MFS SERIES TRUST I, 485BPOS, 1998-11-17

MFS SERIES TRUST I
485BPOS, 1998-11-17

Previous: BT INVESTMENT FUNDS, N-30D, 1998-11-17

Next: COST PLUS INC/CA/, S-8, 1998-11-17

<PAGE> 1

As filed with the Securities and Exchange Commission on November 16, 1998

1933 Act File No. 33-7638
1940 Act File No. 811-4777
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

FORM N-1A
REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

POST-EFFECTIVE AMENDMENT NO. 32

AND
REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 34

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

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

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

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)

[X] on November 17, 1998 pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(i)

[ ] on [date] pursuant to paragraph (a)(i)

[ ] 75 days after filing pursuant to paragraph (a)(ii)

[ ] on [date] pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment

================================================================================
<PAGE> 2
MFS(R) STRATEGIC GROWTH FUND

SUPPLEMENT DATED NOVEMBER 17, 1998 TO THE CURRENT PROSPECTUS

This Supplement describes the fund's class I shares, and it supplements certain
information in the fund's Prospectus dated November 17, 1998. The caption
headings used in this Supplement correspond with the caption headings used in
the Prospectus.

You may purchase class I shares only if you are an eligible institutional
investor, as described under the caption "Description of Share Classes" below.

1. RISK RETURN SUMMARY

PERFORMANCE TABLE. The "Performance Table" is supplemented as follows:

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
1 Year Life(*)
------ -------
<S> <C> <C>
Class I shares 52.18% 46.38%
Standard & Poor's 500 Composite Index(**)(+) 33.36% 28.10%
</TABLE>

* For the period from the commencement of the Fund's investment operations
on January 2, 1996, through December 31, 1997.

** The Standard & Poor's 500 Composite Index is a market capitalization
weighted price index composed of 500 widely held companies.

+ Source: CDA/Wisenberger

The fund initially offered class A shares on January 2, 1996 and class I shares
on January 2, 1997. Class I share performance includes the performance of the
fund's class A shares for periods prior to the offering of class I shares. Class
I share performance generally would have been higher than class A share
performance had class I shares been offered for the entire period, because
operating expenses (e.g., distribution and service fees) attributable to class I
shares are lower than those of class A shares. Class I share performance has
been adjusted to take into account the fact that class I shares have no initial
sales charge.

2. EXPENSE SUMMARY

EXPENSE TABLE. The "Expense Table" is supplemented as follows:

ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C>
Management Fees.................................. 0.75%
Distribution and Service (12b-1) Fees............ 0.00%
Other Expenses(1)................................ 0.33%
-----
Total Annual Fund Operating Expenses............. 1.08%
-----
</TABLE>

(1) The fund has an expense offset arrangement which reduces the fund's
custodian fee based upon the amount of cash maintained by the fund with
its custodian and dividend disbursing agent. The fund may enter into other
similar arrangements and directed brokerage arrangements, which would also
have the effect of reducing the fund's expenses. "Other Expenses" do not
take into account these expense reductions, and therefore do not represent
the actual expenses of the fund.

-1-
<PAGE> 3

EXAMPLE OF EXPENSES. The "Example of Expenses" table is supplemented as
follows:

<TABLE>
<CAPTION>
Share Class Year 1 Year 3 Year 5 Year 10
----------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Class I shares $ 110 $ 343 $ 595 $ 1,317
</TABLE>

3. DESCRIPTIONS OF SHARE CLASSES

The "Description of Share Classes" is supplemented as follows:

If you are an eligible institutional investor (as described below), you may
purchase class I shares at net asset value without an initial sales charge or
CDSC upon redemption. Class I shares do not have annual distribution and service
fees, and do not convert to any other class of shares of the fund.

The following eligible institutional investors may purchase class I shares:

- certain retirement plans established for the benefit of employees of
MFS and employees of MFS' affiliates;

- any fund distributed by MFS, if the fund seeks to achieve its
investment objective by investing primarily in shares of the fund
and other MFS funds;

- any retirement plan, endowment or foundation which:

[ARROW] purchases shares directly through MFD (rather than
through a third party broker or dealer or other
financial adviser);

[ARROW] has, at the time of purchase of class I shares,
aggregate assets of at least $100 million; and

[ARROW] invests at least $10 million in class I shares of the
fund either alone or in combination with investments in
class I shares of other MFS Funds (additional
investments may be made in any amount).

