE>
ing both original issue and market discount) on discount paper accrued ratably
to the date of maturity. Securities are valued at amortized cost, which the
Trustees have determined in good faith constitutes fair value for the purposes
of complying with the 1940 Act. This valuation method will continue to be used
until such time as the Trustees determine that it does not constitute fair value
for such purposes. The Fund will limit its portfolio investments to those U.S.
dollar-denominated instruments which the Board of Trustees determines present
minimal credit risks, and which are of high quality as determined by any major
rating service or, in the case of any instrument that is not so rated, of
comparable quality as determined by the Board of Trustees. The Fund has also
agreed to maintain a dollar weighted average maturity of 90 days or less and to
invest only in securities maturing in 13 months or less. The Board of Trustees
has established procedures designed to stabilize the net asset value per share
of each class of the Fund, as computed for the purposes of sales and
redemptions, at $1.00 per share. If the Trustees determine that a deviation from
the $1.00 per share price may exist which may result in a material dilution or
other unfair result to investors or existing shareholders, they will take
corrective action as they regard as necessary and appropriate, which action
could include the sale of instruments prior to maturity (to realize capital
gains or losses); shortening average portfolio maturity; withholding dividends;
or using market quotations for valuation purposes.
Since the net income is declared as a dividend each time the net income is
determined, the net asset value per share of each class (i.e., the value of the
net assets of the Fund attributable to that class divided by the number of
shares of the class outstanding) remains at $1.00 per share immediately after
each such determination and dividend declaration. Any increase in the value of a
shareholder's investment, representing the reinvestment of dividend income, is
reflected by an increase in the number of shares in his account.
It is expected that each class of shares of the Fund will have a positive net
income at the time of each determination thereof. If for any reason the net
income determined at any time is a negative amount, which could occur, for
instance, upon default by an issuer of a portfolio security, the Fund would
first offset the negative amount with respect to each shareholder account from
the dividends declared during the month with respect to each such account. If
and to the extent that such negative amount exceeds such declared dividends at
the end of the month (or during the month in the case of an account liquidated
in its entirety), the Fund could reduce the number of its outstanding shares by
treating each shareholder of the Fund as having contributed to its capital that
number of full and fractional shares of the Fund in the account of such
shareholder which represents his proportion of such excess. Each shareholder of
the Fund will be deemed to have agreed to such contribution in these
circumstances by its investment in the Fund. This procedure would permit the net
asset value per share of each class of the Fund to be maintained at a constant
$1.00 per share.
9. PERFORMANCE INFORMATION
The Fund will provide current annualized and effective annualized yield
quotations based on the daily dividends of each class ofshares of the Fund.
These quotations may from time to time be used in advertisements, shareholder
reports or other communications to shareholders.
Any current yield quotation of each class of the Fund which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the Securities
Act of 1933, as amended, shall consist of an annualized historical yield,
carried at least to the nearest hundredth of one percent, based on a specific
seven calendar day period and shall be calculated by dividing the net change in
the value of an account having a balance of one share of that class at the
beginning of the period by the value of the account at the beginning of the
period and multiplying the quotient by 365/7. For this purpose the net change in
account value would reflect the value of additional shares purchased with
dividends declared on the original share and dividends declared on both the
original share and any such additional shares, but would not reflect any
realized gains or losses from the sale of securities or any unrealized
appreciation or depreciation on portfolio securities. In addition, any effective
yield quotation of each class of the Fund so used shall be calculated by
compounding the current yield quotation for such period by multiplying such
quotation by 7/365, adding 1 to the product, raising the sum to a power equal to
365/7, and subtracting 1 from the result. These yield quotations should not be
considered as representative of the yield of each class of the Fund in the
future since the yield will vary based on the type, quality and maturities of
the securities held in its portfolio, fluctuations in short-term interest rates
and changes in the Fund's expenses.
Performance Results--The performance results below, based on an assumed initial
investment in Class B shares of $10,000, cover the period from December 29, 1986
through December 31, 1994. It has been assumed that dividend and capital gain
distributions were reinvested in additional shares. Any performance results 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 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
total rates of return should be considered when comparing the total rate of
return of the Fund to total rates of return published for other investment
companies or other investment vehicles. Total rate of return reflects the
performance of both principal and income. Current net asset value and account
balance information may be obtained by calling 1-800-MFS-TALK (637-8255).
<PAGE>
MFS Cash Reserve B
Cap Gain Dividend
Year Ended Direct Reinvest- Reinvest- Total
December 31 Investment ment ment Value
1986* $10,000 0 $ 0 $10,000
1987 10,000 0 428 10,428
1988 10,000 0 1,049 11,049
1989 10,000 0 1,847 11,847
1990 10,000 0 2,578 12,578
1991 10,000 0 3,115 13,115
1992 10,000 0 3,327 13,327
1993 10,000 0 3,484 13,484
1994 10,000 0 3,801 13,801
*For the period from the start of business, December 29, 1986, through December
31, 1987.
Explanatory notes: The results take into account the annual distribution fee but
not the CDSC. No adjustment has been made for any income taxes payable by
shareholders.
From time to time each Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial
World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Saloman Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.
MFS Firsts: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as the first mutual fund
in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund to make full
public disclosure of its operations in shareholder reports.
-- 1932 -- One of the first internal research departments is established to
provide in-house analytical capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund to register
under the Securities Act of 1933.
-- 1936 -- Massachusetts Investors Trust is the first mutual fund to let
shareholders 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.
-- 1977 -- Spectrum becomes the first combination fixed/ variable annuity with
no initial sales charge.
-- 1981 -- MFS 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 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 World Total Return Fund is the first global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging markets fund to
offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard Trust, the first
trust to invest in companies deemed to be union-friendly by an Advisory Board
of senior labor officials, senior managers of companies with significant
labor contracts, academics and other national labor leaders of experts.
10. DISTRIBUTION PLANS
Class A Distribution Plan: The Trustees have adopted a Distribution Plan
relating to Class A shares (the "Class A Distribution Plan") pursuant to Section
12(b) of the 1940 Act and Rule 12b-1
<PAGE>
(the "Rule") thereunder after having concluded that there is a reasonable
likelihood that the Class A Distribution Plan would benefit the Fund and its
Class A shareholders. The Class A 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 the Fund's fixed costs are spread over a
larger net asset base. Also, an increase in net assets may lessen the adverse
effects that could result were the Fund required to liquidate portfolio
securities to meet redemptions.
The Class A Distribution Plan provides that the Fund will pay MFD up to (but not
necessarily all of) an aggregate of 0.35% per annum of the average daily net
assets attributable to the Class A shares in order that MFD may pay expenses on
behalf of the Fund related to the distribution and servicing of its Class A
shares. The expenses to be paid by MFD on behalf of the Fund include a service
fee to securities dealers which enter into a sales agreement with MFD of up to
0.25% per annum of the portion of the Fund's average daily net assets
attributable to the Class A shares owned by investors for whom that securities
dealer is the holder or dealer of record. These payments are partial
consideration for personal services and/or account maintenance performed by such
dealers with respect to Class A shares. MFD may from time to time reduce the
amount of the service fee paid for shares sold prior to a certain date. MFD may
also retain a distribution fee of 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares. Any remaining funds may be used to
pay for other distribution related expenses as described in the Prospectus.
Payments under the Class A Distribution Plan will commence when the value of the
net assets of the Fund attributable to Class A shares first equals or exceeds
$40,000,000, at which time MFD will waive the 0.10% per annum distribution fee
to which it is entitled under the plan until such time as the payment of this
fee is approved by the Trust's Board of Trustees. Service fees may be reduced
for a securities dealer that is the holder or dealer of record for an investor
who owns shares of the Fund having a net asset value at or above a certain
dollar level. No service fee will be paid (i) to any securities dealer who is,
at the time of a periodic payment pursuant to the Class A Distribution Plan, the
holder or dealer of record for investors who own Class A shares having an
aggregate net asset value less than $750,000, or such other amount as may be
determined from time to time (MFD, however, may waive this minimum amount
requirement from time to time if the dealer satisfies certain criteria), or (ii)
to any insurance company which has entered into an agreement with the Fund and
MFD that permits such insurance company to purchase 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 services fees. MFD
or its affiliates are entitled to retain all service fees payable under the
Class A Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by MFD or its affiliates
for shareholder accounts. Certain banks and other financial institutions that
have agency agreements with MFD will receive agency transaction and service fees
that are the same as commissions and service fees to dealers.
The Class A Distribution Plan will remain in effect until August 1, 1995, 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
the Plan ("Class A Distribution Plan Qualified Trustees"). The Class A
Distribution Plan 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 Class A
Distribution Plan may be terminated at any time by vote of a majority of the
Class A Distribution Plan Qualified Trustees or by vote of the holders of a
majority of the Fund's Class A shares (as defined in "Investment Restrictions").
Agreements under the Class A 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 Class A Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the Fund's Class A
shares. The Class A Distribution Plan may not be amended to increase materially
the amount of permitted distribution expenses without the approval of a majority
of the Fund's Class A shares (as defined in "Investment Restrictions") and may
not be materially amended in any case without a vote of the Trustees and a
majority of the Class A Distribution Plan Qualified Trustees. No Trustee who is
not an "interested person" has any financial interest in the Class A
Distribution Plan or in any related agreement.
Class B Distribution Plan: The Trustees of the Fund have adopted a Distribution
Plan relating to Class B shares (the "Class B Distribution Plan") pursuant to
Section 12(b) of the 1940 Act and the Rule, after having concluded that there
was a reasonable likelihood that the Class B Distribution Plan would benefit the
Fund and the Class B shareholders of the Fund. The Class B 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 the Fund's fixed costs
are spread over a larger net asset base. Also, an increase in net assets may
lessen the adverse effects that could result were the Fund required to liquidate
portfolio securities to meet redemptions. There is, however, no assurance that
the net assets of the Fund will increase or that the other benefits referred to
above will be realized.
The Class B Distribution Plan provides that the Fund will pay MFD, as the Fund's
distributor for its Class B shares, a daily distribution fee equal on an annual
basis to 0.75% of the Fund's average daily net assets attributable to Class B
shares and will pay MFD a fee of up to 0.25% per annum of the Fund's average
daily net assets attributable to Class B shares (which MFD will in turn pay to
securities dealers which enter into a sales agreement with MFD and which are the
holders or dealers of record of the Fund's Class B shares). This service fee is
intended to be additional consideration for all personal services and/or account
maintenance services rendered by the dealer with respect to Class B shares. MFD
will advance to dealers the first-year service fee at a rate equal to 0.25% of
the amount invested. As compensation therefor, MFD
<PAGE>
may retain the service fee paid by the Fund with respect to such shares for the
first year after purchase. Dealers will become eligible for additional service
fees with respect to such shares commencing in the thirteenth month following
purchase. Except in the case of the first year service fee, no service fee will
be paid to any securities dealer who is the holder or dealer of record for
investors who own Class B shares having an aggregate net asset value of less
than $750,000 or such other amount as may be determined from time to time. MFD,
however, may waive this minimum amount requirement from time to time if the
dealer satisfies certain criteria. Dealers may from time to time be required to
meet certain other criteria in order to receive service fees. MFD or its
affiliates are entitled to retain all service fees payable under the Class B
Distribution Plan with respect to accounts 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.
The purpose of distribution payments to MFD under the Class B 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. The Class B Distribution Plan
also provides that MFD will receive all CDSCs attributable to Class B shares
(see "Distribution Plan" and "Purchases" in the Prospectus).
During the fiscal year ended August 31, 1994, the Fund incurred expenses of
$1,478,511 (equal to 1.00% of its average daily net assets attributable to Class
B shares) relating to the distribution and servicing of its Class B shares, of
which MFD received $1,108,762 and securities dealers of the Fund and certain
banks and other financial institutions received $369,749.
In accordance with the Rule, all agreements relating to the Class B 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 Trustees who are
not "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Class B Distribution Plan or
in any agreement related to such Plan ("Class B Distribution Plan Qualified
Trustees"). The Class B Distribution Plan further provides that the selection
and nomination of Class B Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office.
The Class B Distribution Plan will remain in effect until August 1, 1995, 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 Class
B Distribution Plan Qualified Trustees. The Class B Distribution Plan requires
that the Fund and MFD 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 Class B Distribution Plan may be
terminated at any time by vote of a majority of the Class B Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the Class B shares
of the Fund (as defined in "Investment Restrictions" above). The Class B
Distribution Plan may not be amended to increase materially the amount of
permitted distribution expenses without the approval of Class B shareholders and
may not be materially amended in any case without a vote of the majority of both
the Trustees and the Class B Distribution Plan Qualified Trustees. No Trustee
who is not an interested person of the Fund has any financial interest in the
Class B Distribution Plan or in any related agreement.
11. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permit the Trustees of the Trust 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 one other series. The Declaration of
Trust, as amended, 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 two classes of shares of the Fund, Class A shares and
Class B shares. Each share of a class of the Fund represents an equal
proportionate interest in the assets of the Fund allocable to that class. Upon
liquidation of the Fund, shareholders of each class are entitled to share pro
rata in the net assets of the Fund allocable to such class available for
distribution to shareholders. The Trust reserves the right to create and issue
additional series or 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.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have under certain circumstances the right to remove one or more Trustees in
accordance with the provisions of Section 16(c) of the 1940 Act. No material
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of the Trust's shares. Shares have no pre-emptive or conversion
rights (except as set forth in "Purchases Conversion of Class B Shares" in the
Prospectus). The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the vote of the holders of
two-thirds of the Trust's outstanding shares voting as a single class, or of the
affected series of the Trust, as the case may be, except that if the Trustees of
the Trust 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 (as defined in "Investment Restrictions") will be sufficient. The Trust
or any series of the Trust may also be terminated (i) upon liquidation and
distribution of its assets, if approved by the vote of the holders of two-thirds
of its outstanding shares, or (ii) by the Trustees by written notice to the
shareholders of the Trust or the affected series. If not so terminated, the
Trust will continue indefinitely.
<PAGE>
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 it shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, Trustees, officers, employees and agents covering
possible tort or 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 willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
12. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Trust's independent certified public accountants.
The Portfolio of Investments at August 31, 1994, the Statement of Assets and
Liabilities at August 31, 1994, the Statement of Operations for the nine months
ended August 31, 1994 and the year ended November 30, 1993, the Statement of
Changes in Net Assets for each of the nine months ended August 31, 1994 and for
each of the years in the two year period ended November 30, 1993, the Financial
Highlights for the nine months ended August 31, 1994 and for each of the years
in the seven year period ended November 30, 1993, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance upon the report of Deloitte & Touche LLP independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this Statement of Additional Information.
Trustee Compensation Table APPENDIX A
<TABLE>
<CAPTION>
Retirement Benefit Total Trustee Fees
Trustee Fees Accrued as part of Fund Estimated from Fund and Fund
Trustee from Fund (1) Expense (1) Credited Years of Service (2) Complex (3)
<S> <C> <C> <C> <C>
Richard B. Bailey $2,617 $ 685 10 $226,221
Marshall N. Cohan 3,517 1,700 14 147,274
Dr. Lawrence Cohn 2,842 350 18 133,524
Sir David Gibbons 2,842 1,251 13 132,024
Abby M. O'Neill 2,617 491 10 125,924
Walter E. Robb, III 3,517 1,912 15 147,274
J. Dale Sherratt 3,517 395 20 147,274
Ward Smith 3,517 609 13 147,274
<FN>
(1) For fiscal year ended August 31, 1994
(2) Based on normal retirement age of 75
(3) For calendar year 1994. All Trustees served as Trustees of 36 funds within
the MFS fund complex (having aggregate net assets at December 31, 1994, of
approximately $9.7 billion) except Mr. Bailey, who served as Trustee of 56
funds within the MFS fund complex (having aggregate net assets at December
31, 1994, of approximately $24.4 billion).
</FN>
</TABLE>
Estimated Annual Benefits Payable by Fund upon Retirement (4)
Years of Service
Average
Trustee Fees 3 5 7 10 or more
$2,400 $360 $600 $ 840 $1,200
2,700 405 675 945 1,350
3,000 450 750 1,050 1,500
3,300 495 825 1,155 1,650
3,600 540 900 1,260 1,800
3,900 585 975 1,365 1,950
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address
P.O. Box 2281, Boston, MA 02107-9906
Independent Accountants
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
Cash Reserve
Fund
500 Boylston Street
Boston, MA 02116
(MFS LOGO) MCR-13 4/95/.5M 01/201
<PAGE>
FRONT COVER:
A 6 1/8" by 7 1/2" photo of columns.
MFS(R) CASH RESERVE FUND
ANNUAL REPORT FOR
YEAR ENDED
AUGUST 31, 1994
MFS(R) CASH RESERVE FUND
<TABLE>
<CAPTION>
<S> <C>
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, Massachusetts 02116-3741
Richard B. Bailey
Private Investor; PORTFOLIO MANAGER
Former Chairman and Director (until 1991), Geoffrey L. Kurinsky*
Massachusetts Financial Services Company
TREASURER
W. Thomas London*
Marshall N. Cohan
Private Investor; ASSISTANT TREASURER
Former President and Treasurer James O. Yost*
(until 1989), Skane Knit, Inc.
SECRETARY
Lawrence H. Cohn, M.D. Stephen E. Cavan*
Chief of Cardiac Surgery, Brigham and
Women's Hospital; Professor of Surgery, ASSISTANT SECRETARY
Harvard Medical School James R. Bordewick, Jr.*
SHAREHOLDER SERVICE CENTER
The Hon. Sir J. David Gibbons, KBE MFS Service Center, Inc.
Chairman, Bank of N.T. Butterfield & Son Ltd., P.O. Box 2281
Hamilton, Bermuda Boston, MA 02107-9906
Abby M. O'Neill For general information, call toll free:
Private Investor; 1-800-225-2606 any business day from
Director, Rockefeller Financial Services, Inc. 8 a.m. to 8 p.m. Eastern time.
(Investment Advisers)
For service to speech- or hearing-impaired,
Walter E. Robb, III call toll free: 1-800-637-6576 any business
President and Treasurer, day from 9 a.m. to 5 p.m. Eastern time.
Benchmark Advisors, Inc. (To use this service, your phone must be
(Financial Consultants) equipped with a Telecommunications Device
for the Deaf.)
Arnold D. Scott* For share prices, account balances and
Senior Executive Vice President, exchanges, call toll free: 1-800-MFS-TALK
Massachusetts Financial Services Company (1-800-637-8255) anytime from a touch-tone
telephone.
