<TABLE>
<S> <S>
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>
2
<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.
3
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which is
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche, independent certified public
accountants, as experts in accounting and auditing.
Financial Highlights
<TABLE>
<CAPTION>
Year Ended November 30, 1993# 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:
</FN>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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% -- -- -- --
</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;
4
<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
5
<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
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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%
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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
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<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.
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<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
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<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.
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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.
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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
13
<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.
14
<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
15
<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.
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<PAGE>
Automatic Exchange Plan: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of other MFS Funds under the Automatic Exchange Plan. 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.
17
<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.
18
<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.
19
<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.
20
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- --------------------------------------------------------------------------------
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