MFD may accept purchases from smaller plans, endowments or
foundations or in smaller amounts if it believes, in its sole
discretion, that such entity's aggregate assets will equal or exceed
$100 million, or that such entity will make additional investments
which will cause its total investment to equal or exceed $10
million, within a reasonable period of time;

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

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

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

-2-
<PAGE> 4
4. HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES

The discussion of "How to Purchase, Exchange and Redeem Shares" is supplemented
as follows:

You may purchase, redeem and exchange class I shares only through your MFD
representative or by contacting MFSC (see the back cover of the Prospectus for
address and phone number). You may exchange your class I shares for class I
shares of another MFS Fund (if you are eligible to purchase them) and for shares
of the MFS Money Market Fund at net asset value.

5. FINANCIAL HIGHLIGHTS

The "Financial Highlights" table is supplemented as follows:

Financial Statements - Class I Shares

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31, 1998 AUGUST 31, 1997*
--------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 16.80 $ 12.08
---------- ----------
Income from Investment Operations(#) -
Net investment income loss(S) $ (0.08) $ (0.04)
Net realized and unrealized gain on investments and foreign currency
transactions 2.31 4.76
---------- ----------
Total from investment operations $ 2.23 $ 4.72
---------- ----------
Less distributions declared to shareholders from net realized gain on
investments and foreign currency transactions $ (0.18) --
---------- ----------
Net asset value - end of period $ 18.85 $ 16.80
========== ==========
Total return 13.32% 39.24%++
Ratios (to average net assets)/Supplemental data(S) -
Expenses(##) 1.08% 0.94%+
Net investment loss (0.37)% (0.40)%+
Portfolio turnover 56% 82%
Net assets at end of period (000 omitted) $ 18,335 $ 13,462
</TABLE>

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

+ Annualized.

++ Not annualized.

# Per share data are based on average shares outstanding.

## The fund has an expense offset arrangement which reduces the fund's
custodian fee based upon the amount of cash maintained by the fund with
its custodian and dividend disbursing agent. The fund's expenses are
calculated without reduction for this expense offset arrangement.

(S) Subject to reimbursement by the Fund, the Adviser voluntarily agreed
to maintain expenses of the fund, exclusive of management fees, at
not more than 0.50% per annum of average daily net effective April
14, 1997 through August 31, 1997. To the extent actual expenses were
over/under this limitation, the net investment income per share and
the ratios would have been:

<TABLE>
<S> <C> <C>
Net investment loss $ -- $ (0.06)
Ratios (to average net assets):
Expenses -- 1.14%+
Net Investment loss -- (0.60)%+
</TABLE>

THE DATE OF THIS SUPPLEMENT IS NOVEMBER 17, 1998

-3-
<PAGE> 5

[MFS(R) STRATEGIC GROWTH FUND
NOVEMBER 17, 1998]
PROSPECTUS

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
- -------------------------------------------------------------

This Prospectus describes the MFS Strategic Growth Fund. The
investment objective of the fund is capital appreciation.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.

<PAGE> 6

LOGO

<TABLE>
<CAPTION>
Page
<S> <C> <C>
I Risk Return Summary........................................ 1

II Expense Summary............................................ 4

III Investment Objective, Strategies and Principal Risks....... 6

IV Management of the Fund..................................... 8

V Description of Share Classes............................... 9

VI How to Purchase, Exchange and Redeem Shares................ 12

VII Investor Services and Programs............................. 16

VIII Other Information.......................................... 18

IX Financial Highlights....................................... 21

Appendix A -- Investment Techniques and Practices.......... A-1

Appendix B -- Sales Charge Categories Available to Certain
Retirement Plans........................................... B-1
</TABLE>

<PAGE> 7

I RISK RETURN SUMMARY

-- INVESTMENT OBJECTIVE

Capital appreciation.

-- PRINCIPAL INVESTMENT STRATEGIES

The fund invests, under normal market conditions, at least 65% of its total
assets in common stocks and related securities, such as preferred stock,
convertible securities and equity options, of companies which its investment
adviser, Massachusetts Financial Services Company (referred to as MFS or the
adviser), believes offer superior prospects for growth.