Jeffrey L. Shames*
President and Chief Equity Officer, CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
J. Dale Sherratt AUDITORS
Former Chairman and Chief Executive Officer Deloitte & Touche LLP
(until 1989), The Kendall Company;
President, Insight Resources, Inc.
Ward Smith
Former Chairman, NACCO Industries;
Director, Sundstrand Corporation
Cover photo: Through
their wide range of
investments, MFS
mutual funds help you
share in America's
growth.
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
In our last report dated February 28, 1994, we mentioned that the Fund's fiscal
year had changed from November 30 to August 31. Therefore, this annual report
will cover the nine-month period ended August 31, 1994. During this period,
short-term interest rates rose dramatically. Reflecting this trend, the
annualized yield on an investment in Class A shares ended the fiscal year
approximately 45 basis points (0.45%) higher than its level of nine months ago
while an investment in Class B shares of the Fund ended the fiscal year
approximately 19 basis points (0.19%) higher than its level of nine months ago.
Compared to November 30, 1993, the annualized yield on an investment in Class A
shares for the seven-day period ended August 31, 1994 increased from 3.05% to
3.50%, while the annualized yield on an investment in Class B shares for the
seven-day period ended August 31, 1994 increased from 2.12% to 2.31%.
Economic Environment
The economic expansion, now in its fourth year, has established firmer
underpinnings as employers finally have begun to step up hiring levels.
Increased employment, along with continued strong capital spending by businesses
and strengthening overseas economies, particularly in Europe, should ensure at
least trend-line real (adjusted for inflation) U.S. economic growth (2 1/2% to
3% as measured by gross domestic product). While the economy, particularly
housing, benefited from unusually low interest rates late last year, yields have
risen significantly this year, which should help restrain, but not curtail, the
economic expansion. Other continuing moderating influences are higher personal
income taxes, high consumer debt levels, and the impact on employment of
corporate restructurings and concerns over the cost of health care reform.
Interest Rates
During the fiscal year ended August 31, 1994, the Federal Reserve Board voted to
tighten monetary policy by raising the federal funds rate (the interest rate
charged by banks to other banks in need of overnight loans) five times.
Beginning February 4, 1994, the Federal Reserve raised the federal funds rate
three times by 25 basis points (0.25%). Then, on May 17, 1994 and August 16,
1994, increases of 50 basis points (0.50%) were put into effect. As a result of
these increases, yields on 90-day U.S. Treasury bills, which were just over 3%
at the end of October 1993, rose to about 4.6% as of August 31, 1994, while
yields on 90-day commercial paper increased from approximately 3.3% to their
current level of about 4.8% during the same time period. With the economy
continuing to expand moderately, we believe short-term interest rates may rise
somewhat further over the next several months.
Portfolio Performance and Strategy
Because of the trend toward rising short-term interest rates, we have continued
to maintain a relatively short maturity in the portfolio to be able to reinvest
the portfolio at these higher rates. On August 31, 1994, the average maturity of
the Fund was 30 days.
The portfolio continues to include only the highest-quality corporate, bank
and government securities in order to provide investors with maximum security
against credit risk. On August 31, 1994, approximately 33% of the Fund's net
assets was invested in commercial paper, with the remaining 67% invested in
securities issued or guaranteed by the U.S. Treasury or agencies or
instrumentalities of the U.S. government because of the very narrow yield
spreads between government agency obligations and commercial paper. This
emphasis on quality should allow the Fund to continue to help investors obtain
current income and, at the same time, preserve capital and liquidity.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
A 1-1/2" by 1-5/8" photo of A. Keith Brodkin, Chairman and President.
A 1-1/2" by 1-5/8" photo of Geoffrey L. Kurinsky, Portfolio Manager.
/S/A. Keith Brodkin /S/Geoffrey L. Kurinsky
Chairman and President Portfolio Manager
September 2, 1994
<PAGE>
PORTFOLIO MANAGER PROFILE
Geoff Kurinsky began his career at MFS in 1987 in the Fixed Income Department.
Mr. Kurinsky is a graduate of the University of Massachusetts and Boston
University's Graduate School of Management. He was named Assistant Vice
President in 1988, Vice President in 1989 and Senior Vice President in 1993. He
has managed MFS Cash Reserve Fund, formerly called MFS(R) Lifetime Money Market
Fund, since 1987.
OBJECTIVE AND POLICY
Objective: The Fund's investment objective is to seek as high a level of current
income as is considered consistent with the preservation of capital and
liquidity.
Policy: The Fund's investment policy is to invest in money market instruments
that mature in less than 13 months. Securities collateralizing repurchase
agreements, however, may have maturities in excess of 13 months. The Fund
invests primarily in U.S. government securities (including repurchase agreements
collateralized by such securities), obligations of the larger banks, prime
commercial paper and high-grade, short-term corporate obligations. The Fund may
also invest in U.S. dollar-denominated securities of foreign issuers.
TAX FORM SUMMARY
In January 1995, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1994.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - August 31, 1994
Commercial Paper - 32.4%
---------------------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
American Telephone & Telegraph Co., due 9/09/94 $ 3,480 $ 3,476,582
Beneficial Corp., due 10/04/94 8,900 8,861,248
Heinz (H.J.) Co., due 9/08/94 - 10/07/94 5,100 5,083,626
Kimberly-Clark Corp., due 9/26/94 8,000 7,973,889
Pacific Gas & Electric Co., due 9/16/94 3,235 3,228,665
PepsiCo, Inc., due 9/20/94 1,000 997,509
Philip Morris Cos., due 9/27/94 5,900 5,879,973
Pitney Bowes, Inc., due 9/15/94 3,376 3,369,856
Procter & Gamble Co., due 10/14/94 5,600 5,568,896
Tennessee Valley Authority, due 9/13/94 - 10/25/94 21,620 21,534,421
Weyerhaeuser Co., due 9/08/94 4,000 3,996,546
---------------------------------------------------------------------------------------------------------------------
Total Commercial Paper $ 69,971,211
---------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations - 66.8%
---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/07/94 - 11/14/94 $30,700 $ 30,582,421
Federal Home Loan Mortgage Corp., due 9/14/94 - 10/24/94 24,690 24,593,768
Federal National Mortgage Assn., due 9/01/94 - 11/07/94 70,800 70,493,283
Student Loan Marketing Assn., due 9/02/94 - 9/23/94 18,570 18,543,086
---------------------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations $144,212,558
---------------------------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value $214,183,769
Other Assets, Less Liabilities - 0.8% 1,607,531
---------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $215,791,300
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
------------------------------------------------------------------------------
August 31, 1994
------------------------------------------------------------------------------
Assets:
Investments, at amortized cost and value $214,183,769
Cash 62,999
Receivable for Fund shares sold 2,817,316
Other assets 1,931
-----------
Total assets $217,066,015
-----------
Liabilities:
Distributions payable $ 45,911
Payable for Fund shares reacquired 1,043,457
Payable to affiliates
Shareholder servicing agent fee 1,277
Management fee 2,618
Distribution fee 101,343
Accrued expenses and other liabilities 80,109
-----------
Total liabilities $ 1,274,715
-----------
Net assets (represented by paid-in capital) $215,791,300
===========
Shares of beneficial interest outstanding 215,791,300
===========
Class A shares:
Net asset value, offering price and redemption price per share
(net assets of $2,156,434 / 2,156,434 shares of beneficial
interest outstanding) $1.00
----
Class B shares:
Net asset value, offering price and redemption price per share
(net assets of $213,634,866 / 213,634,866 shares of
beneficial interest outstanding) $1.00
----
A contingent deferred sales charge may be imposed on redemptions of Class B
shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
------------------------------------------------------------------------------
Nine Months Ended Year Ended
August 31, 1994 November 30, 1993
------------------------------------------------------------------------------
Net investment income:
Interest $5,637,605 $3,896,339
---------- ----------
Expenses -
Management fee $ 806,328 $ 665,052
Trustees' compensation 32,351 32,929
Shareholder servicing agent fee
(Class A) 1,129 53
Shareholder servicing agent fee
(Class B) 325,237 312,215
Distribution and service fee
(Class B) 1,478,511 1,215,722
Postage 35,319 59,841
Auditing fees 36,748 31,451
Printing 32,771 45,724
Custodian fee 19,642 25,657
Legal fees 4,508 25,148
Miscellaneous 223,689 146,697
---------- ----------
Total expenses $2,996,233 $2,560,489
Reduction of expenses by investment adviser (147,532) (111,576)
---------- ----------
Net expenses $2,848,701 $2,448,913
---------- ----------
Net investment income $2,788,904 $1,447,426
========== ==========
See notes to financial statements
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Nine Months Ended Year Ended November 30,
August 31, 1994 -----------------------------------
1993 1992
---------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
<S> <C> <C> <C>
From operations -
Net investment income $ 2,788,904 $ 1,447,426 $ 2,780,759
----------- ------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (23,520) $ (819) --
From net investment income (Class B) (2,765,384) (1,446,607) (2,780,759)
----------- ------------ ------------
Total distributions
declared to shareholders $ (2,788,904) $ (1,447,426) $ (2,780,759)
----------- ------------ -------------
Fund share (principal) transactions
at net asset value of $1.00 per share -
Net proceeds from sale of shares $ 514,645,780 $361,353,850 $452,960,573
Net asset value of shares issued to
shareholders in reinvestment of
distributions 2,337,731 1,295,224 2,455,818
Cost of shares reacquired (456,515,148) (332,765,233) (491,017,169)
----------- ------------ ------------
Total increase
(decrease) in net assets $ 60,468,363 $ 29,883,841 $(35,600,778)
Net assets:
At beginning of period 155,322,937 125,439,096 161,039,874
----------- ------------ ------------
At end of period $ 215,791,300 $155,322,937 $125,439,096
----------- ------------ ------------
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------
Nine Nine
Months Ended Year Ended Months Ended Year Ended November 30,
August 31, November 30, August 31, ----------------------------
1994 1993 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net investment income $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.02
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net investment incomee (0.02) (0.01) (0.01) (0.01) (0.02)
Net asset value - end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Total return 2.89% 2.28% 1.79% 1.16% 1.79%
Ratios (to average net assets)/
Supplemental data:
Expenses 0.86% 0.92% 1.94% 2.00% 2.22%
Net investment income 3.11% 2.26% 1.88% 1.19% 1.83%
Net assets at end of period (000 omitted) $2,156 $ 49 $213,635 $155,274 $125,439
<FN>
Annualized.
For the period from the commencement of offering of Class A shares, September 7, 1993 to November 30, 1993.
The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had
been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.02
Ratios (to average net assets):
Expenses 0.96% 1.02% 2.04% 2.10% 2.32%
Net investment income 3.01% 2.16% 1.78% 1.09% 1.73%
</FN>
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------
Year Ended November 30, 1991 1990 1989 1988 1987<F2>
-----------------------------------------------------------------------------------------------------
Class B
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- ----- -----
Net investment income<F3> $ 0.04 $ 0.06 $ 0.07 $ 0.06 $ 0.04
Less distributions declared to shareholders
from net investment income (0.04) (0.06) (0.07) (0.06) (0.04)
----- ----- ----- ----- -----
Net asset value - end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- ----- -----
Total return 4.56% 6.12% 7.34% 5.85% 4.42%<F1>
Ratios (to average net assets)/
Supplemental data<F3>:
Expenses 2.04% 2.23% 2.24% 2.06% 2.06%<F1>
Net investment income 4.53% 6.06% 7.10% 5.59% 5.59%<F1>
Net assets at end of period (000 omitted) $161,040 $203,314 $146,885 $139,518 $83,845
<FN>
<F1>Annualized.
<F2>For the period from the commencement of investment operations, December 29, 1986 to November 30, 1987.
<F3>The investment adviser did not impose all of its management fee for the periods indicated. If this fee
had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.04 -- -- -- --
Ratios (to average net assets):
Expenses 2.13% -- -- -- --
Net investment income 4.44% -- -- -- --
See notes to financial statements
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Cash Reserve Fund (the Fund) is a
diversified series of MFS Series Trust I (the Trust). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. During 1994 the Fund changed its year end from
November 30 to August 31, and financial statements are thus being
presented for the nine-month period ended August 31, 1994.
(2) Significant Accounting Policies
Investment Valuations - Money market instruments are valued at amortized cost,
which the Trustees have determined in good faith constitutes fair value. The
Fund's use of amortized cost is subject to the Fund's compliance with certain
conditions as specified under Rule 2a-7 of the Investment Company Act of 1940.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At August 31, 1994, the Fund had no securities on loan.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both financial statement
and tax reporting purposes as required by federal income tax regulations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income. Accordingly, no provision for federal income or excise tax is provided.
The net income of the Fund is determined once daily, as of the close of business
of the New York Stock Exchange, and all of the net income so determined is
declared in shares as a dividend to shareholders of record at the time of such
determination. Distributions are distributed in the form of additional shares of
the Fund or, at the election of the shareholder, in cash, on the last business
day of the month.
Multiple Classes of Shares of Beneficial Interest - The Fund offers both Class A
and Class B shares. Class A shares were first offered to the public on September
7, 1993. The two classes of shares differ in their shareholder servicing agent,
distribution and service fees. Shareholders of each class also bear certain
expenses that pertain only to that particular class. All shareholders bear the
common expenses of the Fund pro rata, based on the average daily net assets of
each class, without distinction between share classes. Dividends are declared
separately for each class. Neither class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses, including shareholder servicing and distribution fees.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. Prior to
September 1, 1993, Lifetime Advisers, Inc. (LAI), a wholly owned subsidiary of
MFS, was the investment adviser for the Fund. The management fee, computed and
paid monthly at an annual rate of 0.55% of average daily net assets, amounted to
$806,328 and $665,052 for the period ended August 31, 1994 and the year ended
November 30, 1993, respectively. The investment adviser did not impose a portion
of its fee ($147,532 and $111,576 for the respective periods) which is reflected
as a reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Financial Services, Inc. (FSI)
and MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit
plan for all of its independent Trustees. Included in Trustees' compensation is
a net periodic pension expense of $7,367 and $7,286 for the period ended August
31, 1994 and the year ended November 30, 1993, respectively.
Distributor - The Trustees have adopted a separate Distribution Plan for Class A
and Class B shares pursuant to Rule 12b-1 of the Investment Company Act of 1940
as follows:
The Class A Distribution Plan provides that the Fund will pay FSI, a wholly
owned subsidiary of MFS, up to 0.35% of its average daily net assets
attributable to Class A shares annually in order that FSI may pay expenses on
behalf of the Fund related to the distribution and servicing of its shares.
These expenses include a service fee to each securities dealer that enters into
a sales agreement with FSI of up to 0.25% of the Fund's average daily net assets
attributable to Class A shares which are attributable to that securities dealer,
a distribution fee to FSI of up to 0.10% of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to FSI
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. Payments under the
Class A Distribution Plan will commence when the value of the net assets of the
Fund attributable to Class A shares first equals or exceeds $40 million.
The Class B Distribution Plan provides that the Fund will pay FSI a monthly
distribution fee, equal to 0.75% annually, and a quarterly service fee of up to
0.25% annually, of the Fund's average daily net assets attributable to Class B
shares which FSI will pay to each securities dealer that enters into a sales
agreement with FSI at a rate of up to 0.25% of the Fund's average daily net
assets attributable to Class B shares. The service fee is intended to be
additional consideration for services rendered by the dealer with respect to
Class B shares. Fees incurred under the Class B Distribution Plan were 1.00% of
average daily net assets attributable to Class B shares and amounted to
$1,478,511 and $1,215,722 for the period ended August 31, 1994 and the year
ended November 30, 1993, respectively.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a share redemption within six years of purchase.
FSI receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the period ended August 31, 1994 and the year ended
November 30, 1993 were approximately $535,000 and $780,000, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$1,129 and $325,237 during the period ended August 31, 1994 for Class A and
Class B shares, respectively, and $53 and $312,215 for the year ended November
30, 1993 for Class A and Class B shares, respectively, for its services as
shareholder servicing agent. The fee is calculated as a percentage of the
average daily net assets of each class of shares, at an effective annual rate of
up to 0.15% and 0.22% attributable to Class A and Class B shares, respectively.
(4) Portfolio Securities
Purchases and sales of money market investments, exclusive of securities subject
to repurchase agreements, aggregated $1,643,439,247 and $1,568,517,840,
respectively.
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares, at net asset value of $1.00 per share, were as
follows:
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
August 31, 1994 November 30, 1993*
Class A Shares
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares sold 5,460,125 137,859
Shares issued to
shareholders in
reinvestment of
distributions 20,023 197
Shares reacquired (3,372,483) (89,287)
-------- -------
Net increase 2,107,665 48,769
========= =======
Year Ended November 30,
Nine Months Ended --------------------------------------------
August 31, 1994 1993 1992
Class B Shares
-----------------------------------------------------------------------------------------------------
Shares sold 509,185,655 361,215,991 452,960,573
Shares issued to shareholders in
reinvestment of distributions 2,317,708 1,295,027 2,455,818
Shares reacquired (453,142,665) (332,675,946) (491,017,169)
---------- ---------- ----------
Net increase (decrease) 58,360,698 29,835,072 (35,600,778)
=========== =========== ===========
*For the period from the commencement of offering of Class A shares,
September 7, 1993 to November 30, 1993.
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $300 million, collectively.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund was $2,246
and $2,030 for the period ended August 31, 1994 and the year ended November 30,
1993, respectively.
<PAGE>
Independent Auditors' Report
To the Trustees of MFS Series Trust I and Shareholders of MFS Cash Reserve Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Cash Reserve Fund (one of the series
constituting MFS Series Trust I) as of August 31, 1994, the related statement of
operations for the nine months then ended and the year ended November 30, 1993,
the statement of changes in net assets for the nine months ended August 31, 1994
and the years ended November 30, 1993 and 1992, and the financial highlights for
the nine-month period ended August 31, 1994 and for each of the years in the
seven-year period ended November 30, 1993. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1994 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Cash Reserve
Fund at August 31, 1994, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 7, 1994
--------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) CASH BULK RATE
RESERVE FUND U.S. POSTAGE
P A I D
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
[LOGO]
MCR-2 10/94 16M 01/201
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
MFS Managed Sectors Fund
(a) Financial Statements Included in Parts A and B:
Included in Part A of this Registration Statement: For the
nine months ended August 31, 1994 and for the seven
years ended November 30, 1993:
Financial Highlights
Included in Part B of this Registration Statement: At
August 31, 1994:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the nine months ended August 31, 1994 and the years
ended November 30, 1993 and 1992:
Statement of Changes in Net Assets*
For the nine months ended August 31, 1994 and the year
ended November 30, 1993:
Statement of Operations*
MFS Cash Reserve Fund
(a) Financial Statements Included in Parts A and B:
For the nine months ended August 31, 1994 and for seven
years ended November 30, 1993:
Financial Highlights
Included in Part B of this Registration Statement: At
August 31, 1994:
Portfolio of Investments**
Statement of Assets and Liabilities**
For the nine months ended August 31, 1994 and for the
two years ended November 31, 1993 and 1992:
Statement of Changes in Net Assets*
<PAGE>
For the nine months ended August 31, 1994 and the year
ended November 30, 1993:
Statement of Operations**
----------------------
* Incorporated by reference to the MFS Managed Sectors Fund's Annual Report to
Shareholders dated August 31, 1994, filed with the SEC on October 29, 1994.