MFS uses a bottom-up, as opposed to a top-down, investment style in managing
the equity-oriented funds (such as the fund) it advises. This means that
securities are selected based upon fundamental analysis performed by the fund's
portfolio manager and MFS' large group of equity research analysts. Securities
are not selected based upon the type of industries to which they belong.

In managing the fund, MFS seeks to purchase securities of companies which MFS
considers well-run and poised for growth. MFS looks particularly for companies
which demonstrate:

- - a strong franchise, strong cash flows and a recurring revenue stream

- - a solid industry position, where there is

c potential for high profit margins

c substantial barriers to new entry in the industry

- - a strong management team with a clearly defined strategy

- - a catalyst which may accelerate growth

In pursuing this investment strategy, the fund may invest in foreign securities,
and may have exposure to foreign currencies through its investment in these
securities, its direct holdings of foreign currencies or through its use of
foreign currency exchange contracts for the purchase or sale of a fixed quantity
of a foreign currency at a future date.

-- PRINCIPAL RISKS OF AN INVESTMENT

Your investment in the fund is subject to certain risks:

- - The value of the securities in which the fund invests may decline due to
changing economic, political or market conditions, or due to the financial
condition of the company which issued the security.

- - Because the fund invests primarily in growth company securities, the fund's
performance is particularly sensitive to changes in the value of stocks of
growth-oriented companies. A decline in the value of these types of stocks may
result in a decline in the fund's net asset value and your investment.

- - The fund's investment in foreign securities involves additional risks relating
to political, social and economic developments abroad. Other risks from these
investments result from the differences between the regulations to which U.S.
and foreign issuers and markets are subject. The fund's exposure to foreign
currencies may cause the value of

1
<PAGE> 8

the fund to decline in the event that the U.S. dollar strengthens against these
currencies, or in the event that foreign governments intervene in the currency
markets.

- - As with any mutual fund, you could lose money on your investment in the fund.

An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.

-- BAR CHART AND PERFORMANCE TABLE

The bar chart and performance table below are intended to indicate some of the
risks of investing in the fund by showing changes in the fund's performance over
time. The chart and table provide past performance information. The fund's past
performance does not necessarily indicate how the fund will perform in the
future. The performance information in the chart and table is based upon
calendar year periods, while the performance information presented under the
caption "Financial Highlights" and in the fund's shareholder reports is based
upon the fund's fiscal year. Therefore, these performance results differ.

BAR CHART
The bar chart shows changes in the annual total returns of the fund's class A
shares for each calendar year since class A shares were first offered. The chart
and related notes do not take into account any sales charges that you may be
required to pay upon purchase or redemption of the fund's shares, but do include
the reinvestment of distributions. Any sales charge will reduce your return. The
return of the fund's other classes of shares will differ from the class A
returns shown in the bar chart, depending upon the expenses of those classes.

[EMBED Chart]

The total return for the fund's class A shares for the nine month period ended
September 30, 1998 was 13.16%. During the period shown in the bar chart, the
highest quarterly return was 24.52% (for the calendar quarter ended June 30,
1997) and the lowest quarterly return was 3.28% (for the calendar quarter ended
March 31, 1997).

2
<PAGE> 9

PERFORMANCE TABLE

This table shows how the average annual total returns of each class of the fund
compares to various market indicators and assumes the reinvestment of
distributions.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
................................................................................

Class A shares 43.24% 42.71%

Class B shares 45.63% 44.48%

Class C shares 48.85% 45.97%

Standard & Poor's 500 Composite Index**++ 33.36% 28.10%

Average growth fund+ 25.34% 23.04%

Consumer Price Index***++ 1.71% 2.55%
</TABLE>

- ---------
* For the period from the commencement of the fund's investment operations on
January 2, 1996, through December 31, 1997.
+ Source: Lipper Analytical Services, Inc.
++ Source: CDA/Wiesenberger.
** The Standard & Poor's 500 Composite Index is a market capitalization
weighted price index composed of 500 widely held common stocks.
*** The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).

Share performance is calculated according to Securities and Exchange Commission
rules. Class A share performance takes into account the deduction of the 5.75%
maximum sales charge. Class B share performance takes into account the deduction
of the applicable contingent deferred sales charge (referred to as a CDSC),
which declines over six years from 4% to 0%. Class C share performance takes
into account the deduction of the 1% CDSC.

The fund initially offered class A shares on January 2, 1996 and class B and C
shares on April 11, 1997. Class B and class C share performance include the
performance of the fund's class A shares for periods prior to the offering of
class B and class C shares. Class B and class C share performance generally
would have been lower than class A share performance had class B and class C
shares been offered for the entire period, because certain operating expenses
(e.g., distribution and service fees) attributable to class B and class C shares
are higher than those of class A shares. Class B and class C share performance
has been adjusted to take into account the CDSC applicable to class B and class
C shares, rather than the initial sales charge applicable to class A shares.

3
<PAGE> 10

II EXPENSE SUMMARY

-- EXPENSE TABLE

This table describes the fees and expenses that you may pay when you buy, redeem
and hold shares of the fund.

SHAREHOLDER FEES: (fees paid directly from your investment)

................................................................................

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price) ................... 5.75% 0.00% 0.00%
Maximum Deferred Sales Charge
(Load) (as a percentage of original
purchase price or redemption
proceeds, whichever is less)....... See Below(1) 4.00% 1.00%
</TABLE>

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
................................................................................

<TABLE>
<S> <C> <C> <C>
Management Fees.................... 0.75% 0.75% 0.75%
Distribution and Service (12b-1)
Fees(2)............................ 0.35% 1.00% 1.00%
Other Expenses(3).................. 0.33% 0.33% 0.33%
----- ------- -------
Total Annual Fund Operating
Expenses........................... 1.43% 2.08% 2.08%
</TABLE>

- ---------
(1) An initial sales charge will not be deducted from your purchase if you buy
$1 million or more of class A shares, or if you are investing through a
retirement plan and your class A purchase meets certain requirements.
However, in this case, a contingent deferred sales charge (referred to as a
CDSC) of 1% may be deducted from your redemption proceeds if you redeem your
investment within 12 months.
(2) The fund adopted a distribution plan under Rule 12b-1 that permits it to pay
marketing and other fees to support the sale and distribution of class A, B
and C shares and the services provided to you by your financial adviser
(referred to as distribution and service fees).

(3) The fund has an expense offset arrangement which reduces the fund's
custodian fee based upon the amount of cash maintained by the fund with its
custodian and dividend disbursing agent. The Fund may enter into other
similar arrangements and directed brokerage arrangements, which would also
have the effect of reducing the fund's expenses. "Other Expenses" do not
take into account these expense reductions, and are therefore higher than
the actual expenses of the fund.

4
<PAGE> 11

-- EXAMPLE OF EXPENSES

These examples are intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds.

The examples assume that:

- - You invest $10,000 in the fund for the time periods indicated and you redeem
your shares at the end of the time periods;

- - Your investment has a 5% return each year and dividends and other
distributions are reinvested; and

- - The fund's operating expenses remain the same.

Although your actual costs may be higher or lower, under these assumptions your
costs would be:

<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>

Class A shares $712 $1,001 $1,312 $2,190

Class B shares

Assuming redemption at end of
period $611 $ 952 $1,319 $2,242

Assuming no redemption $211 $ 652 $1,119 $2,242

Class C shares

Assuming redemption at end of
period $311 $ 652 $1,119 $2,410

Assuming no redemption $211 $ 652 $1,119 $2,410
</TABLE>

5
<PAGE> 12

III INVESTMENT OBJECTIVE, STRATEGIES AND PRINCIPAL RISKS

-- INVESTMENT OBJECTIVE

The fund's investment objective is capital appreciation. Approval by the fund's
shareholders is not required to modify or change the fund's objective.

-- HOW THE FUND INTENDS TO ACHIEVE ITS OBJECTIVE

In managing the fund, MFS seeks to purchase securities of companies which MFS
considers well-run and poised for growth. MFS looks particularly for companies
which demonstrate:

- - a strong franchise, strong cash flows and a recurring revenue stream

- - a solid industry position, where there is

* potential for high profit margins

* substantial barriers to new entry in the industry

- - a strong management team with a clearly defined strategy

- - a catalyst which may accelerate growth

In pursuing this investment strategy, the fund may invest up to 20% of its net
assets in foreign securities (including emerging markets securities), and may
have exposure to foreign currencies through its investment in these securities,
its direct holdings of foreign currencies or through its use of foreign currency
exchange contracts for the purchase or sale of a fixed quantity of a foreign
currency at a future date.