** Incorporated by reference to the MFS Cash Reserve Fund's Annual Report to
Shareholders dated August 31, 1994, filed with the SEC on October 29, 1994.
(b) Exhibits
1 Declaration of Trust, dated July 22, 1986, Amended and
Restated January 6, 1995; filed herewith.
2 By-Laws dated July 22, 1986, Amended and Restated
December 14, 1994; filed herewith.
3 Not Applicable.
4 (a) Form of Share Certificate (for certificates produced
prior to DST system). (1)
(b) Form of Share Certificate (for certificates produced
after DST system). (2)
(c) Form of Share Certificate for MFS World Asset
Allocation Fund. (6)
5 (a) Investment Advisory Agreement for MFS Cash Reserve
Fund, dated September 1, 1993. (5)
(b) Investment Advisory Agreement for MFS Managed
Sectors Fund, dated September 1, 1993. (5)
(c) Investment Advisory Agreement dated June 2, 1994 by and
between MFS Series Trust I on behalf of MFS World Asset
Allocation Fund and Massachusetts Financial Services
Company. (7)
6 (a) Amended and Restated Distribution Agreement, dated
January 1, 1995; filed herewith.
(b) Dealer Agreement between MFS Fund Distributors, Inc.,
("MFD") and a dealer, dated December 28, 1994 and Form
of Mutual Fund Agreement between MFD and a bank or NASD
affiliate, dated December 28, 1994. (9)
<PAGE>
7 Retirement Plan for Non-Interested Person Trustees,
dated January 1, 1991. (4)
8 (a) Custodian Agreement, dated January 28, 1988. (2)
(b) Amendment No. 1 to the Custodian Agreement, dated
February 29, 1988 and October 1, 1989,
respectively. (1)
(c) Amendment No. 2 to the Custodian Agreement, dated
October 11, 1991. (2)
(d) Custodian Agreement between Investors Bank & Trust
and MFS World Asset Allocation Fund dated June 2,
1994. (7)
9 (a) Shareholder Servicing Agent Agreement, dated
September 10, 1986. (2)
(b) Amendment to the Shareholder Servicing Agent
Agreement, dated December 31, 1992. (4)
(c) Amendment to the Shareholder Servicing Agent
Agreement, dated September 7, 1993. (5)
(d) Exchange Privilege Agreement, dated September 1,
1993. (5)
(e) Loan Agreement by and among MFS Borrowers and The
First National Bank of Boston dated as of February
21, 1995. (8)
(f) Dividend Disbursing Agent Agreement dated September
10, 1986. (3)
10 Consent and Opinion of Counsel filed with Registrant's
Rule 24f-2 Notice for fiscal year ended August 31, 1994
on October 31, 1994.
11 Consent of Deloitte & Touche LLP, dated March 27,
1995; filed herewith.
12 Not Applicable.
13 Investment Representation Letters. (1)
14 (a) Forms for Individual Retirement Account Disclosure
Statement as currently in effect. (2)
(b) Forms for MFS 403(b) Custodial Account Agreement as
currently in effect. (2)
<PAGE>
(c) Forms for MFS Prototype Paired Defined Contribution
Plans as Trust Agreement as currently in effect. (2)
15 (a) Distribution Plan for Class A Shares of MFS Managed
Sectors Fund, dated December 14, 1994; filed herewith.
(b) Amended and Restated Distribution Plan for Class B
Shares of MFS Managed Sectors Fund, dated December
14, 1994; filed herewith.
(c) Distribution Plan for Class A Shares of MFS Cash
Reserve Fund, dated December 14, 1994; filed herewith.
(d) Distribution Plan for Class B Shares of MFS Cash
Reserve Fund, dated December 14, 1994; filed herewith.
(e) Distribution Plan for Class A Shares of MFS World Asset
Allocation Fund dated December 14, 1994; filed
herewith.
(f) Distribution Plan for Class B Shares of MFS World Asset
Allocation Fund dated December 14, 1994; filed
herewith.
(g) Distribution Plan for Class C Shares of MFS World Asset
Allocation Fund dated December 14, 1994; filed
herewith.
16 Schedule for Computation of Performance Quotations -
Yield Calculation, Average Annual and Aggregate
Total Return and Current Distribution Rate. (7)
17 Financial Data Schedules for each series; filed
herewith.
Power of Attorney, dated August 11, 1994. (7)
---------------------
(1) Incorporated by reference to Pre-Effective Amendment No. 2 filed with the
SEC on December 9, 1986.
(2) Incorporated by reference to Post-Effective Amendment No. 9 filed with
the SEC on January 28, 1991.
(3) Incorporated by reference to Post-Effective Amendment No. 11 filed with
the SEC on January 29, 1992.
(4) Incorporated by reference to Post-Effective Amendment No. 13 filed with
the SEC on January 29, 1993.
(5) Incorporated by reference to Post-Effective Amendment No. 17 filed with
the SEC on March 30, 1994.
(6) Incorporated by reference to Post-Effective Amendment No. 18 filed with
the SEC on April 26, 1994.
(7) Incorporated by reference to Post-Effective Amendment No. 19 filed with
the SEC on November 30, 1994.
(8) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS
Municipal Income Trust (File No. 811-4841) filed with the SEC on February
28, 1995.
(9) Incorporated by reference to MFS Municipal Series Trust (File Nos.
2-92915 and 811-4096) Post-Effective Amendment No. 26 filed with the SEC
on February 22, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
<PAGE>
Item 26. Number of Holders of Securities
For MFS Managed Sectors Fund
(1) (2)
Title of Class Number of Record Holders
Class A Shares of Beneficial Interest 13,240
(without par value) (as of February 28, 1995)
Class B Shares of Beneficial Interest 24,235
(without par value) (as of February 28, 1995)
For MFS Cash Reserve Fund
(1) (2)
Title of Class Number of Record Holders
Class A Shares of Beneficial Interest 637
(without par value) (as of February 28, 1995)
Class B Shares of Beneficial Interest 16,965
(without par value) (as of February 28, 1995)
Item 27. Indemnification
The Trustees and officers of the Trust and the personnel of the
Trust's investment adviser and principal underwriter are insured under an errors
and omissions liability insurance policy. The Trust and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940, as amended.
Reference is hereby made to (a) Article V of the Trust's Declaration
of Trust, filed herewith and (b) Section 4 of the Distribution Agreement between
the Trust and MFS Fund Distributors, Inc., filed herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser and principal underwriter are insured under an
errors and omissions liability insurance policy. The Registrant and its officers
are also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser
Massachusetts Financial Services Company ("MFS") serves as
investment adviser to the following open-end funds comprising the MFS Family of
Funds: Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund,
MFS Growth Opportunities Fund, MFS Government Securities Fund, MFS Government
Mortgage Fund, MFS Government Limited Maturity Fund, MFS Series Trust I (which
has three series: MFS Managed Sectors Fund, MFS Cash Reserve Fund and MFS World
Asset Allocation Fund), MFS Series Trust II (which has four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Municipal Series Trust
(which has 19 series: MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal
Bond Fund, MFS California Municipal Bond Fund, MFS Florida Municipal Bond Fund,
MFS Georgia Municipal Bond Fund, MFS Louisiana Municipal Bond Fund, MFS Maryland
Municipal Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi
Municipal Bond Fund, MFS New York Municipal Bond Fund, MFS North Carolina
Municipal Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS South Carolina
Municipal Bond Fund, MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond
Fund, MFS Virginia Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS
West Virginia Municipal Bond Fund and MFS Municipal Income Fund) and MFS Series
Trust IX (which has three series: MFS Bond Fund, MFS Limited Maturity Fund and
MFS Municipal Limited Maturity Fund) (the "MFS Funds"). The principal business
address of each of the aforementioned funds is 500 Boylston Street, Boston,
Massachusetts 02116.
MFS also serves as investment adviser of the following no-load,
open-end funds: MFS Institutional Trust ("MFSIT") (which has two series), MFS
Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union
Standard Trust ("UST") (which has two series). The principal business address of
each of the aforementioned funds is 500 Boylston Street, Boston, Massachusetts
02116.
In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series
Trust ("MFS/SL"), Sun Growth Variable Annuity Fund, Inc. ("SGVAF"), Money Market
Variable Account, High Yield Variable Account, Capital Appreciation Variable
Account, Government Securities Variable Account, World Governments Variable
Account, Total Return Variable Account and Managed Sectors Variable Account. The
principal business address of each is One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of the Republic of Ireland and a subsidiary of MFS,
whose principal business address is 41-45 St. Stephen's Green, Dublin 2,
Ireland, serves as investment adviser to and distributor for MFS International
Funds (which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International
Funds-International Governments Fund and MFS International Fund-Charter Income
Fund) (the "MIL Funds"). The MIL Funds are organized in Luxembourg and qualify
as an undertaking for collective investments in transferable securities (UCITS).
The principal business address of the MIL Funds is 47, Boulevard Royal, L-2449
Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund and MFS Meridian U.S. Equity
Fund (collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is
organized as an exempt company under the laws of the Cayman Islands. The
principal business address of each of the MFS Meridian Funds is P.O. Box 309,
Grand Cayman, Cayman Islands, British West Indies.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of
MFS, serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned
subsidiary of MFS, serves as distributor for certain life insurance and
annuity contracts issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFS Institutional Trust, MFS Variable Insurance Trust and MFS Union
Standard Trust.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary of
MFS, provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary
of MFS, markets MFS products to retirement plans and provides administrative
and record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold
D. Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, James E. Russell is a Senior Vice President and the Treasurer,
Stephen E. Cavan is a Senior Vice President, General Counsel and an Assistant
Secretary, and Robert T. Burns is a Vice President and an Assistant Secretary of
MFS.
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
MFS Government Securities Fund
MFS Government Mortgage Fund
MFS Series Trust I
MFS Series Trust V
MFS Government Limited Maturity Fund
MFS Series Trust VI
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is Assistant Treasurer, James R. Bordewick, Jr., Vice President and
Associate General Counsel of MFS, is Assistant Secretary.
MFS Series Trust II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant
Treasurer, and James R. Bordewick, Jr., is Assistant Secretary.
MFS Government Markets Income Trust
MFS Intermediate Income Trust
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice President of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost is Assistant Treasurer, and James R. Bordewick,
Jr., is the Assistant Secretary.
MFS Series Trust III
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is Assistant Treasurer, and James R. Bordewick,
Jr., is Assistant Secretary.
MFS Series Trust IV
MFS Series Trust IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS Series Trust VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg
and Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS Series Trust VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant
Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS Municipal Series Trust
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant
Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS Variable Insurance Trust
MFS Institutional Trust
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS Union Standard Trust
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost and Karen C.
Jordan are Assistant Treasurers and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS Municipal Income Trust
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is Assistant Treasurer and James
R. Bordewick, Jr., is Assistant Secretary.
MFS Multimarket Income Trust
MFS Charter Income Trust
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is Assistant Treasurer and James R. Bordewick, Jr., is Assistant
Secretary.
MFS Special Value Trust
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, and James O. Yost, is
Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the President, Arnold D. Scott,
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is a
Senior Vice President and Managing Director, Thomas J. Cashman, Jr., a Vice
President of MFS, is a Senior Vice President, Stanley T. Kwok is a Vice
President, Anthony F. Clarizio is an Assistant Vice President, Stephen E. Cavan
is a Director, Senior Vice President and the Clerk, James R. Bordewick, Jr. is a
Director, Senior Vice President and an Assistant Clerk, Robert T. Burns is an
Assistant Clerk and James E. Russell is the Treasurer.
MIL Funds
A. Keith Brodkin is the Chairman, President and a Director, Arnold
D. Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is the Secretary,
W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary, and Ziad Malek is a Senior
Vice President.
MFS Meridian Funds
A. Keith Brodkin is the Chairman, President and a Director, Arnold
D. Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is the Secretary,
W. Thomas London is the Treasurer, James R. Bordewick, Jr., is the Assistant
Secretary and Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L.
Shames are Directors, William W. Scott, Jr., an Executive Vice President of MFS,
is the President, Stephen E. Cavan is the Secretary, Robert T. Burns is the
Assistant Secretary, and James E. Russell is the Treasurer.
CIAI
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L.
Shames are Directors, Cynthia Orcott is President, Bruce C. Avery, Executive
Vice President of MFS, is the Vice President, James E. Russell is the Treasurer,
Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant
Secretary.
MFSC
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L.
Shames are Directors, Joseph A. Recomendes, Senior Vice President of MFS, is the
President, James E. Russell is the Treasurer, Stephen E. Cavan is the Secretary,
and Robert T. Burns is the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
Leslie J. Nanberg and Arnold D. Scott are Directors, Thomas J. Cashman is the
President and a Director, James E. Russell is the Treasurer and Robert T. Burns
is the Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery are
Directors, Arnold D. Scott is the Chairman, Douglas C. Grip, a Senior Vice
President of MFS, is the President, James E. Russell is the Treasurer, Stephen
E. Cavan is the Secretary, Robert T. Burns is the Assistant Secretary and Henry
A. Shea is an Executive Vice President.
In addition, the following persons, Directors or officers of MFS,
have the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company
of Canada (U.S.), One Sun Life
Executive Park, Wellesley Hills,
Massachusetts
Director, Sun Life Insurance and
Annuity Company of New York, 67 Broad
Street, New York, New York
John R. Gardner President and a Director, Sun Life
Assurance Company of Canada, Sun Life
Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. Gardner
is also an officer and/or Director of
various subsidiaries and affiliates
of Sun Life)
John D. McNeil Chairman, Sun Life Assurance Company
of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada
(Mr. McNeil is also an officer and/or
Director of various subsidiaries and
affiliates of Sun Life)
Item 29. Distributors
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above.
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or
in part, at the office of the Registrant and the following locations:
NAME ADDRESS
Massachusetts Financial Services 500 Boylston Street
Company (investment adviser) Boston, MA 02116
MFS Fund Distributors, Inc. 500 Boylston Street
(distributor) Boston, MA 02116
State Street Bank and Trust Company State Street South
(custodian) 5-West
North Quincy, MA 02171
Investors Bank & Trust Company 89 South Street
(custodian) Boston, MA 02111
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The registrant undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
Shareholders upon request and without a charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 28th day of March, 1995.
MFS SERIES TRUST I
By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on 28th of March, 1995.
SIGNATURE TITLE
A. KEITH BRODKIN* Chairman, President (Principal
A. Keith Brodkin Executive Officer) and Trustee
W. THOMAS LONDON* Treasurer (Principal Financial
Officer
W. Thomas London and Principal Accounting
Officer)
RICHARD B. BAILEY* Trustee
Richard B. Bailey
MARSHALL N. COHAN* Trustee
Marshall N. Cohan
LAWRENCE H. COHN, M.D.* Trustee
Lawrence H. Cohn, M.D.
<PAGE>
SIR J. DAVID GIBBONS* Trustee
Sir J. David Gibbons
ABBY M. O'NEILL* Trustee
Abby M. O'Neill
WALTER E. ROBB, III* Trustee
Walter E. Robb, III
ARNOLD D. SCOTT* Trustee
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
Jeffrey L. Shames
J. DALE SHERRATT* Trustee
J. Dale Sherratt
WARD SMITH* Trustee
Ward Smith
* By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr.
on behalf of those indicated pursuant
to a Power of Attorney dated
August 11, 1994.
<PAGE>
MFS SERIES TRUST I
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
1 Declaration of Trust, dated July 22, 1986,
Amended and Restated January 6, 1995.
2 By-Laws dated July 22, 1986, Amended and
Restated December 14, 1994.
6 (a) Amended and Restated Distribution
Agreement, dated January 1, 1995.
11 Consent of Deloitte & Touche LLP, dated
March 27, 1995.
15 (a) Distribution Plan for Class A Shares of
MFS Managed Sectors Fund, dated December
14, 1994.
(b) Amended and Restated Distribution Plan for
Class B Shares of MFS Managed Sectors Fund,
dated December 14, 1994.
(c) Distribution Plan for Class A Shares of
MFS Cash Reserve Fund, dated December 14,
1994.
(d) Distribution Plan for Class B Shares of
MFS Cash Reserve Fund, dated December 14,
1994.
(e) Distribution Plan for Class A Shares of
MFS World Asset Allocation Fund dated
December 14, 1994.
(f) Distribution Plan for Class B Shares of
MFS World Asset Allocation Fund dated
December 14, 1994.
(g) Distribution Plan for Class C Shares of
MFS World Asset Allocation Fund dated
December 14, 1994.
27 Financial Data Schedules for each series.
EXHIBIT NO. 1
MFS SERIES TRUST I
AMENDED AND RESTATED
DECLARATION OF TRUST
DECEMBER 14, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - Name and Definitions
Section 1.1 Name 1
Section 1.2 Definitions 2
ARTICLE II - Trustees
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 4
Section 2.4 Vacancies 4
Section 2.5 Delegation of Power to Other Trustees 5
ARTICLE III - Powers of Trustees
Section 3.1 General 6
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Issuance and Repurchase of Securities 7
Section 3.5 Borrowing Money; Lending Trust Property 7
Section 3.6 Delegation; Committees 7
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 8
Section 3.9 Manner of Acting; By-Laws 8
Section 3.10 Miscellaneous Powers 8
Section 3.11 Principal Transactions 9
Section 3.12 Trustees and Officers as Shareholders 9
ARTICLE IV - Investment Adviser, Distributor and Transfer Agent
Section 4.1 Investment Adviser 10
Section 4.2 Distributor 10
Section 4.3 Transfer Agent 11
Section 4.4 Parties to Contract 11
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE V - Limitations of Liability of Shareholders, Trustees and Others
Section 5.1 No Personal Liability of Shareholders, Trustees, etc. 11
Section 5.2 Non-Liability of Trustees, etc. 12
Section 5.3 Mandatory Indemnification 12
Section 5.4 No Bond Required of Trustees 14
Section 5.5 No Duty of Investigation; Notice in Trust Instruments, etc. 14
Section 5.6 Reliance on Experts, etc. 15
ARTICLE VI - Shares of Beneficial Interest
Section 6.1 Beneficial Interest 15
Section 6.2 Rights of Shareholders 15
Section 6.3 Trust Only 16
Section 6.4 Issuance of Shares 16
Section 6.5 Register of Shares 16
Section 6.6 Transfer of Shares 16
Section 6.7 Notices 17
Section 6.8 Voting Powers 17
Section 6.9 Series Designation 18
Section 6.10 Class Designation 20
ARTICLE VII - Redemptions
Section 7.1 Redemption of Shares 21
Section 7.2 Price 21
Section 7.3 Payment 21
Section 7.4 Effect of Suspension of Determination of
Net Asset Value 21
Section 7.5 Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding 22
Section 7.6 Suspension of Right to Redemption 22
ARTICLE VIII - Determination of Net Asset Value, Net Income
and Distributions 23
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE IX - Duration; Termination of Trust; Amendment; Mergers, etc.