The fund may depart from its principal investment strategies by temporarily
investing for defensive purposes when adverse market, economic or political
conditions exist. While the fund invests defensively, it may not be able to
pursue its investment objective.

The fund may engage in active and frequent trading to achieve its principal
investment strategies. This may result in the realization and distribution to
shareholders of higher capital gains, which would increase your tax liability.
Frequent trading also increases transaction costs, which could detract from the
fund's performance.

The fund may invest in various types of securities and engage in various
investment techniques and practices which are not the principal focus of the
fund and therefore are not described in this Prospectus. The types of securities
and investment techniques and practices in which the Fund may engage are
identified in Appendix A to this Prospectus, and are discussed, together with
their risks, in the Fund's Statement of Additional Information (referred

6
<PAGE> 13

to as the SAI), which you may obtain by contacting MFS Service Center, Inc. (see
back cover for address and phone number).

-- PRINCIPAL RISKS

The principal risks of investing in the fund and the circumstances reasonably
likely to cause the value of your investment in the fund to decline are
described below. As with any non-money market mutual fund, the share price of
the fund will change daily based on market conditions and other factors. Please
note that there are many circumstances which could cause the value of your
investment in the fund to decline, and which could prevent the fund from
achieving its objective, that are not described here. The principal risks of
investing in the fund are:

- - Market Risk: This is the risk that the price of a security held by the fund
will fall due to changing economic, political or market conditions, or due to
the financial condition of the company which issued the security.

- - Growth Companies: This is the risk that the prices of growth company
securities held by the fund, which are the fund's principal investment focus,
will fall to a greater extent than the overall equity markets (e.g., as
represented by the Standard and Poor's Composite 500 Index) due to changing
economic, political or market conditions.

- - Foreign Securities: Investments in foreign securities involve risks relating
to political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject:

* These risks may include the seizure by the government of company assets,
excessive taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of portfolio assets, and political or
social instability.

* Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.

* Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be
less public information about their operations.

* Foreign markets may be less liquid and more volatile than U.S. markets.

* Foreign securities often trade in currencies other than the U.S. dollar,
and the fund may directly hold foreign currencies and purchase and sell
foreign currencies through forward exchange contracts. Changes in
currency exchange rates will affect the fund's net asset value, the value
of dividends and interest earned, and gains and losses realized on the
sale of securities. An increase in the strength of the U.S. dollar
relative to these other currencies may cause the value of the fund to
decline. Certain foreign currencies may be particularly volatile, and
foreign governments may intervene in the currency markets, causing a
decline in value or liquidity in the fund's foreign currency holdings.
Forward foreign currency exchange contracts involve the risk that the
party with which the fund enters the contract may fail to perform its
obligations to the fund.

7
<PAGE> 14

LOGO

-- INVESTMENT ADVISER

Massachusetts Financial Services Company (referred to as MFS or the adviser) is
the fund's investment adviser. 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, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $83.1 billion on behalf of approximately 3.5 million investor
accounts as of September 30, 1998. As of such date, the MFS organization managed
approximately $54.6 billion of net assets in equity funds and equity portfolios.
Approximately $4.3 billion of the assets managed by MFS are invested in
securities of foreign issuers and foreign denominated securities of U.S.
issuers. MFS is located at 500 Boylston Street, Boston, Massachusetts 02116.

MFS provides overall investment advisory services and facilities to the fund,
for which the fund pays MFS an annual management fee of 0.75% of the fund's
average daily net asset value.

-- PORTFOLIO MANAGER

The fund's portfolio managers are Christian A. Felipe, a Senior Vice President
of MFS and S. Irfan Ali, a Vice President of MFS. Mr. Felipe has been the
portfolio manager of the fund since the fund's inception and has been employed
as a portfolio manager by MFS since 1986. Mr. Ali has been employed as a
portfolio manager by MFS since 1993.

-- ADMINISTRATOR

MFS provides the fund with certain financial, legal, compliance, shareholder
communications and other administrative services. MFS is reimbursed by the fund
for a portion of the costs it incurs in providing these services.

-- DISTRIBUTOR

MFS Fund Distributors, Inc. (referred to as MFD), a wholly owned subsidiary of
MFS, is the distributor of shares of the fund.

-- SHAREHOLDER SERVICING AGENT

MFS Service Center, Inc. (referred to as MFSC), a wholly owned subsidiary of
MFS, performs transfer agency and certain other services for the fund, for which
it receives compensation from the fund.

8
<PAGE> 15

V DESCRIPTION OF SHARE CLASSES

The Fund offers class A, B and C shares through this prospectus. The Fund also
offers an additional class of shares, class I shares, exclusively to certain
institutional investors. Class I shares are made available through a separate
prospectus supplement provided to institutional investors eligible to purchase
them.

-- SALES CHARGES

You may be subject to an initial sales charge when you purchase, or a CDSC when
you redeem, class A, B or C shares. These sales charges are described below. In
certain circumstances, these sales charges are waived. These circumstances are
described in the SAI. Special considerations concerning the calculation of the
CDSC that apply to each of these classes of shares are described below under the
heading "Calculation of CDSC."

If you purchase your fund shares through a financial adviser (such as a broker
or bank), the adviser may receive commissions or other concessions which are
paid from various sources, such as from the sales charges and distribution and
service fees, or from MFS or MFD. These commissions and concessions are
described in the SAI.

-- CLASS A SHARES

You may purchase class A shares at net asset value plus an initial sales charge
(referred to as the offering price), but in some cases you may purchase class A
shares without an initial sales charge but subject to a 1% CDSC upon redemption
within one year. Class A shares have annual distribution and service fees up to
a maximum of 0.35% of net assets annually.

PURCHASES SUBJECT TO AN INITIAL SALES CHARGE. The amount of the initial sales
charge you pay when you buy class A shares differs depending upon the amount you
invest, as follows:

<TABLE>
<CAPTION>
SALES CHARGE* AS PERCENTAGE OF:
-----------------------------------------
Offering Net Amount
Amount of Purchase Price Invested
<S> <C> <C>

Less than $50,000 5.75% 6.10
$50,000 but less than $100,000 4.75 4.99
$100,000 but less than $250,000 4.00 4.17
$250,000 but less than $500,000 2.95 3.04
$500,000 but less than $1,000,000 2.20 2.25
$1,000,000 or more None** None**
</TABLE>

- ---------
* Because of rounding in the calculation of offering price, actual sales
charges you pay may be more or less than those calculated using these
percentages.
** A 1% CDSC will apply to such purchases, as discussed below.

9
<PAGE> 16

PURCHASES SUBJECT TO A CDSC (BUT NOT AN INITIAL SALES CHARGE). You pay no
initial sales charge when you invest $1 million or more in class A shares.
However, a CDSC of 1% will be deducted from your redemption proceeds if you
redeem within 12 months of your purchase. This pricing structure also applies to
investments in class A shares by certain retirement plans, as described in
Appendix B.

-- CLASS B SHARES

You may purchase class B shares at net asset value without an initial sales
charge, but if you redeem your shares within the first six years you may be
subject to a CDSC (declining from 4.00% during the first year to 0% after six
years). Class B shares have annual distribution and service fees up to a maximum
of 1.00% of net assets annually.

The CDSC is imposed according to the following schedule:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR OF REDEMPTION AFTER PURCHASE SALES CHARGE
<S> <C>
First 4%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
</TABLE>

If you hold Class B shares for approximately eight years, they will convert to
class A shares of the fund. All class B shares you purchased through the
reinvestment of dividends and distributions will be held in a separate
sub-account. Each time any class B shares in your account convert to class A
shares, a proportionate number of the class B shares in the sub-account will
also convert to class A shares.

-- CLASS C SHARES

You may purchase class C shares at net asset value without an initial sales
charge, but if you redeem your shares within the first year you may be subject
to a CDSC of 1.00%. Class C shares have annual distribution and service fees up
to a maximum of 1.00% of net assets annually. Class C shares do not convert to
any other class of shares of the fund.