Section 9.1 Duration 23
Section 9.2 Termination of Trust 23
Section 9.3 Amendment Procedure 24
Section 9.4 Merger, Consolidation and Sale of Assets 25
Section 9.5 Incorporation, Reorganization 26
Section 9.6 Incorporation or Reorganization of Series 26
ARTICLE X - Reports to Shareholders and Shareholder Communications 27
ARTICLE XI - Miscellaneous
Section 11.1 Filing 28
Section 11.2 Governing Law 28
Section 11.3 Counterparts 28
Section 11.4 Reliance by Third Parties 28
Section 11.5 Provisions in Conflict with Law or Regulations 29
ANNEX A 30
ANNEX B 31
SIGNATURE PAGE 33
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
MFS SERIES TRUST I
500 Boylston Street
Boston, Massachusetts 02116
AMENDED AND RESTATED DECLARATION OF TRUST, made as of this 14th day of
December, 1994 by the Trustees hereunder.
WHEREAS, the Trust was established pursuant to a Declaration of Trust
dated July 22, 1986 for the investment and reinvestment of funds contributed
thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets continue to be divided into transferable Shares of Beneficial Interest
(without par value) issued in one or more series, as hereinafter provided; and
WHEREAS, the Declaration of Trust has been, from time to time, amended in
accordance with the provisions of the Declaration; and
WHEREAS, the Trustees now desire further to amend and to restate the
Declaration of Trust and hereby certify, as provided in Section 11.1 of the
Declaration, that this Amended and Restated Declaration of Trust has been
further amended and restated in accordance with the provisions of the
Declaration;
NOW THEREFORE, the Trustees hereby confirm that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of Beneficial
Interest (without par value) issued hereunder and subject to the provisions
hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 - Name. The name of the trust created hereby is the MFS Series
Trust I, the current address of which is 500 Boylston Street, Boston,
Massachusetts 02116.
Section 1.2 - Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as from
time to time amended.
(b) "Commission" has the meaning given that term in the 1940 Act.
(c) "Declaration" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(d) "Distributor" means the party, other than the Trust, to the contract
described in Section 4.2 hereof.
(e) "Interested Person" has the meaning given that term in the 1940 Act.
(f) "Investment Adviser" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(g) "Majority Shareholder Vote" has the same meaning as the phrase "vote
of a majority of the outstanding voting securities" as defined in the 1940 Act,
except that such term may be used herein with respect to the Shares of the Trust
as a whole or the Shares of any particular series, as the context may require.
(h) "1940 Act" means the Investment Company Act of 1940 and the Rules and
Regulations thereunder, as amended from time to time.
(i) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign.
(j) "Shareholder" means a record owner of outstanding Shares.
(k) "Shares" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series of Shares established by the Trustees
pursuant to Section 6.9 hereof, equal proportionate transferable units into
which such series of Shares shall be divided from time to time. The term
"Shares" includes fractions of Shares as well as whole Shares.
(1) "Transfer Agent" means the party, other than the Trust, to a contract
described in Section 4.3 hereof.
(m) "Trust" means the trust created hereby.
(n) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees, including, without limitation, any and all property
allocated or belonging to any series of Shares pursuant to Section 6.9 hereof.
(o) "Trustees" means the persons who have signed the Declaration, so long
as they shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly elected or appointed, qualified
and serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1 - Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three (3).
Section 2.2 - Term of Office of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided;
except:
(a) that any Trustee may resign his trust (without need for prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein;
(b) that any Trustee may be removed with cause, at any time by written
instrument, signed by at least two-thirds of the remaining Trustees, specifying
the date when such removal shall become effective;
(c) that any Trustee who requests in writing to be retired or who has
become incapacitated by illness or injury may be retired by written instrument
signed by a majority of the other Trustees, specifying the date of his
retirement; and (d) a Trustee may be removed at any meeting of Shareholders by a
vote of two-thirds of the outstanding Shares of each series.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to
be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
Section 2.3 - Resignation and Appointment of Trustees. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office. Any such appointment shall not become effective,
however, until the person named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be bound by
the terms of the Declaration. Within twelve months of such appointment, the
Trustees shall cause notice of such appointment to be mailed to each Shareholder
at his address as recorded on the books of the Trustees. An appointment of a
Trustee may be made by the Trustees then in office and notice thereof mailed to
Shareholders as aforesaid in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. The power of appointment is subject to the provisions of Section 16(a)
of the 1940 Act.
Section 2.4 - Vacancies. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.3, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of such
vacancy.
Section 2.5 - Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other Trustee or Trustees; provided that in no case shall
less than two Trustees personally exercise the powers granted to the Trustees
under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1 - General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2 - Investments.
(a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment
company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of U.S. and foreign currencies, any form of gold
and other precious metals, commodity contracts, options, contracts for the
future acquisition or delivery of fixed income or other securities, and
securities of every nature and kind, including, without limitation, all types of
bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed or sponsored by any and all
Persons, including, without limitation, states, territories and possessions of
the United States and the District of Columbia and any political subdivision,
agency or instrumentality of any such Person, or by the U. S. Government, any
foreign government, any political subdivision or any agency or instrumentality
of the U. S. Government, any foreign government or any political subdivision of
the U. S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory or possession thereof, or by any corporation or organization organized
under any foreign law, or in "when issued" contracts for any such securities, to
retain Trust assets in cash and from time to time change the investments of the
assets of the Trust; and to exercise any and all rights, powers and privileges
of ownership or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations or corporations to exercise any of said rights, powers and
privileges in respect of any of said instruments; and
(iii) to carry on any other business in connection with or incidental
to any of the foregoing powers, to do everything necessary, suitable or proper
for the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 3.3 - Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person or nominee, on such terms as the Trustees may determine. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 3.4 - Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds of the Trust or other Trust Property whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of The Commonwealth of Massachusetts governing business
corporations.
Section 3.5 - Borrowing Money; Lending Trust Property. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the Trust Property, to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust Property.
Section 3.6 - Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
Section 3.7 - Collection and Payment. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 3.8 - Expenses. Subject to Section 6.9 hereof, the Trustees shall
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
Section 3.9 - Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of all the Trustees.
The Trustees may adopt By-Laws not inconsistent with this Declaration to provide
for the conduct of the business of the Trust and may amend or repeal such
By-Laws to the extent such power is not reserved to the Shareholders.
Section 3.10 - Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust;
(b) enter into joint ventures, partnerships and any other combinations or
associations;
(c) remove Trustees or fill vacancies in or add to their number, elect and
remove such officers and appoint and terminate such agents or employees as they
consider appropriate, and appoint from their own number, and terminate, any one
or more committees which may exercise some or all of the power and authority of
the Trustees as the Trustees may determine;
(d) purchase, and pay for out of Trust Property, insurance policies
insuring the Shareholders, Trustees, officers, employees, agents, investment
advisers, distributors, selected dealers or independent contractors of the Trust
against all claims arising by reason of holding any such position or by reason
of any action taken or omitted by any such Person in such capacity, whether or
not constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability;
(e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust;
(f) to the extent permitted by law, indemnify any person with whom the
Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent, and any dealer, to such extent as the Trustees shall determine;
(g) determine and change the fiscal year of the Trust and the method by
which its accounts shall be kept; and
(h) adopt a seal for the Trust, provided, that the absence of such seal
shall not impair the validity of any instrument executed on behalf of the Trust.
Section 3.11 - Principal Transactions. Except in transactions permitted by
the 1940 Act, or any order of exemption issued by the Commission, the Trustees
shall not, on behalf of the Trust, buy any securities (other than Shares) from
or sell any securities (other than Shares) to, or lend any assets of the Trust
to, any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with the
Investment Adviser, Distributor, or Transfer Agent or with any Interested Person
of such Person; but the Trust may employ any such Person, or firm or company in
which such Person is an Interested Person, as broker, legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian upon customary terms.
Section 3.12 - Trustees and Officers as Shareholders. Except as
hereinafter provided, no officer, Trustee or member of the Advisory Board of the
Trust, and no member, partner, officer, director or trustee of the Investment
Adviser or of the Distributor and no Investment Adviser or Distributor of the
Trust, shall take long or short positions in the securities issued by the Trust.
The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for Shares received by the Distributor and
provided that orders to purchase from the Trust are entered with the Trust or
the Custodian promptly upon receipt by the Distributor of purchase orders for
Shares, unless the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of the
Trust;
(c) The purchase from the Trust or from the Distributor of Shares by any
officer, Trustee or member of the Advisory Board of the Trust or by any member,
partner, officer, director or trustee of the Investment Adviser or of the
Distributor at a price not lower than the net asset value of the Shares at the
moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the Trust's current prospectus; or
(d) The Investment Adviser, the Distributor or any of their officers,
partners, directors or trustees from purchasing Shares prior to the effective
date of the Registration Statement relating to the Shares under the Securities
Act of 1933, as amended.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1 - Investment Adviser. Subject to a Majority Shareholder Vote
of the Shares of each series affected thereby, the Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts whereby a party to such contract shall undertake to furnish
the Trust such management, investment advisory, statistical and research
facilities and services, if any, with respect to one or more series of Shares,
as the Trustees shall from time to time consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provision of the Declaration, the Trustees may delegate to
the Investment Adviser authority (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect purchases,
sales, loans or exchanges of assets of the Trust on behalf of the Trustees or
may authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Investment Adviser (and
all without further action by the Trustees). Any such purchases, sales, loans or
exchanges shall be deemed to have been authorized by all the Trustees.
Section 4.2 - Distributor. The Trustees may in their discretion from time
to time enter into a contract, providing for the sale of Shares whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution or repurchase of
the Shares.
Section 4.3 - Transfer Agent. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract or
contracts whereby the other party or parties to such contract or contracts shall
undertake to furnish transfer agency and/or shareholder services. The contract
or contracts shall have such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the Declaration or the By-Laws. Such
services may be provided by one or more Persons.
Section 4.4 - Parties to Contract. Any contract of the character described
in Sections 4.1, 4.2 or 4.3 of this Article IV or any Custodian contract, as
described in the By-Laws, may be entered into with any Person, although one or
more of the Trustees or officers of the Trust may be an officer, partner,
director, trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship; nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article IV or
the By-Laws. The same Person may be the other party to contracts entered into
pursuant to Sections 4.1, 4.2 and 4.3 above or Custodian contracts, and any
individual may be financially interested or otherwise affiliated with Persons
who are parties to any or all of the contracts mentioned in this Section 4.4.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1 - No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, wilful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein. Notwithstanding any other provision of this
Declaration to the contrary, no Trust Property shall be used to indemnify or
reimburse any Shareholder of any Shares of any series other than Trust Property
allocated or belonging to such series.
Section 5.2 - Non-Liability of Trustees, etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, wilful misfeasance, gross negligence or reckless disregard of
his duties.
Section 5.3 - Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason of
a final adjudication by the court or other body before which the proceeding was
brought that he engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b) (i) or (b) (ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or by a
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then
in office act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a Person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such
Person. Nothing contained herein shall affect any rights to indemnification to
which personnel other than Trustees and officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
Section 5.4 - No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
Section 5.5 - No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, Transfer Agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under the Declaration or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking made
or issued by the Trustees shall recite that the same is executed or made by them
not individually, but as Trustees under the Declaration, and that the
obligations of any such instrument are not binding upon any of the Trustees or
Shareholders individually, but bind only the trust estate, and may contain any
further recital which they or he may deem appropriate, but the omission of such
recital shall not operate to bind any of the Trustees or Shareholders
individually. The Trustees shall at all times maintain insurance for the
protection of the Trust Property, the Trust's Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 5.6 - Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 - Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of Beneficial Interest
(without par value), which shall be divided into one or more series as provided
in Section 6.9 hereof. The number of Shares authorized hereunder is unlimited.
All Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
Section 6.2 - Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any series
or class of Shares.
Section 6.3 - Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4 - Issuance of Shares. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times, and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. The Trustees may from time to time divide or combine the
Shares of any series into a greater or lesser number without thereby changing
their proportionate beneficial interests in Trust Property allocated or
belonging to such series. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or l/l,000ths of a Share or
integral multiples thereof.
Section 6.5 - Register of Shares. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-Laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
Section 6.6 - Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with any certificate or
certificates (if issued) for such Shares and such evidence of the genuineness of
each such execution and authorization and of other matters as may reasonably be
required. Upon such delivery the transfer shall be recorded on the register of
the Trust. Until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer, employee or agent
of the Trust shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent; but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 6.7 - Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 6.8 - Voting Powers. The Shareholders shall have power to vote
only (i) for the removal of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to any amendment of this Declaration to
the extent and as provided in Section 9.3 hereof, (v) with respect to any
merger, consolidation or sale of assets as provided in Sections 9.4 and 9.6
hereof, (vi) with respect to incorporation of the Trust or any series to the
extent and as provided in Sections 9.5 and 9.6 hereof, (vii) to the same extent
as the stockholders of a Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to the
Trust as may be required by the Declaration, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote, except that Shares
held in the treasury of the Trust shall not be voted. There shall be no
cumulative voting in the election of Trustees. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, the Declaration or the By-Laws to be taken by Shareholders. The
By-Laws may include further provisions for Shareholder votes and meetings and
related matters.
Section 6.9 - Series Designation. Shares of the Trust may be divided into
series, the number and relative rights, privileges and preferences of which
shall be established and designated by the Trustees, in their discretion, in
accordance with the terms of this Section 6.9. The Trustees may from time to
time exercise their power to authorize the division of Shares into one or more
series by establishing and designating one or more series of Shares upon and
subject to the following provisions:
(a) All Shares shall be identical except that there may be such variations
as shall be fixed and determined by the Trustees between different series as to
purchase price, right of redemption and the price, terms and manner of
redemption, and special and relative rights as to dividends and on liquidation.
(b) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income, earnings, profits,
and proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series, the Trustees shall allocate them among any
one or more of the series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all series for all purposes. No holder of Shares of any
particular series shall have any claim on or right to any assets allocated or
belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. Under no circumstances shall the assets allocated
or belonging to any particular series be charged with liabilities attributable
to any other series. All Persons who have extended credit which has been
allocated to a particular series, or who have a claim or contract which has been
allocated to any particular series, shall look only to the assets of that
particular series for payment of such credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section 3.2
hereof unless otherwise provided in the instrument of the Trustees establishing
such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the
net assets allocated or belonging to such series only, and such interest shall
not extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series may be paid with such frequency as the Trustees
may determine, which may be daily or otherwise, pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that series, only from such
of the income and capital gains, accrued or realized, from the assets belonging
to that series, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that series .All dividends and distributions on
Shares of a particular series shall be distributed pro rata to the holders of
that series in proportion to the number of Shares of that series held by such
holders at the date and time of record established for the payment of such
dividends or distributions. Shares of any particular series of the Trust may be
redeemed solely out of Trust Property allocated or belonging to that series.
Upon liquidation or termination of a series of the Trust, Shareholders of such
series shall be entitled to receive a pro rata share of the net assets of such
series only. A Shareholder of a particular series of the Trust shall not be
entitled to participate in a derivative or class action on behalf of any other
series or the Shareholders of any other series of the Trust.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders of the Trust, all Shares then entitled
to vote shall be voted in the aggregate, except that (i) when required by the
1940 Act to be voted by individual series, Shares shall not be voted in the
aggregate, and (ii) when the Trustees have determined that the matter affects
only the interests of Shareholders of one or more series, only Shareholders of
such series shall be entitled to vote thereon.
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument. At any
time that there are no Shares outstanding of any particular series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
The series of Shares established and designated pursuant to this Section
6.9 and existing as of the date hereof are set forth in Annex A hereto.
Section 6.10 - Class Designation. The Trustees may, in their discretion,
authorize the division of Shares of the Trust (or any series of the Trust) into
one or more classes. All Shares of a class shall be identical with each other
and with the Shares of each other class of the Trust or the same series of the
Trust (as applicable), except for such variations between classes as may be
approved by the Board of Trustees and permitted by the 1940 Act or pursuant to
any exemptive order issued by the Securities and Exchange Commission. The
classes of Shares established pursuant to this Section 6.10 and existing as of
the date hereof are set forth in Annex B hereto.
ARTICLE VII
REDEMPTIONS
Section 7.1 - Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed Shares may be resold by the Trust.
The Trust shall redeem the Shares at the price determined as hereinafter
set forth, upon the appropriately verified written application of the record
holder thereof (or upon such other form of request as the Trustees may
determine) at such office or agency as may be designated from time to time for
that purpose in the Trust's then effective prospectus under the Securities Act
of 1933. The Trustees may from time to time specify additional conditions, not
inconsistent with the 1940 Act, regarding the redemption of Shares in the
Trust's then effective prospectus under the Securities Act of 1933.
Section 7.2 - Price. Shares shall be redeemed at their net asset value
determined as set forth in Article VIII hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Article VIII hereof after
receipt of such application.
Section 7.3 - Payment. Payment of the redemption price of Shares of any
series shall be made in cash or in property out of the assets of such series to
the Shareholder of record at such time and in the manner, not inconsistent with
the 1940 Act or other applicable laws, as may be specified from time to time in
the Trust's then effective prospectus under the Securities Act of 1933, subject
to the provisions of Section 7.4 hereof.
Section 7.4 - Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 7.6 hereof, the Trustees shall declare a suspension of
the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 7.1 hereof but
who shall not yet have received payment) to have Shares redeemed and paid for by
the Trust shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on
deposits. The redemption price of Shares for which redemption applications have
not been revoked shall be the net asset value of such Shares next determined as
set forth in Article VIII after the termination of such suspension, and payment
shall be made within seven days after the date upon which the application was
made plus the period after such applications during which the determination of
net asset value was suspended.
Section 7.5 - Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify the Trust or any series of the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust sufficient to maintain or bring the direct or
indirect ownership of Shares or other securities of the Trust into conformity
with the requirements for such qualification and (ii) to refuse to transfer or
issue Shares or other securities of the Trust to any Person whose acquisition of
the Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 7.1.
The holders of Shares of other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
Section 7.6 - Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
security holders of the Trust by order permit suspension of the right of
redemption or postponement of the date of payment or redemption; provided that
applicable rules and regulations of the Commission shall govern as to whether
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall take
effect at such time as the Trust shall specify but not later than the close of
business on the business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment on redemption until
the Trust shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first day on which said stock exchange shall
have reopened or the period specified in (ii) or (iii) shall have expired (as to
which in the absence of an official ruling by the Commission, the determination
of the Trust shall be conclusive). In the case of a suspension of the right of
redemption a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension as provided in Section 7.4 hereof.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Subject to Section 6.9 hereof, the Trustees, in their absolute discretion,
may prescribe and shall set forth in the By-Laws or in a duly adopted vote of
the Trustees such bases and times for determining the per Share or net asset
value of the Shares of any series or net income attributable to the Shares of
any series, or the declaration and payment of dividends and distributions on the
Shares of any series, as they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1 - Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
Section 9.2 - Termination of Trust.
(a) The Trust may be terminated (i) by the affirmative vote of the holders
of not less than two-thirds of the Shares outstanding and entitled to vote its
Shares, or (ii) by the Trustees by written notice to the Shareholders. Any
series of the Trust may be terminated (i) by the affirmative vote of the holders
of not less than two-thirds of the Shares outstanding and entitled to vote of
that series, or (ii) by the Trustees by written notice to the Shareholders of
that series. Upon the termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business except
for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust or series of the Trust, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property or Trust Property of the series to one or more persons at public
or private sale for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its liabilities, and
to do all other acts appropriate to liquidate its business; provided, that any
sale, conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof, and any sale, conveyance, assignment,
exchange, transfer or other disposition of all or substantially all of the Trust
Property allocated or belonging to any series shall require the approval of the
Shareholders of such series as provided in Section 9.6 hereof; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or Trust Property of the series, in cash
or in kind or partly in cash and partly in kind, among the Shareholders of the
Trust or the series according to their respective rights.
(b) After termination of the Trust or series and distribution to the
Shareholders of the Trust or series as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder with
respect to the Trust or series, and the rights and interests of all Shareholders
of the Trust or series shall thereupon cease.
Section 9.3 - Amendment Procedure.
(a) This Declaration may be amended by a Majority Shareholder Vote of the
Shareholders of the Trust or by any instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the holders of not less
than a majority of the Shares of the Trust. The Trustees may also amend this
Declaration without the vote or consent of Shareholders to designate series in
accordance with Section 6.9 hereof, to change the name of the Trust, to supply
any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary or advisable to
conform this Declaration to the requirements of applicable federal laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code of 1986, as amended, but the Trustees shall not be
liable for failing so to do.
(b) No amendment which the Trustees shall have determined shall affect the
rights, privileges or interests of holders of a particular series of Shares, but
not the rights, privileges or interests of holders of Shares of the Trust
generally, may be made except with the vote or consent by a Majority Shareholder
Vote of such series.
(c) Notwithstanding any other provision hereof, no amendment may be made
under this Section 9.3 which would change any rights with respect to the Shares,
or any series of Shares, by reducing the amount payable thereon upon liquidation
of the Trust or by diminishing or eliminating any voting rights pertaining
thereto, except with a Majority Shareholder Vote of Shares or series of Shares.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
(d) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
(e) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.
Section 9.4 - Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for such purpose by the holders of not less than two-thirds of the Shares
outstanding and entitled to vote of the Trust, or such other vote as may be
established in the Trustees with respect to any series of Shares, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote of the Trust; provided, however, that if such merger, consolidation, sale,
lease or exchange is recommended by the Trustees, the vote of the holders of a
majority of the Shares outstanding and entitled to vote, or such other vote as
may be established by the Trustees with respect to any series of Shares, shall
be sufficient authorization; and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to the statutes of The Commonwealth of Massachusetts. Nothing contained
herein shall be construed as requiring approval of shareholders for any sale of
assets in the ordinary course of the business of the Trust.
Section 9.5 - Incorporation, Reorganization. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. Subject to Section 9.4 hereof, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained in this Section 9.5 shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
Section 9.6 - Incorporation or Reorganization of Series. With the approval
of a Majority Shareholder Vote of any series, the Trustees may sell, lease or
exchange all of the Trust Property allocated or belonging to that series, or
cause to be organized or assist in organizing a corporation or corporations
under the laws of any other jurisdiction, or any other trust, unit investment
trust, partnership, association or other organization, to take over all of the
Trust Property allocated or belonging to that series and to sell, convey and
transfer such Trust Property to any such corporation, trust, unit investment
trust, partnership, association, or other organization in exchange for the
Shares or securities thereof or otherwise.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
Whenever ten or more Shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either Shares having a net asset value of at least $25,000 or at least
1% of the Shares outstanding, whichever is less, shall apply to the Trustees in
writing, stating that they wish to communicate with other Shareholders with a
view to obtaining signatures to a request for a meeting of Shareholders for the
purpose of removing one or more Trustees pursuant to Section 2.2 hereof and
accompany such application with a form of communication and request which they
wish to transmit, the Trustees shall within five business days after receipt of
such application either:
(a) afford to such applicants access to a list of the names and addresses
of all Shareholders as recorded on the books of the Trust; or
(b) inform such applicants as to the approximate number of Shareholders of
record, and the approximate cost of mailing to them the proposed communication
and form of request. If the Trustees elect to follow the course specified in (b)
above, the Trustees, upon the written request of such applicants, accompanied by
a tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record, unless within five business days after such tender the Trustees mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
ARTICLE XI
MISCELLANEOUS
Section 11.1 - Filing. This Declaration, as amended, and any subsequent
amendment hereto shall be filed in the office of the Secretary of The
Commonwealth of Massachusetts and in such other place or places as may be
required under the laws of The Commonwealth of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowledged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment or such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, integrating into a single instrument all of
the provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of The Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
Section 11.2 - Governing Law. This Declaration is executed by the Trustees
and delivered in The Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
Section 11.3 - Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.4 - Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (i) the number or identity of Trustees or
Shareholders, (ii) the due authorization of the execution of any instrument or
writing, (iii) the form of any vote passed at a meeting of Trustees or
Shareholders, (iv) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (v) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (vi) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 11.5 - Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986, as amended, or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of the Declaration; provided however, that such determination shall not
affect any of the remaining provisions of the Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
<PAGE>
ANNEX A
Pursuant to Section 6.9 of the Declaration, the Trustees of the Trust have
established and designated three series of Shares (as defined in the
Declaration), such series to have the following special and relative rights:
1. The series are designated:
-MFS Managed Sectors Fund
-MFS Cash Reserve Fund
-MFS World Asset Allocation Fund
2. The series shall be authorized to invest in cash, securities, instruments
and other property as from time to time described in the Trust's then
currently effective registration statement under the Securities Act of
1933 to the extent pertaining to the offering of Shares of such series.
Each Share of the series shall be redeemable, shall be entitled to one
vote or fraction thereof in respect of a fractional share on matters on
which Shares of the series shall be entitled to vote, shall represent a
pro rata beneficial interest in the assets allocated or belonging to the
series, and shall be entitled to receive its pro rata share of the net
assets of the series upon liquidation of the series, all as provided in
Section 6.9 of the Declaration of Trust.
3. Shareholders of the series shall vote separately as a class on any matter
to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the series as provided in Rule
18f-2, as from time to time in effect, under the Investment Company Act of
1940, as amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
previously established and existing series of the Trust and this series as
set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the Declaration
of Trust, the Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets and expenses
or to change the designation of any series now or hereafter created, or to
otherwise change the special and relative rights of any such series.
<PAGE>
ANNEX B
Pursuant to Section 6.10 of the Declaration of Trust, the Trustees have
divided the shares of each of MFS Managed Sectors Fund and MFS Cash Reserve
Fund, series of the Trust, to create two classes of shares, within the
meaning of Section 6.10, as follows:
1. The two classes of shares are designated "Class A Shares" and "Class B
Shares";
2. Class A Shares and Class B Shares shall be entitled to all the rights and
preferences accorded to shares under the Declaration;
3. The purchase price of Class A Shares and Class B Shares, the method of
determination of the net asset value of Class A Shares and Class B Shares,
the price, terms and manner of redemption of Class A Shares and Class B
Shares, any conversion feature of the Class B Shares, and the relative
dividend rights of holders of Class A Shares and Class B Shares shall be
established by the Trustees of the Trust in accordance with the
Declaration and shall be set forth in the current prospectus and statement
of additional information of the Trust or any series thereof, as amended
from time to time, contained in the Trust's registration statement under
the Securities Act of 1933, as amended.
4. Class A Shares and Class B Shares shall vote together as a single class
except that shares of a class may vote separately on matters affecting
only that class and shares of a class not affected by a matter will not
vote on that matter.
5. A class of shares of any series of the Trust may be terminated by the
Trustees by written notice to the Shareholders of the class.
Pursuant to Section 6.10 of the Declaration of the Trust, the Trustees
have divided the shares of the MFS World Asset Allocation Fund, a series of
the Trust, to create three classes of shares, within the meaning of Section
6.10, as follows:
1. The three classes of shares are designated "Class A Shares," "Class B
Shares" and "Class C Shares";
2. Class A Shares, Class B Shares and Class C Shares shall be entitled to all
the rights and preferences accorded to shares under the Declaration of
Trust;
3. The purchase price of Class A Shares, Class B Shares and Class C Shares,
the method of determination of the net asset value of Class A Shares,
Class B Shares and Class C Shares, the price, terms and manner of
redemption of Class A Shares, Class B Shares and Class C Shares, any
conversion feature of Class B Shares, and the relative dividend rights of
holders of Class A Shares, Class B Shares and Class C Shares shall be
established by the Trustees of the Trust in accordance with the
Declaration of Trust and shall be set forth in the current prospectus and
statement of additional information of the Trust or any series thereof, as
amended from time to time, contained in the Trust's registration statement
under the Securities Act of 1933, as amended;
4. Class A Shares, Class B Shares and Class C Shares shall vote together as a
single class except that shares of a class may vote separately on matters
affecting only that class and shares of a class not affected by a matter
will not vote on that matter; and
5. A class of shares of any series of the Trust may be terminated by the
Trustees by written notice to the Shareholder of the class.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument this 14th
day of December, 1994.
/s/ A KEITH BRODKIN /s/ WALTER E. ROBB, III
A. Keith Brodkin Walter E. Robb, III
76 Farm Road 35 Farm Road
Sherborn, MA 01770 Sherborn, MA 01770
/s/ RICHARD B. BAILEY /s/ ARNOLD D. SCOTT
Richard B. Bailey Arnold D. Scott
63 Atlantic Avenue 20 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
/s/ MARSHALL N. COHAN /s/ JEFFREY L. SHAMES
Marshall N. Cohan Jeffrey L. Shames
2524 Bedford Mews Drive 60 Brookside Road
Wellington, FL 33414 Needham, MA 02192
/s/ LAWRENCE H. COHN /s/ J. DALE SHERRATT
Lawrence H. Cohn J. Dale Sherratt
45 Singletree Road 86 Farm Road
Chestnut Hill, MA 02167 Sherborn, MA 01770
/s/ SIR J. DAVID GIBBONS /s/ WARD SMITH
Sir J. David Gibbons Ward Smith
"Leeward" 36080 Shaker Blvd
5 Leeside Drive Huntington Valley, OH 44022
"Point Shares"
Pembroke, Bermuda HM 05
/s/ ABBY M. O'NEILL
Abby M. O'Neill
200 Sunset Road
Oyster Bay, NY 11771
EXHIBIT NO. 2
AMENDED AND RESTATED
BY-LAWS
OF
MFS SERIES TRUST I
DECEMBER 14, 1994
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS SERIES TRUST I
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property" and "Trustees" have the respective
meanings given them in the amended and restated Declaration of Trust of MFS
Series Trust I, dated December 14, 1994, as amended from time to time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the principal
office of the Trust in The Commonwealth of Massachusetts shall be in the City of
Boston, County of Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other places
without as well as within the Commonwealth as the Trustees may from time to time
determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request of Shareholders holding in the aggregate not less than ten
percent (10%) of the outstanding Shares of the Trust having voting rights, if
shareholders of all series are required under the Declaration to vote in the
aggregate and not by individual series at such meeting, or of any series or
class if shareholders of such series or class are entitled under the Declaration
to vote by individual series or class, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without The Commonwealth of Massachusetts on such day and at such time
as the Trustees shall designate.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least (ten) 10 days
and not more than (sixty) 60 days before the meeting. Only the business stated
in the notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need be given
to any Shareholder who shall have failed to inform the Trust of his current
address or if a written waiver of notice, executed before or after the meeting
by the Shareholder or his attorney thereunto authorized, is filed with the
records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than sixty (60) days
prior to the date of any meeting of Shareholders or distribution or other action
as a record date for the determination of the persons to be treated as
Shareholders of record for such purpose.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the Clerk, or
with such other officer or agent of the Trust as the Clerk may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
vote of a majority of the Trustees, proxies may be solicited in the name of one
or more Trustees or one or more of the officers of the Trust. When any Share is
held jointly by several persons, any one of them may vote at any meeting in
person or by proxy in respect of such Share, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Share. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
The placing of a Shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such Shareholder shall constitute execution of such proxy by or on behalf of
such Shareholder. If the holder of any such Share is a minor or a person of
unsound mind, and subject to guardianship or to the legal control of any other
person as regards the charge or management of such Share, he may vote by his
guardian or such other person appointed or having such control, and such vote
may be given in person or by proxy. Any copy, facsimile telecommunication or
other reliable reproduction of a proxy may be substituted for or used in lieu of
the original proxy for any and all purposes for which the original proxy could
be used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original proxy or
the portion thereof to be returned by the Shareholder.
SECTION 5. QUORUM, ADJOURNMENT AND REQUIRED VOTE. A majority of
outstanding Shares entitled to vote shall constitute a quorum at any meeting of
Shareholders, except that where any provision of law, the Declaration or these
By-laws permits or requires that holders of any series or class shall vote as a
series or class, then a majority of the aggregate number of Shares of that
series or class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that series or class. In the absence of a quorum,
a majority of outstanding Shares entitled to vote present in person or by proxy,
or, where any provision of law, the Declaration or these By-laws permits or
requires that holders of any series or class shall vote as a series or class, a
majority of outstanding Shares of that series or class entitled to vote present
in person or by proxy, may adjourn the meeting from time to time until a quorum
shall be present. Only Shareholders of record shall be entitled to vote on any
matter. Each full Share shall be entitled to one vote and fractional Shares
shall be entitled to a vote of such fraction. Except as otherwise provided any
provision of law, the Declaration or these By-laws, Shares representing a
majority of the votes cast shall decide any matter (i.e., abstentions and broker
non-votes shall not be counted) and a plurality shall elect a Trustee, provided
that where any provision of law, the Declaration or these By-Laws permits or
requires that holders of any series or class shall vote as a series or class,
then a majority of the Shares of that series or class cast on the matter shall
decide the matter (i.e., abstentions and broker non-votes shall not be counted)
insofar as that series or class is concerned.
SECTION 6. INSPECTION OF RECORDS. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
SECTION 7. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman or by any one
of the Trustees at the time being in office. Notice of the time and place of
each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary, or the Clerk or an Assistant Clerk or by
the officer or Trustee calling the meeting and shall be mailed to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or
wirelessed or sent by facsimile or other electronic means to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. Except as provided by law the Trustees may
meet by means of a telephone conference circuit or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, which telephone conference meeting shall be deemed to have been held
at a place designated by the Trustees at the meeting. Participation in a
telephone conference meeting shall constitute presence in person at such
meeting. Any action required or permitted to be taken at any meeting of the
Trustees may be taken by the Trustees without a meeting if all the Trustees
consent to the action in writing and the written consents are filed with the
records of the Trustees' meetings. Such consents shall be treated as a vote for
all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees shall
be present at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to the Executive
Committee except those powers which by law, the Declaration or these By-Laws
they are prohibited from delegating. The Trustees may also elect from their own
number other Committees from time to time, the number composing such Committees,
the powers conferred upon the same (subject to the same limitations as with
respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation a Committee
may elect its own Chairman.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING. The Trustees may:
(i) provide for stated meetings of any Committee,
(ii) specify the manner of calling and notice required for special
meetings of any Committee,
(iii) specify the number of members of a Committee required to
constitute a quorum and the number of members of a Committee
required to exercise specified powers delegated to such
Committee,
(iv) authorize the making of decisions to exercise specified powers
by written assent of the requisite number of members of a
Committee without a meeting, and
(v) authorize the members of a Committee to meet by means of a
telephone conference circuit.