-- CALCULATION OF CDSC

As discussed above, certain investments in class A, B and C shares will be
subject to a CDSC. Three different aging schedules apply to the calculation of
the CDSC:

- - Purchases of class A shares made on any day during a calendar month will age
one month on the last day of the month, and each subsequent month.

- - Purchases of class C shares, and purchases of class B shares on or after
January 1, 1993, made on any day during a calendar month will age one year at
the close of

10
<PAGE> 17

business on the last day of that month in the following calendar year, and
each subsequent year.

- - Purchases of class B shares prior to January 1, 1993 made on any day during a
calendar year will age one year at the close of business on December 31 of
that year, and each subsequent year.

No CDSC is assessed on the value of your account represented by appreciation or
additional shares acquired through the automatic reinvestment of dividends or
capital gain distributions. Therefore, when you redeem your shares, only the
value of the shares in excess of these amounts (i.e., your direct investment) is
subject to a CDSC.

The CDSC will be applied in a manner that results in the CDSC being imposed at
the lowest possible rate, which means that the CDSC will be applied against the
lesser of your direct investment or the total cost of your shares. The
applicability of a CDSC will not be affected by exchanges or transfers of
registration, except as described in the SAI.

-- DISTRIBUTION AND SERVICE FEES

The fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of class A, B and C shares
and the services provided to you by your financial adviser. These annual
distribution and service fees may equal up to 0.35% for class A shares and 1.00%
for each of class B and class C shares, and are paid out of the assets of these
classes. Over time, these fees will increase the cost of your shares and may
cost you more than paying other types of sales charges.

11
<PAGE> 18

VI HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES

You may purchase, exchange and redeem class A, B and C shares of the fund in the
manner described below. In addition, you may be eligible to participate in
certain investor services and programs to purchase, exchange and redeem these
classes of shares, which are described in the next section under the caption
"Investor Services and Programs."

-- HOW TO PURCHASE SHARES

INITIAL PURCHASE. You can establish an account by having your financial adviser
process your purchase. The minimum initial investment is $1,000. However, in the
following circumstances the minimum initial investment is only $50 per account:

- - if you establish an automatic investment plan;

- - if you establish an automatic exchange plan; or

- - if you establish an account under either:

* tax-deferred retirement programs (other than IRAs) where investments are
made by means of group remittal statements; or

* employer sponsored investment programs.

The minimum initial investment for IRAs is $250 per account. The maximum
investment in class C shares is $1,000,000 per transaction. Class C shares are
not available for purchase by any retirement plan qualified under Section 401(a)
or 403(b) of the Internal Revenue Code if the plan or its sponsor subscribes to
certain recordkeeping services made available by MFSC, such as the MFS
Fundamental 401(k) Plan.

ADDING TO YOUR ACCOUNT. There are several easy ways you can make additional
investments of at least $50 to your account:

- - send a check with the returnable portion of your statement;

- - ask your financial adviser to purchase shares on your behalf;

- - wire additional investments through your bank (call MFSC first for
instructions); or

- - authorize transfers by phone between your bank account and your MFS account
(the maximum purchase amount for this method is $100,000). You must elect this
privilege on your account application if you wish to use it.

-- HOW TO EXCHANGE SHARES

You can exchange your shares for shares of the same class of certain other MFS
funds at net asset value by having your financial adviser process your exchange
request or by contacting MFSC directly. The minimum exchange amount is generally
$1,000 ($50 for exchanges made under the automatic exchange plan). Shares
otherwise subject to a CDSC will not be charged a CDSC in an exchange. However,
when you redeem the shares acquired through the exchange, the shares you redeem
may be subject to a CDSC, depending upon when you originally purchased the
shares you exchanged. For purposes of computing the CDSC, the length of time you
have owned your shares will be measured from the date of original purchase and
will not be affected by any exchange.

12
<PAGE> 19

Sales charges may apply to exchanges made from the MFS money market funds.
Certain qualified retirement plans may make exchanges between the MFS funds and
the MFS Fixed Fund, a bank collective investment fund, and sales charges may
also apply to these exchanges. Call MFSC for information concerning these sales
charges.