Each Committee shall keep regular minutes of its meetings and records of
decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board to
consist in the first instance of not less than three (3) members. Members of
such Advisory Board shall not be Trustees or officers and need not be
Shareholders. A member of such Advisory Board shall hold office for such period
as the Trustees may by resolution provide. Any member of such board may resign
therefrom by a written instrument signed by him which shall take effect upon
delivery to the Trustees. The Advisory Board shall have no legal powers and
shall not perform the functions of Trustees in any manner, such Advisory Board
being intended merely to act in an advisory capacity. Such Advisory Board shall
meet at such times and upon such notice as the Trustees may by resolution
provide.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
Chairman, a President, a Treasurer and a Clerk, who shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, a
Secretary and one or more Assistant Secretaries, one or more Assistant
Treasurers, and one or more Assistant Clerks. The Trustees may delegate to any
officer or Committee the power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise provided
by law, the Declaration or these By-Laws, the Chairman, the President, the
Treasurer and the Clerk shall hold office until his resignation has been
accepted by the Trustees or until his respective successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. Any two or more offices may be held by the same person. Any
officer may be, but none need be, a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause by a vote of a majority
of the Trustees. Any officer or agent appointed by any officer or Committee may
be removed with or without cause by such appointing officer or Committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and any Committees of the Trustees, the Chairman shall at all times
exercise a general supervision and direction over the affairs of the Trust. The
Chairman shall have the power to employ attorneys and counsel for the Trust and
to employ such subordinate officers, agents, clerks and employees as he may find
necessary to transact the business of the Trust. The Chairman shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The Chairman shall have such other powers and duties as,
from time to time, may be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. In the absence or
disability of the Chairman, the President shall perform all the duties and may
exercise any of the powers of the Chairman, subject to the control of the
Trustees. The President shall perform such other duties as may be assigned to
him from time to time by the Trustees or the Chairman.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
SECTION 8. POWERS AND DUTIES OF THE CLERK. The Clerk shall keep the
minutes of all meetings of the Shareholders in proper books provided for that
purpose; he shall have custody of the seal of the Trust; he shall have charge of
the Share transfer books, lists and records unless the same are in the charge of
the Transfer Agent. He or the Secretary shall attend to the giving and serving
of all notices by the Trust in accordance with the provisions of these By-Laws
and as required by law; and subject to these By-Laws, he shall in general
perform all duties incident to the office of Clerk and such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF THE SECRETARY. The Secretary, if any,
shall keep the minutes of all meetings of the Trustees. He shall perform such
other duties and have such other powers in addition to those specified in these
By-Laws as the Trustees shall from time to time designate. If there be no
Secretary or Assistant Secretary, the Clerk shall perform the duties of
Secretary.
SECTION 10. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each Assistant Treasurer shall
give a bond for the faithful discharge of his duties, if required to do so by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
SECTION 11. POWERS AND DUTIES OF ASSISTANT CLERKS. In the absence or
disability of the Clerk, any Assistant Clerk designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Clerk. The
Assistant Clerks shall perform such other duties as from time to time may be
assigned to them by the Trustees.
SECTION 12. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all of the duties, and may exercise any of the powers, of the
Secretary. The Assistant Secretaries shall perform such other duties as from
time to time may be assigned to them by the Trustees.
SECTION 13. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of September in
each year and shall end on the last day of August in that year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed or sent by facsimile or other electronic means for the
purposes of these By-Laws when it has been delivered to a representative of any
telegraph, cable or wireless company with instruction that it be telegraphed,
cabled or wirelessed or when a confirmation of such facsimile having been sent,
or a confirmation that such electronic means has sent the notice being
transmitted, is generated. Any notice shall be deemed to be given at the time
when the same shall be mailed, telegraphed, cabled or wirelessed or when sent by
facsimile or other electronic means.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times employ
a bank or trust company having a capital, surplus and undivided profits of at
least five million dollars ($5,000,000.00) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements, if
any, as may be contained in the Declaration, these By-Laws and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same
upon written order;
(ii) to receive and issue receipts for any monies due to the Trust
and deposit the same in its own banking department or
elsewhere as the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and accounts
of the Trust and furnish clerical and accounting services; and
(v) if authorized to do so by the Trustees, to compute the net
income of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all Trust Property held by it as specified in such
vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least five million dollars ($5,000,000.00)
or such foreign banks and securities depositories as meet the requirements of
applicable provisions of the 1940 Act or the rules and regulations thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust or its custodian.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The substance of the
following provisions shall apply to the employment of a custodian pursuant to
this Article X and to any contract entered into with the custodian so employed:
(i) The Trustees shall cause to be delivered to the custodian all
securities owned by the Trust or to which it may become
entitled, and shall order the same to be delivered by the
custodian only upon completion of a sale, exchange, transfer,
pledge, or other disposition thereof, and upon receipt by the
custodian of the consideration therefor or a certificate of
deposit or a receipt of an issuer or of its Transfer Agent,
all as the Trustees may generally or from time to time require
or approve, or to a successor custodian; and the Trustees
shall cause all funds owned by the Trust or to which it may
become entitled to be paid to the custodian, and shall order
the same disbursed only for investment against delivery of the
securities acquired, or in payment of expenses, including
management compensation, and liabilities of the Trust,
including distributions to Shareholders, or to a successor
custodian; provided, however, that nothing herein shall
prevent the custodian from paying for securities before such
securities are received by the custodian or the custodian from
delivering securities prior to receiving payment therefor in
accordance with the payment and delivery customs of the market
in which such securities are being purchased or sold.
(ii) In case of the resignation, removal or inability to serve of
any such custodian, the Trust shall promptly appoint another
bank or trust company meeting the requirements of this Article
X as successor custodian. The agreement with the custodian
shall provide that the retiring custodian shall, upon receipt
of notice of such appointment, deliver the funds and property
of the Trust in its possession to and only to such successor,
and that pending appointment of a successor custodian, or a
vote of the Shareholders to function without a custodian, the
custodian shall not deliver funds and property of the Trust to
the Trust, but may deliver all or any part of them to a bank
or trust company doing business in Boston, Massachusetts, of
its own selection, having an aggregate capital, surplus and
undivided profits (as shown in its last published report) of
at least $5,000,000, as the property of the Trust to be held
under terms similar to those on which they were held by the
retiring custodian.
ARTICLE XI
SALE OF SHARES OF THE TRUST
The Trustees may from time to time issue and sell or cause to be issued
and sold Shares for cash or other property, which shall in every case be paid or
delivered to the Custodian as agent of the Trust before the delivery of any
certificate for such shares. The Shares, including additional Shares which may
have been repurchased by the Trust (herein sometimes referred to as "treasury
shares"), may not be sold at a price less than the net asset value thereof (as
defined in Article XII hereof) determined by or on behalf of the Trustees next
after the sale is made or at some later time after such sale.
No Shares need be offered to existing Shareholders before being offered to
others. No Shares shall be sold by the Trust (although Shares previously
contracted to be sold may be issued upon payment therefor) during any period
when the determination of net asset value is suspended by declaration of the
Trustees pursuant to the provisions of Article XII hereof. In connection with
the acquisition by merger or otherwise of all or substantially all the assets of
an investment company (whether a regulated or private investment company or a
personal holding company), the Trustees may issue or cause to be issued Shares
and accept in payment therefor such assets valued at not more than market value
thereof in lieu of cash, notwithstanding that the federal income tax basis to
the Trust of any assets so acquired may be less than the market value, provided
that such assets are of the character in which the Trustees are permitted to
invest the funds of the Trust.
The Trustees, in their sole discretion, may cause the Trust to redeem all
of the Shares of the Trust held by any Shareholder if the value of such Shares
is less than a minimum amount established from time to time by the Trustees.
ARTICLE XII
NET ASSET VALUE OF SHARES
The term "net asset value" per Share of any class or series of Shares
shall mean: (i) the value of all assets of that series or class; (ii) less total
liabilities of such series or class; (iii) divided by the number of Shares of
such series or class outstanding, in each case at the time of such
determination, all as determine by or under the direction of the Trustees. Such
value shall be determined on such days and at such time as the Trustees may
determine. Such determination shall be made with respect to securities for which
market quotations are readily available, at the market value of such securities;
and with respect to other securities and assets, at the fair value as determined
in good faith by or pursuant to the direction of the Trustees, provided,
however, that the Trustees, without shareholder approval, may alter the method
of appraising portfolio securities insofar as permitted under the 1940 Act, and
the rules, regulations and interpretations thereof promulgated or issued by the
Securities and Exchange Commission or insofar as permitted by any order of the
Securities and Exchange commission. The Trustees may delegate any powers and
duties under this Article XII with respect to appraisal of assets and
liabilities. At any time the Trustees may cause the value per share last
determined to be determined again in a similar manner and may fix the time when
such predetermined value shall become effective.
ARTICLE XIII
DIVIDENDS AND DISTRIBUTIONS
SECTION 1. LIMITATIONS ON DISTRIBUTIONS. The total of distributions to
Shareholders of a particular series or class paid in respect of any one fiscal
year, subject to the exceptions noted below, shall, when and as declared by the
Trustees, be approximately equal to the sum of:
(i) the net income, exclusive of the profits or losses realized
upon the sale of securities or other property, of such series
or class for such fiscal year, determined in accordance with
generally accepted accounting principles (which, if the
Trustees so determine, may be adjusted for net amounts
included as such accrued net income in the price of Shares of
such series or class issued or repurchased), but if the net
income of such series or class exceeds the amount distributed
by less than one cent per share outstanding at the record date
for the final dividend, the excess shall be treated as
distributable income of such series or class for the following
fiscal year; and
(ii) in the discretion of the Trustees, an additional amount which
shall not substantially exceed the excess of profits over
losses on sales of securities or other property allocated or
belonging to such series or class for such fiscal year.
The decision of the Trustees as to what, in accordance with generally
accepted accounting principles, is income and what is principal shall be final,
and except as specifically provided herein the decision of the Trustees as to
what expenses and charges of the Trust shall be charged against principal and
what against income shall be final, all subject to any applicable provisions of
the 1940 Act and rules, regulations and orders of the Commission promulgated
thereunder. For the purposes of the limitation imposed by this Section 1, Shares
issued pursuant to Section 2 of this Article XIII shall be valued at the amount
of cash which the Shareholders would have received if they had elected to
receive cash in lieu of such Shares.
Inasmuch as the computation of net income and gains for federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give to the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes. Any payment made to
Shareholders pursuant to clause (ii) of this Section 1 shall be accompanied by a
written statement showing the source or sources of such payment, and the basis
of computation thereof.
SECTION 2. DISTRIBUTIONS PAYABLE IN CASH OR SHARES. The Trustees shall
have power, to the fullest extent permitted by the laws of The Commonwealth of
Massachusetts but subject to the limitation as to cash distributions imposed by
Section 1 of this Article XIII, at any time or from time to time to declare and
cause to be paid distributions payable at the election of any Shareholder of any
series or class (whether exercised before or after the declaration of the
distribution) either in cash or in Shares of such series, provided that the sum
of:
(i) the cash distribution actually paid to any Shareholder, and
(ii) the net asset value of the Shares which that Shareholder
elects to receive, in effect at such time at or after the
election as the Trustees may specify, shall not exceed the
full amount of cash to which that Shareholder would be
entitled if he elected to receive only cash.
In the case of a distribution payable in cash or Shares at the election of a
Shareholder, the Trustees may prescribe whether a Shareholder, failing to
express his election before a given time shall be deemed to have elected to take
Shares rather than cash, or to take cash rather then Shares, or to take Shares
with cash adjustment of fractions.
The Trustees, in their sole discretion, may cause the Trust to require
that all distributions payable to a shareholder in amounts less than such amount
or amounts determined from time to time by the Trustees be reinvested in
additional shares of the Trust rather than paid in cash, unless a shareholder
who, after notification that his distributions will be reinvested in additional
shares in accordance with the preceding phrase, elects to receive such
distributions in cash. Where a shareholder has elected to receive distributions
in cash and the postal or other delivery service is unable to deliver checks to
the shareholder's address of record, the Trustees, in their sole discretion, may
cause the Trust to require that such Shareholder's distribution option will be
converted to having all distributions reinvested in additional shares.
SECTION 3. STOCK DIVIDENDS. Anything in these By-Laws to the contrary
notwithstanding, the Trustees may at any time declare and distribute pro rata
among the Shareholders of any series or class a "stock dividend" out of either
authorized but unissued Shares of such series or class or treasury Shares of
such series or class or both.
ARTICLE XIV
DERIVATIVE CLAIMS
No Shareholder shall have the right to bring or maintain any court action,
proceeding or claim on behalf of the Trust or any series or class thereof
without first making demand on the Trustees requesting the Trustees to bring or
maintain such action, proceeding or claim. Such demand shall be excused only
when the plaintiff makes a specific showing that irreparable injury to the Trust
or any series or class thereof would otherwise result. Such demand shall be
mailed to the Clerk of the Trust at the Trust's principal office and shall set
forth in reasonable detail the nature of the proposed court action, proceeding
or claim and the essential facts relied upon by the Shareholder to support the
allegations made in the demand. The Trustees shall consider such demand within
45 days of its receipt by the Trust. In their sole discretion, the Trustees may
submit the matter to a vote of Shareholders of the Trust or any series or class
thereof, as appropriate. Any decision by the Trustees to bring, maintain or
settle (or not to bring, maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of Shareholders, shall be made by the
Trustees in their business judgment and shall be binding upon the Shareholders.
Any decision by the Trustees to bring or maintain a court action, proceeding or
suit on behalf of the Trust or any series or class thereof shall be subject to
the right of the Shareholders under Article VI, Section 6.8 of the Declaration
to vote on whether or not such court action, proceeding or suit should or should
not be brought or maintained.
ARTICLE XV
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed,
restated, or new By-Laws may be adopted:
(i) by Majority Shareholder Vote, or
(ii) by the Trustees,
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration or these By-Laws, a vote of the Shareholders.
EXHIBIT NO. 6
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made this first day of January, 1995, by and
between MFS SERIES TRUST I, a Massachusetts business trust (the "Trust"), on
behalf of each series from time to time of the Trust (referred to individually
as a "Fund" and collectively as the "Funds") and MFS FUND DISTRIBUTORS, INC., a
Delaware corporation (the "Distributor");
NOW, THEREFORE, in consideration of the mutual promises and undertakings
herein contained, the parties hereto agree as follows:
1. The Trust grants to the Distributor the right, as agent of the Trust,
to sell Shares of Beneficial Interest, without par value, of the Funds (the
"Shares") upon the terms herein below set forth during the term of this
Agreement. While this Agreement is in force, the Distributor agrees to use its
best efforts to find purchasers for Shares.
The Distributor shall have the right, as agent of the Trust, to order
from the Trust the Shares needed, but not more than the Shares needed (except
for clerical errors and errors of transmission) to fill unconditional orders for
Shares placed with the Distributor by dealers, banks or other financial
institutions or investors as set forth in the current Prospectus and Statement
of Additional Information (collectively, the "Prospectus") relating to the
Shares. The price which shall be paid to the Trust for the Shares so purchased
shall be the net asset value used in determining the public offering price on
which such orders were based. The Distributor shall notify the Custodian of the
Trust, at the end of each business day, or as soon thereafter as the orders
placed with it have been compiled, of the number of Shares and the prices
thereof which have been ordered through the Distributor since the end of the
previous day.
The right granted to the Distributor to place orders for Shares with
the Trust shall be exclusive, except that said exclusive right shall not apply
to Shares issued in the event that an investment company (whether a regulated or
private investment company or a personal holding company) is merged or
consolidated with the Trust (or a Fund) or in the event that the Trust (or a
Fund) acquires by purchase or otherwise, all (or substantially all) the assets
or the outstanding shares of any such company; nor shall it apply to Shares
issued by the Trust (or a Fund) as a stock dividend or a stock split. The
exclusive right to place orders for Shares granted to the Distributor may be
waived by the Distributor by notice to the Trust in writing, either
unconditionally or subject to such conditions and limitations as may be set
forth in the notice to the Trust. The Trust hereby acknowledges that the
Distributor may render distribution and other services to other parties,
including other investment companies. In connection with its duties hereunder,
the Distributor shall also arrange for computation of performance statistics
with respect to the Trust and arrange for publication of current price
information in newspapers and other publications.
2. The Shares may be sold through the Distributor to dealers, banks and
other financial institutions having sales agreements with the Distributor, upon
the following terms and conditions:
The public offering price, i.e., the price per Share at which the
Distributor or dealers, banks or other financial institutions purchasing Shares
through the Distributor may sell Shares to the public, shall be the public
offering price as set forth in the current Prospectus relating to the Shares,
including a sales charge (where applicable) not to exceed the amount permitted
by Article III, Section 26 of the National Association of Securities Dealers,
Inc.'s Rule of Fair Practice, as amended from time to time. The Distributor
shall retain the sales charge (where applicable) less any applicable dealer or
comparable discount. If the resulting public offering price does not come out to
an even cent, the public offering price shall be adjusted to the nearer cent. In
addition, the Trust agrees that the Distributor may impose certain contingent
deferred sales charges (where applicable) in connection with the redemption of
Shares, not to exceed 6% of the net asset value of Shares, and the Distributor
shall retain (or receive from the Trust, as the case may be) all such contingent
deferred sales charges.
The Distributor may place orders for Shares at the net asset value for
such Shares (as established pursuant to paragraph l above) on behalf of such
purchasers and under such circumstances as the Prospectus describes, provided
that such sales comply with Rule 22d-1 under the Investment Company Act of 1940
or any exemptive order granted by the Securities and Exchange Commission. The
Distributor may also place orders for Shares at net asset value on behalf of
persons reinvesting the proceeds of the redemption or resale of Shares or shares
of other investment companies for which the Distributor acts as Distributor or
as otherwise provided in the current Prospectus.
The net asset value of Shares shall be determined by the Trust or by an
agent of the Trust, as of the close of regular trading of the New York Stock
Exchange on each business day on which said Exchange is open, in accordance with
the method set forth in the governing instruments (as hereinafter defined) of
the Trust. The Trust may also cause the net asset value to be determined in
substantially the same manner or estimated in such manner and as of such other
hour or hours as may from time to time be agreed upon in writing by the Trust
and Distributor. The Trust shall have the right to suspend the sale of Shares
if, because of some extraordinary condition, the New York Stock Exchange shall
be closed, or if conditions obtaining during the hours when the Exchange is open
render such action advisable, or for any other reasons deemed adequate by the
Trust.
3. The Trust agrees that it will, from time to time, take all necessary
action to register the offering and sale of Shares under the Securities Act of
l933, as amended (the "Act"), and applicable state securities laws. The
Distributor shall be an independent contractor and neither the Distributor nor
any of its directors, officers or employees as such, is or shall be an employee
of the Trust. It is understood that Trustees, officers and shareholders of the
Trust are or may become interested in the Distributor, as Directors, officers
and employees, or otherwise and that Directors, officers and employees of the
Distributor are or may become similarly interested in the Trust and that the
Distributor may be or become interested in the Trust as a shareholder or
otherwise. The Distributor is responsible for its own conduct and the
employment, control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees under
applicable statutes and agrees to pay all employer taxes thereunder.
4. The Distributor covenants and agrees that, in selling Shares, it will
use its best efforts in all respects duly to conform with the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD") relating to the sale of
Shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees incurred in
connection therewith), arising by reason of any person's acquiring any Shares,
which may be based upon the Act or any other statute or common law, on account
of any wrongful act of the Distributor or any of its employees (including any
failure to conform with any requirement of any state or federal law or the Rules
of Fair Practice of the NASD relating to the sale of Shares) or on the ground
that the registration statement or Prospectus as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless any such act, statement or omission
was made in reliance upon information furnished to the Distributor by or on
behalf of the Trust, provided, however, that in no case (i) is the indemnity of
the Distributor in favor of any person indemnified to be deemed to protect the
Trust or any such person against any liability to which the Trust or any such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its or his duties or by reason of its or
his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Distributor to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or such person, as the case may be, shall have
notified the Distributor in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon the Trust or upon such person (or after the Trust or such
person shall have received notice of such service on any designated agent), but
failure to notify the Distributor of any such claim shall not relieve it from
any liability which it may have to the Trust or any person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph. The Distributor shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if the Distributor elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Distributor elects to assume the defense of any such suit and retain such
counsel, the Trust or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Distributor does
not elect to assume the defense of any such suit, it shall reimburse the Trust
and such officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any Shares. Neither the Distributor nor any other person is
authorized to give any information or to make any representation on behalf of
the Trust, other than those contained in the registration statement or
Prospectus filed with the Securities and Exchange Commission under the Act (as
said registration statement or Prospectus may be amended or supplemented from
time to time), covering the Shares or other than those contained in periodic
reports to shareholders of the Trust.
5. The Trust will pay, or cause to be paid -
(i) all costs and expenses of the Trust, including fees and
disbursements of its counsel, in connection with the preparation and filing of
any required registration statement or Prospectus under the Act covering Shares
and all amendments and supplements thereto and any notices regarding the
registration of shares, and preparing and mailing to shareholders Prospectuses,
statements and confirmations and periodic reports (including the expense of
setting up in type any such registration statement, Prospectus or periodic
report);
(ii) the expenses (including auditing expenses) of qualification
of the Shares for sale, and, if necessary or advisable in connection therewith,
of qualifying the Trust as a dealer or broker, in such states as shall be
selected by the Distributor and the fees payable to each such state with respect
to shares sold and for continuing the qualification therein until the
Distributor notifies the Trust that it does not wish such qualification
continued;
(iii) the cost of preparing temporary or permanent certificates
for Shares;
(iv) all fees and disbursements of the transfer agent of the
Trust;
(v) the cost and expenses of delivering to the Distributor at its
office in Boston, Massachusetts, all Shares sold through it as Distributor
hereunder; and
(vi) all the federal and state issue and/or transfer taxes
payable upon the issue by or (in the case of treasury Shares) transfer from the
Trust of any and all Shares purchased through the Distributor hereunder.
The Distributor agrees that, after the Prospectus and periodic reports
have been set up in type, it will bear the expense (other than the cost of
mailing to shareholders of the Trust of printing and distributing any copies
thereof which are to be used in connection with the offering of Shares to
dealers, banks or other financial institutions or investors. The Distributor
further agrees that it will bear the expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by dealers, banks or other financial institutions in connection with the
offering of the Shares for sale to the public and expenses of advertising in
connection with such offering. The Distributor will also bear the expense of
sending confirmations and statements to dealers, banks and other financial
institutions having sales agreements with the Distributor. Nothing in this
paragraph 5 shall be deemed to prohibit or conflict with any payment by the
Trust or any Fund to the Distributor pursuant to any Distribution Plan adopted
as in effect pursuant to Rule 12b-1 under the Investment Company Act of 1940.
6. The Trust hereby authorizes the Distributor to repurchase, upon the
terms and conditions set forth in written instructions given by the Trust to the
Distributor from time to time, as agent of the Trust and for its account, such
Shares as may be offered for sale to the Trust from time to time; provided the
Distributor shall have the right, as stated above in paragraph 2 of this
Agreement, to retain (or to receive from the Trust, as the case may be) a
deferred sales charge not to exceed 6% of the net asset value of the Shares so
repurchased.
(a) The Distributor shall notify in writing the Custodian of the
Trust, at the end of each business day, or as soon thereafter as the repurchases
have been compiled, of the number of Shares repurchased for the account of the
Trust since the last previous report, together with the prices at which such
repurchases were made, and upon the request of any Officer or Trustee of the
Trust shall furnish similar information with respect to all repurchases made up
to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the
foregoing authorization at any time. Unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by an officer of the Distributor, by telegraph or by written notice from
the Trust. In the event that the authorization of the Distributor is, by the
terms of such notice, suspended for more than twenty-four hours or until further
notice, the authorization given by this paragraph 6 shall not be revived except
by action of a majority of the members of the Board of Trustees of the Trust.
(c) The Distributor shall have the right to terminate the
operation of this paragraph 6 upon giving to the Trust thirty days' written
notice thereof.
(d) The Trust agrees to authorize and direct the Custodian to
pay, for the account of the Trust, the purchase price of any Shares so
repurchased against delivery of the certificates, if any, in proper form for
transfer to the Trust or for cancellation by the Trust.
(e) The Distributor shall receive no commission in respect of any
repurchase of Shares under the foregoing authorization and appointment as agent,
except in connection with contingent deferred sales charge as provided in the
current Prospectus relating to the Shares.
(f) The Trust agrees to reimburse the Distributor, from time to
time upon demand, for any reasonable expenses incurred in connection with the
repurchase of Shares pursuant to this paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust shall
deem it necessary or advisable in the best interests of the Trust that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under Massachusetts, any state or federal
tax laws, it shall notify the Distributor of the form of amendment which it
deems necessary or advisable and the reasons therefore. If the Distributor
declines to assent to such amendment, the Trust may terminate this Agreement
forthwith by written notice to the Distributor without payment of any penalty.
If, at any time during the existence of this Agreement, upon request by the
Distributor, the Trust fails (after a reasonable time) to make any changes in
its governing instruments or in its methods of doing business which are
necessary in order to comply with any requirements of federal or state laws or
regulations, laws or regulations of the Securities and Exchange Commission or of
a national securities association of which the Distributor is or may be a
member, relating to the sale of Shares, the Distributor may terminate this
Agreement forthwith by written notice to the Trust without payment of any
penalty.
8. The Distributor agrees that it will not take any long or short
positions in the Shares except as permitted by paragraphs l and 6 hereof.
Whenever used in this Agreement, the term "governing instruments" shall mean the
Declaration of Trust and the By-Laws of the Trust, as from time to time amended.
9. This Agreement shall become effective on January 1, 1995 and shall
continue in force until August 1, 1996 on which date it will terminate unless
its continuance after August 1, 1996, is specifically approved at least annually
(i) by the vote of a majority of the Board of Trustees of the Trust who are not
interested persons of the Trust or of the Distributor at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of that Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of l940 and the Rules and
Regulations thereunder.
This Agreement may be terminated as to any Fund at any time by either
party without payment of any penalty on not more than sixty days' or less than
thirty days' written notice to the other party.
10. This Agreement shall automatically terminate in the event of its
assignment.
11. The terms "vote of a majority of the outstanding voting securities",
"interested person" and "assignment" shall have the respective meanings
specified in the Investment Company Act of l940 and the Rules and Regulations
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
12. This Agreement shall be governed by the laws of The Commonwealth of
Massachusetts.
13. A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Distributor
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust. If this instrument is executed by the Trust on behalf of one or
more series of the Trust, the Distributor further acknowledges that the assets
and liabilities of each series of the Trust are separate and distinct and that
the obligations of or arising out of this instrument are binding solely upon the
assets or property of the series on whose behalf the Trust has executed this
instrument. If the Trust has executed this instrument on behalf of more than one
series of the Trust, the Distributor also agrees that the obligations of each
series hereunder shall be several and not joint, in accordance with its
proportionate interest hereunder, and the Distributor agrees not to proceed
against any series for the obligations of another series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above.
MFS SERIES TRUST I
On behalf of MFS Managed Sectors Fund
MFS Cash Reserve Fund
MFS World Asset Allocation Fund
By:W. THOMAS LONDON
W. Thomas London as officer
and not individually
MFS FUND DISTRIBUTORS, INC.
By:WILLIAM W. SCOTT, JR.
William W. Scott, Jr.
President
EXHIBIT 11
CONSENT OF DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS'
We consent to the incorporation by reference in this Post-Effective Amendment
No. 20 to Registration No. 33-7638 of MFS Series Trust I of our reports dated
October 7, 1994, appearing in the annual report to shareholders for the year
ended August 31, 1994, of MFS Cash Reserve Fund and MFS Managed Sectors Fund, an
to the references to us under the headings "Condensed Financial Information" in
the Prospectus and "Independent Accountants and Financial Statements" in the
Statement of Additional Information, which are part of such Registration
Statement.
Deloitte & Touche LLP
Boston, Massachusetts
March 28, 1995
EXHIBIT NO. 15(a)
MFS SERIES TRUST I
MFS MANAGED SECTORS FUND
DISTRIBUTION PLAN
DISTRIBUTION PLAN with respect to the shares of beneficial interest to be
designated "Class A" of the MFS Managed Sectors Fund (the "Fund"), a series of
MFS Series Trust I (the "Trust"), a business trust organized and existing under
the laws of The Commonwealth of Massachusetts, dated the 1st day of September,
1993 and amended this 14th day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is registered under the Investment Company Act of 1940 (the "Act");
and
WHEREAS, the Trust intends to distribute the Shares of Beneficial Interest
(without par value) of the Fund designated Class A Shares (the "Shares") in part
in accordance with Rule 12b-1 under the Act, ("Rule 12b-1"), and desires to
adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to
such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution
Agreement") in a form approved by the Board of Trustees of the Trust (the "Board
of Trustees") in the manner specified in Rule 12b-1, with MFS Fund Distributors,
Inc., a Delaware corporation, as distributor (the "Distributor"), whereby the
Distributor provides facilities and personnel and renders services to the Fund
in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will enter into
agreements ("Dealer Agreements") with various securities dealers and other
financial intermediaries ("Dealers") pursuant to which the Dealers will act as
dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be paid
by investors who purchase Shares and that the Distributor and Dealers will
receive such sales charge as partial compensation for their services in
connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should adopt and
implement this Plan, has evaluated such information as it deemed necessary to an
informed determination as to whether this Plan should be adopted and implemented
and has considered such pertinent factors as it deemed necessary to form the
basis for a decision to use assets of the Fund for such purposes, and has
determined that there is a reasonable likelihood that the adoption and
implementation of this Plan will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the Fund as a
plan of distribution relating to the Shares in accordance with Rule 12b-1 under
the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for all
expenses of printing (excluding typesetting) and distributing prospectuses to
prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses described
in Section 1, including without limitation, the compensation of personnel
necessary to provide such services and all costs of travel, office expenses
(including rent and overhead), equipment, printing, delivery and mailing costs.
3. As partial consideration for the services performed and expenses to the
extent specified in the Distribution Agreement in providing the services
incurred in the performance of its obligations under the Distribution Agreement,
the Fund shall pay the Distributor a distribution fee periodically at a rate of
0.10% per annum of the average daily net assets of the Fund attributable to the
Shares. Such payments shall commence following shareholder approval of the Plan
but only upon notification by the Distributor to the Fund of the commencement of
the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its Dealer Agreement, the Fund shall on or after the
Commencement Date pay each Dealer a service fee periodically at a rate not to
exceed 0.25% per annum of the portion of the average daily net assets of the
Fund that is represented by Shares that are owned by investors for whom such
Dealer is the holder or dealer of record. The Distributor may from time to time
reduce the amount of the service fee paid to a Dealer for Shares sold prior to
certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the
expenses permitted to be paid by the Fund pursuant to this Plan on or after the
Commencement Date shall include other distribution related expenses. These other
distribution related expenses may include, but are not limited to, a dealer
commission and a payment to wholesalers employed by the Distributor on net asset
value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to Sections 3 and
4 hereof and this Section 5 shall not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to the Shares. No fees shall be paid
pursuant to Section 4 hereof or this Section 5 to any insurance company which
has entered into an agreement with the Trust on behalf of the Fund and the
Distributor that permits such insurance company to purchase Shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof and
this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any of the
agreements related to the Plan (the "Qualified Trustees"), such votes to be cast
in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however,
that such continuance is subject to annual approval by a vote of the Board of
Trustees and a majority of the Qualified Trustees, such votes to be cast in
person at a meeting called for the purpose of voting on continuance of this
Plan. If such annual approval is not obtained, this Plan shall expire 12 months
after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees; provided
that (a) any amendment to increase materially the amount to be spent for the
services described herein shall be effective only upon approval by a vote of a
"majority of the outstanding voting securities" of the Shares and (b) any
material amendment of this Plan shall be effective only upon approval by a vote
of the Board of Trustees and a majority of the Qualified Trustees, such votes to
be cast in person at a meeting called for the purpose of voting on such
amendment. This Plan may be terminated at any time by vote of a majority of the
Qualified Trustees or by a vote of a "majority of the outstanding voting
securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board of
Trustees shall review, at least quarterly, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and
"majority of the outstanding voting securities" are used as defined in the Act.
In addition, for purposes of determining the fees payable to Dealers and
wholesalers, the value of the Share's net assets shall be computed in the manner
specified in the Fund's then current prospectus for computation of the net asset
value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in Section 10 hereof (collectively
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such Record shall be kept in an easily
accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the Act.
15. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
EXHIBIT NO. 15(b)
MFS SERIES TRUST I
MFS MANAGED SECTORS FUND
AMENDED AND RESTATED PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be
designated "Class B" of MFS Managed Sectors Fund the ("Fund"), a series of
MFS Series Trust I, a Massachusetts business trust (the "Trust"), dated as of
September 10, 1986, amended and restated July 1, 1993, amended and restated
September 1, 1993 and amended this 14th day of December 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, a plan of distribution pursuant to Rule 12b-1 of the 1940 Act was
previously adopted and approved by the Trustees of the Trust, including the
Qualifying Trustees (as defined below), and by the shareholders of the Fund; and
WHEREAS, the Trust intends to continue to distribute the shares of
beneficial interest (without par value) of the Fund designated Class B Shares
(the "Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"),
and desires to adopt this amended and restated Distribution Plan (the "Plan") as
a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby
the Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers") of
the Shares in connection with the offering of Shares, and (b) the Distributor
may make payments for such services to Dealers out of the fee paid to the
Distributor hereunder, any deferred sales charges imposed by the Distributor in
connection with the repurchase of Shares, its profits or any other source
available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may impose
certain deferred sales charges in connection with the repurchase of Shares by
the Fund, and the Distributor may retain (or receive from the Fund, as the case
may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Fund should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class B
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan
for the Fund as a plan for distribution relating to the Shares in accordance
with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for
commissions payable to Dealers, all expenses of printing (excluding typesetting)
and distributing prospectuses to prospective shareholders and providing such
other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may impose certain deferred sales
charges in connection with the repurchase of Shares by the Fund and the
Distributor may retain (or receive from the Fund, as the case may be) all such
deferred sales charges. As additional consideration for all services performed
and expenses incurred in the performance of its obligations under the
Distribution Agreement, the Fund shall pay the Distributor a distribution fee
periodically at a rate of 0.75% per annum of the Fund's average daily net assets
attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established from time to
time, by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4
hereof, nothing in this Plan shall be construed as requiring the Fund to make
any payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4 hereof, such Dealer shall
look solely to the Distributor for compensation for its services thereunder and
that in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Fund to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon approval by a vote of the Board
of Trustees and a vote of a majority of the Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreement related to the Plan (the
"Qualified Trustees"), such votes to be cast in person at a meeting called for
the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of the Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. This Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a vote of the holders of a "majority of
the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees, and
the Board of Trustees shall review, at least quarterly, a written report of the
amounts expended under this Plan and the purposes for which such expenditures
were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Fund.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
EXHIBIT NO. 15(c)
MFS SERIES TRUST I
MFS CASH RESERVE FUND
DISTRIBUTION PLAN
DISTRIBUTION PLAN with respect to the shares of beneficial interest to
be designated "Class A" of the MFS Cash Reserve Fund (the "Fund"), a
series of MFS Series Trust I (the "Trust"), a business trust organized
and existing under the laws of The Commonwealth of Massachusetts, dated
the 1st day of September, 1993 and amended this 14th day of December,
1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of
1940 (the "Act"); and
WHEREAS, the Trust intends to distribute the Shares of Beneficial
Interest (without par value) of the Fund designated Class A Shares (the
"Shares") in part in accordance with Rule 12b-1 under the Act, ("Rule
12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a
plan of distribution pursuant to such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") in a form approved by the Board of Trustees of
the Trust (the "Board of Trustees") in the manner specified in Rule
12b-1, with MFS Fund Distributors Inc., a Delaware corporation, as
distributor (the "Distributor"), whereby the Distributor provides
facilities and personnel and renders services to the Fund in connection
with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will enter
into agreements ("Dealer Agreements") with various securities dealers
and other financial intermediaries ("Dealers") pursuant to which the
Dealers will act as dealers of the Shares in connection with the
offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be
paid by investors who purchase Shares and that the Distributor and
Dealers will receive such sales charge as partial compensation for their
services in connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should
adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan
should be adopted and implemented and has considered such pertinent
factors as it deemed necessary to form the basis for a decision to use
assets of the Fund for such purposes, and has determined that there is a
reasonable likelihood that the adoption and implementation of this Plan
will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the
Fund as a plan of distribution relating to the Shares in accordance with
Rule 12b-1 under the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for all
expenses of printing (excluding typesetting) and distributing prospectuses to
prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses described
in Section 1, including without limitation, the compensation of personnel
necessary to provide such services and all costs of travel, office expenses
(including rent and overhead), equipment, printing, delivery and mailing costs.
3. As partial consideration for the services performed and expenses to the
extent specified in the Distribution Agreement in providing the services
incurred in the performance of its obligations under the Distribution Agreement,
the Fund shall pay the Distributor a distribution fee periodically at a rate of
0.10% per annum of the average daily net assets of the Fund attributable to the
Shares. Such payments shall commence following shareholder approval of the Plan
but only upon notification by the Distributor to the Fund of the commencement of
the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its Dealer Agreement, the Fund shall on or after the
Commencement Date pay each Dealer a service fee periodically at a rate not to
exceed 0.25% per annum of the portion of the average daily net assets of the
Fund that is represented by Shares that are owned by investors for whom such
Dealer is the holder or dealer of record. The Distributor may from time to time
reduce the amount of the service fee paid to a Dealer for Shares sold prior to
certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the
expenses permitted to be paid by the Fund pursuant to this Plan on or after the
Commencement Date shall include other distribution related expenses. These other
distribution related expenses may include, but are not limited to, a dealer
commission and a payment to wholesalers employed by the Distributor on net asset
value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to Sections 3 and
4 hereof and this Section 5 shall not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to the Shares. No fees shall be paid
pursuant to Section 4 hereof or this Section 5 to any insurance company which
has entered into an agreement with the Trust on behalf of the Fund and the
Distributor that permits such insurance company to purchase Shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof and
this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any of the
agreements related to the Plan (the "Qualified Trustees"), such votes to be cast
in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however,
that such continuance is subject to annual approval by a vote of the Board of
Trustees and a majority of the Qualified Trustees, such votes to be cast in
person at a meeting called for the purpose of voting on continuance of this
Plan. If such annual approval is not obtained, this Plan shall expire 12 months
after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees; provided
that (a) any amendment to increase materially the amount to be spent for the
services described herein shall be effective only upon approval by a vote of a
"majority of the outstanding voting securities" of the Shares and (b) any
material amendment of this Plan shall be effective only upon approval by a vote
of the Board of Trustees and a majority of the Qualified Trustees, such votes to
be cast in person at a meeting called for the purpose of voting on such
amendment. This Plan may be terminated at any time by vote of a majority of the
Qualified Trustees or by a vote of a "majority of the outstanding voting
securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board of
Trustees shall review, at least quarterly, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and
"majority of the outstanding voting securities" are used as defined in the Act.
In addition, for purposes of determining the fees payable to Dealers and
wholesalers, the value of the Share's net assets shall be computed in the manner
specified in the Fund's then current prospectus for computation of the net asset
value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in Section 10 hereof (collectively
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such Record shall be kept in an easily
accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the Act.
15. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
EXHIBIT NO. 15(d)
MFS SERIES TRUST I
MFS CASH RESERVE FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be
designated "Class B" of MFS Cash Rerserve Fund (the "Fund"), a series of MFS
Series Trust I (the "Trust") a Massachusetts business trust, dated September
1, 1993 and amended this 14th day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest
(without par value) of the Fund designated Class B Shares (the "Shares") in
accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to
adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to
such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby
the Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers") of
the Shares in connection with the offering of Shares, and (b) the Distributor
may make payments for such services to the Dealers out of the fee paid to the
Distributor hereunder, any deferred sales charges imposed by the Distributor in
connection with the repurchase of Shares, its profits or any other source
available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may impose
certain deferred sales charges in connection with the repurchase of Shares by
the Fund, and the Distributor may retain (or receive from the Fund, as the case
may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Fund should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class B
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan
for the Fund as a plan for distribution relating to the Shares in accordance
with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for
commissions payable to Dealers, all expenses of printing (excluding typesetting)
and distributing prospectuses to prospective shareholders and providing such
other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may impose certain deferred sales
charges in connection with the repurchase of Shares by the Fund and the
Distributor may retain (or receive from the Fund, as the case may be) all such
deferred sales charges. As additional consideration for all services performed
and expenses incurred in the performance of its obligations under the
Distribution Agreement, the Fund shall pay the Distributor a distribution fee
periodically at a rate of 0.75% per annum of the Fund's average daily net assets
attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established from time to
time, by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4,
nothing in this Plan shall be construed as requiring the Fund to make any
payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4, such Dealer shall look
solely to the Distributor for compensation for its services thereunder and that
in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of the Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. This Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a vote of the holders of a "majority of
the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees, and
the Board of Trustees shall review, at least quarterly, a written report of the
amounts expended under this Plan and the purposes for which such expenditures
were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
EXHIBIT NO. 15(e)
MFS SERIES TRUST I
MFS WORLD ASSET ALLOCATION FUND
DISTRIBUTION PLAN
DISTRIBUTION PLAN with respect to the shares of beneficial interest to be
designated "Class A" of the MFS World Asset Allocation Fund (the "Fund"), a
series of MFS Series Trust I (the "Trust"), a business trust organized and
existing under the laws of The Commonwealth of Massachusetts, dated the 2nd day
of June, 1994 and amended this 14th day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is registered under the Investment Company Act of 1940 (the "Act");
and
WHEREAS, the Trust intends to distribute the Shares of Beneficial Interest
(without par value) of the Fund designated Class A Shares (the "Shares") in part
in accordance with Rule 12b-1 under the Act, ("Rule 12b-1"), and desires to
adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to
such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution
Agreement") in a form approved by the Board of Trustees of the Trust (the "Board
of Trustees") in the manner specified in Rule 12b-1, with MFS Fund Distributors,
Inc., a Delaware corporation, as distributor (the "Distributor"), whereby the
Distributor provides facilities and personnel and renders services to the Fund
in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will enter into
agreements ("Dealer Agreements") with various securities dealers and other
financial intermediaries ("Dealers") pursuant to which the Dealers will act as
dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be paid by
investors who purchase Shares and that the Distributor and Dealers will receive
such sales charge as partial compensation for their services in connection with
sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should adopt and
implement this Plan, has evaluated such information as it deemed necessary to an
informed determination as to whether this Plan should be adopted and implemented
and has considered such pertinent factors as it deemed necessary to form the
basis for a decision to use assets of the Fund for such purposes, and has
determined that there is a reasonable likelihood that the adoption and
implementation of this Plan will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the Fund as a
plan of distribution relating to the Shares in accordance with Rule 12b-1 under
the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for any
ongoing maintenance commissions to Dealers (excluding service fees described in
paragraph 4), all expenses of printing (excluding typesetting) and distributing
prospectuses to prospective shareholders and providing such other related
services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses described
in Section 1, including without limitation, the compensation of personnel
necessary to provide such services and all costs of travel, office expenses
(including rent and overhead), equipment, printing, delivery and mailing costs.
3. As partial consideration for the services performed as specified in the
Distribution Agreement and expenses incurred in the performance of its
obligations under the Distribution Agreement, the Fund shall pay the Distributor
a distribution fee periodically at a rate not to exceed 0.25% per annum of the
average daily net assets of the Fund attributable to the Shares. Such payments
shall commence following shareholder approval of the Plan but only upon
notification by the Distributor to the Fund of the commencement of the Plan (the
"Commencement Date"). All or a portion of the distribution fee paid by the Fund
to the Distributor may be paid by the Distributor to Dealers in consideration of
the Dealer's services as a dealer of the Shares. The Distributor may from time
to time establish minimum amount requirements and additional or different dealer
qualification standards or other criteria to be met by dealers for payment of
any fee under this paragraph 3. It is understood that the Distributor may, but
is not required to, pay reduced fees or no fees under this paragraph 3 to
Dealers with respect to assets represented by Shares that have converted from
shares of beneficial interest of the Fund designated "Class B."
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its Dealer Agreement, the Fund shall on or after the
Commencement Date pay each Dealer a service fee periodically at a rate not to
exceed 0.25% per annum of the portion of the average daily net assets of the
Fund that is represented by Shares that are owned by investors for whom such
Dealer is the holder or dealer of record. The Distributor may from time to time
reduce the amount of the service fee paid to a Dealer with respect to Shares
sold prior to a certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the
expenses permitted to be paid by the Fund pursuant to this Plan on or after the
Commencement Date shall include other distribution related expenses. These other
distribution related expenses may include, but are not limited to, a dealer
commission and a payment to wholesalers employed by the Distributor on net asset
value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to Sections 3 and
4 hereof and this Section 5 shall not exceed 0.50% per annum of the average
daily net assets of the Fund attributable to the Shares. No fees shall be paid
pursuant to Section 4 hereof or this Section 5 to any insurance company which
has entered into an agreement with the Trust on behalf of the Fund and the
Distributor that permits such insurance company to purchase Shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof and
this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any of the
agreements related to the Plan (the "Qualified Trustees"), such votes to be cast
in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however,
that such continuance is subject to annual approval by a vote of the Board of
Trustees and a majority of the Qualified Trustees, such votes to be cast in
person at a meeting called for the purpose of voting on continuance of this
Plan. If such annual approval is not obtained, this Plan shall expire 12 months
after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees; provided
that (a) any amendment to increase materially the amount to be spent for the
services described herein shall be effective only upon approval by a vote of a
"majority of the outstanding voting securities" of the Shares and (b) any
material amendment of this Plan shall be effective only upon approval by a vote
of the Board of Trustees and a majority of the Qualified Trustees, such votes to
be cast in person at a meeting called for the purpose of voting on such
amendment. This Plan may be terminated at any time by vote of a majority of the
Qualified Trustees or by a vote of a "majority of the outstanding voting
securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board of
Trustees shall review, at least quarterly, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and
"majority of the outstanding voting securities" are used as defined in the Act.
In addition, for purposes of determining the fees payable to Dealers and
wholesalers, the value of the Share's net assets shall be computed in the manner
specified in the Fund's then current prospectus for computation of the net asset
value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in Section 10 hereof (collectively
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such Record shall be kept in an easily
accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
15. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
EXHIBIT NO. 15(f)
MFS SERIES TRUST I
MFS WORLD ASSET ALLOCATION FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be
designated "Class B" of the MFS World Asset Allocation Fund (the "Fund"), a
series of MFS Series Trust I (the "Trust") a Massachusetts business trust, dated
the 2nd day of June, 1994 and amended this 14th day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment
company and is registered under the Investment Company Act of 1940, as amended
(collectively with the rules and regulations promulgated thereunder, the "1940
Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest
(without par value) of the Fund designated Class B Shares (the "Shares") in
accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to
adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to
such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution
Agreement") (in a form approved by the Board of Trustees of the Trust in a
manner specified in such Rule 12b-1) with the Distributor, whereby the
Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may retain the
services of firms or individuals to act as dealers (the "Dealers") of the Shares
in connection with the offering of Shares, and (b) the Distributor may make
payments for such services to the Dealers out of the fee paid to the Distributor
hereunder, any deferred sales charges imposed by the Distributor in connection
with the repurchase of Shares, its profits or any other source available to it;
and
WHEREAS, the Trust recognizes and agrees that the Distributor may impose certain
deferred sales charges in connection with the repurchase of Shares by the Fund,
and the Distributor may retain (or receive from the Fund, as the case may be)
all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the Fund
should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class B
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan for
the Fund as a plan for distribution relating to the Shares in accordance with
Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for
commissions payable to Dealers, all expenses of printing (excluding typesetting)
and distributing prospectuses to prospective shareholders and providing such
other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, Printing delivery and Mailing
costs.
3. It is understood that the Distributor may impose certain deferred sales
charges in connection with the repurchase of Shares by the Fund and the
Distributor may retain (or receive from the Fund, as the case may be) all such
deferred sales charges. As additional consideration for all services performed
and expenses incurred in the performance of its obligations under the
Distribution Agreement, the Fund shall pay the Distributor a distribution fee
periodically at a rate of 0.75% per annum of the Fund's average daily net assets
attributable to the shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established from time to
time, by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4,
nothing in this Plan shall be construed as requiring the Fund to make any
payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4, such Dealer shall look
solely to the Distributor for compensation for its services thereunder and that
in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of the Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. This Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a vote of the holders of a "majority of
the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees, and
the Board of Trustees shall review, at least quarterly, a written report of the
amounts expended under this Plan and the purposes for which such expenditures
were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
EXHIBIT NO. 15(g)
MFS SERIES TRUST I
MFS WORLD ASSET ALLOCATION FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to
be designated "Class C" of MFS World Asset Allocation Fund (the "Fund"), a
series of MFS Series Trust I (the "Trust") a Massachusetts business trust, dated
June 2, 1994 and amended this 14th day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest
(without par value) of the Fund designated Class C Shares (the "Shares") in
accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to
adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to
such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in Rule 12b-1) with the Distributor, whereby the
Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers") of
the Shares in connection with the offering of Shares, and (b) the Distributor
may make payments for such services to the Dealers out of the fee paid to the
Distributor hereunder, any deferred sales charges imposed by the Distributor in
connection with the repurchase of Shares, its profits or any other source
available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may (but is
not required to) impose certain deferred sales charges in connection with the
repurchase of Shares by the Fund, and the Distributor may retain (or receive
from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Fund should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class C
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan
for the Fund as a plan for distribution relating to the Shares in accordance
with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for any
commissions payable to Dealers (including any ongoing maintenance commissions),
all expenses of printing (excluding typesetting) and distributing prospectuses
to prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may (but is not required to)
impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund and the Distributor may retain (or receive from the Fund, as
the case may be) all such deferred sales charges. As additional consideration
for all services performed and expenses incurred in the performance of its
obligations under the Distribution Agreement, the Fund shall pay the Distributor
a distribution fee periodically at a rate not to exceed 0.75% per annum of the
Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established, from time to
time by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees to Dealers on behalf of the Fund or retain
them in accordance with this paragraph.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4,
nothing in this Plan shall be construed as requiring the Fund to make any
payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4, such Dealer shall look
solely to the Distributor for compensation for its services thereunder and that
in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of Class C, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of Class C and may not be materially amended
in any case without a vote of a majority of both the Trustees and the Qualified
Trustees. This Plan may be terminated at any time by a vote of a majority of the
Qualified Trustees or by a vote of the holders of a "majority of the outstanding
voting securities" of Class C.
11. The Fund and the Distributor shall provide the Board of Trustees, and
the Board of Trustees shall review, at least quarterly, a written report of the
amounts expended under this Plan and the purposes for which such expenditures
were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF MFS MANAGED SECTORS FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> MFS MANAGED SECTORS FUND CLASS A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 299,505,459
<INVESTMENTS-AT-VALUE> 336,562,753
<RECEIVABLES> 9,988,311
<ASSETS-OTHER> 4,986
<OTHER-ITEMS-ASSETS> 99,451
<TOTAL-ASSETS> 346,655,501
<PAYABLE-FOR-SECURITIES> 9,489,253
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,613,659
<TOTAL-LIABILITIES> 11,102,912
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 279,385,189
<SHARES-COMMON-STOCK> 9,062,715
<SHARES-COMMON-PRIOR> 8,782,906
<ACCUMULATED-NII-CURRENT> (25,403)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,135,268
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,057,535
<NET-ASSETS> 335,552,589
<DIVIDEND-INCOME> 3,107,949
<INTEREST-INCOME> 132,831
<OTHER-INCOME> 0
<EXPENSES-NET> 5,136,120
<NET-INVESTMENT-INCOME> (1,895,340)
<REALIZED-GAINS-CURRENT> 21,025,189
<APPREC-INCREASE-CURRENT> (3,397,459)
<NET-CHANGE-FROM-OPS> 15,732,390
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (25,297,254)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 723,889
<NUMBER-OF-SHARES-REDEEMED> (2,124,598)
<SHARES-REINVESTED> 1,680,518
<NET-CHANGE-IN-ASSETS> (33,608,400)
<ACCUMULATED-NII-PRIOR> 233,258
<ACCUMULATED-GAINS-PRIOR> 71,013,806
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,952,229
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,136,120
<AVERAGE-NET-ASSETS> 347,062,933
<PER-SHARE-NAV-BEGIN> 15.50
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 0.77
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (2.83)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.41
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF MFS MANAGED SECTORS FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> MFS MANAGED SECTORS FUND CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 299,505,459
<INVESTMENTS-AT-VALUE> 336,562,753
<RECEIVABLES> 9,988,311
<ASSETS-OTHER> 4,986
<OTHER-ITEMS-ASSETS> 99,451
<TOTAL-ASSETS> 346,655,501
<PAYABLE-FOR-SECURITIES> 9,489,253
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,613,659
<TOTAL-LIABILITIES> 11,102,912
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 279,385,189
<SHARES-COMMON-STOCK> 16,033,265
<SHARES-COMMON-PRIOR> 15,040,097
<ACCUMULATED-NII-CURRENT> (25,403)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,135,268
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,057,535
<NET-ASSETS> 335,552,589
<DIVIDEND-INCOME> 3,107,949
<INTEREST-INCOME> 132,831
<OTHER-INCOME> 0
<EXPENSES-NET> 5,136,120
<NET-INVESTMENT-INCOME> (1,895,340)
<REALIZED-GAINS-CURRENT> 21,025,189
<APPREC-INCREASE-CURRENT> (3,397,459)
<NET-CHANGE-FROM-OPS> 15,732,390
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (41,826,829)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,769,946
<NUMBER-OF-SHARES-REDEEMED> (3,645,250)
<SHARES-REINVESTED> 2,868,472
<NET-CHANGE-IN-ASSETS> (33,608,400)
<ACCUMULATED-NII-PRIOR> 233,258
<ACCUMULATED-GAINS-PRIOR> 71,014,346
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,952,229
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,136,120
<AVERAGE-NET-ASSETS> 347,062,933
<PER-SHARE-NAV-BEGIN> 15.49
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 0.75
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (2.79)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.35
<EXPENSE-RATIO> 2.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF MFS CASH RESERVES FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> MFS CASH RESERVES FUND CLASS A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 214,183,769
<INVESTMENTS-AT-VALUE> 214,183,769
<RECEIVABLES> 2,817,316
<ASSETS-OTHER> 1,931
<OTHER-ITEMS-ASSETS> 62,999
<TOTAL-ASSETS> 217,066,015
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,274,715
<TOTAL-LIABILITIES> 1,274,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 215,791,300
<SHARES-COMMON-STOCK> 2,156,434
<SHARES-COMMON-PRIOR> 48,769
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 215,791,300
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,637,605
<OTHER-INCOME> 0
<EXPENSES-NET> 2,848,701
<NET-INVESTMENT-INCOME> 2,788,904
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,788,904
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23,520)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,460,125
<NUMBER-OF-SHARES-REDEEMED> (3,372,483)
<SHARES-REINVESTED> 20,023
<NET-CHANGE-IN-ASSETS> 60,468,363
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 806,328
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,996,233
<AVERAGE-NET-ASSETS> 195,473,455
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF MFS CASH RESERVES FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> MFS CASH RESERVES FUND CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 214,183,769
<INVESTMENTS-AT-VALUE> 214,183,769
<RECEIVABLES> 2,817,316
<ASSETS-OTHER> 1,931
<OTHER-ITEMS-ASSETS> 62,999
<TOTAL-ASSETS> 217,066,015
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,274,715
<TOTAL-LIABILITIES> 1,274,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 215,791,300
<SHARES-COMMON-STOCK> 213,634,866
<SHARES-COMMON-PRIOR> 155,274,168
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 215,791,300
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,637,605
<OTHER-INCOME> 0
<EXPENSES-NET> 2,848,701
<NET-INVESTMENT-INCOME> 2,788,904
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,788,904
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,765,384)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 509,185,655
<NUMBER-OF-SHARES-REDEEMED> (453,142,665)
<SHARES-REINVESTED> 2,317,708
<NET-CHANGE-IN-ASSETS> 60,468,363
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 806,328
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,996,233
<AVERAGE-NET-ASSETS> 195,473,455
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