Exchanges are subject to the MFS funds' market timing policies, which are
policies designed to protect the funds and their shareholders from the effect of
frequent exchanges. These market timing policies are described below under the
caption "Market Timing Policies." You should read the prospectus of the MFS fund
into which you are exchanging and consider the differences in objectives,
policies and rules before making any exchange.

-- HOW TO REDEEM SHARES

You may redeem your shares either having your financial adviser process your
redemption or by contacting MFSC directly. The fund sends out your redemption
proceeds within seven days after your request is received in good order. "Good
order" generally means that the stock power, written request for redemption,
letter of instruction or certificate must be endorsed by the record owner(s)
exactly as the shares are registered. In addition, you need to have your
signature guaranteed and/or submit additional documentation to redeem your
shares. See "Signature Guarantee/Additional Documentation" below, or contact
MFSC for details (see back cover page for address and phone number).

Under unusual circumstances such as when the New York Stock Exchange is
closed, trading on the Exchange is restricted or if there is an emergency, the
fund may suspend redemptions or postpone payment. If you purchased the shares
you are redeeming by check, the fund may delay the payment of the redemption
proceeds for up to 15 days from the purchase date to assure that the check has
cleared.

REDEEMING DIRECTLY THROUGH MFSC

- - BY TELEPHONE. You can call MFSC to have shares redeemed from your account and
the proceeds wired or mailed (depending on the amount redeemed) directly to a
pre-designated bank account. MFSC will request personal or other information
from you and will generally record the calls. MFSC will be responsible for
losses that result from unauthorized telephone transactions if it does not
follow reasonable procedures designed to verify your identity. You must elect
this privilege on your account application if you wish to use it.

- - BY MAIL. To redeem shares by mail, you can send a letter to MFSC with the name
of your fund, your account number, and the number of shares or dollar amount
to be sold.

REDEEMING THROUGH YOUR FINANCIAL ADVISER. You can call your financial adviser to
process a redemption on your behalf. Your financial adviser will be responsible
for furnishing all necessary documents to MFSC and may charge you for this
service.

SIGNATURE GUARANTEE/ADDITIONAL DOCUMENTATION. In order to protect against fraud,
the fund requires that your signature be guaranteed in order to redeem your
shares. Your signature may be guaranteed by an eligible bank, broker, dealer,
credit union, national securities exchange,

13
<PAGE> 20

registered securities association, clearing agency, or savings association. MFSC
may require additional documentation for certain types of registrations and
transactions. Signature guarantees and this additional documentation shall be
accepted in accordance with policies established by MFSC, and MFSC may make
certain deminimis exceptions to these requirements.

-- OTHER CONSIDERATIONS

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

MARKET TIMING POLICIES. The MFS Funds are not designed for professional market
timing organizations or other entities using programmed or frequent exchanges.
The MFS Funds define a "market timer" as an individual, or organization acting
on behalf of one or more individuals, if:

- - the individual or organization makes during the calendar year either (i) six
or more exchange requests among the MFS Funds or (ii) three or more exchange
requests out of any of the MFS high yield bond funds or MFS municipal bond
funds; and

- - any one of such exchange requests represents shares equal in value to $1
million or more.

Accounts under common ownership or control, including accounts administered by
market timers, will be aggregated for purposes of this definition.

The MFS Funds may impose specific limitations on market timers, including:

- - delaying for up to seven days the purchase side of an exchange request by
market timers;

- - rejecting or otherwise restricting purchase or exchange requests by market
timers; and

- - permitting exchanges by market timers only into certain MFS Funds.

REINSTATEMENT PRIVILEGE. After you have redeemed shares, you have a one-time
right to reinvest the proceeds within 90 days of the redemption at the current
net asset value (without an initial sales charge). If the redemption involved a
CDSC, your account will be credited with the appropriate amount of the CDSC
paid; however, your new shares will be subject to a CDSC which will be
determined from the date you originally purchased the shares redeemed. This
privilege applies to shares of the MFS money market funds only under certain
circumstances.

IN-KIND DISTRIBUTIONS. The MFS funds have reserved the right to pay redemption
proceeds by a distribution in-kind of portfolio securities (rather than cash).
In the event that the fund makes an in-kind distribution, you could incur the
brokerage and transaction charges when converting the securities to cash. The
fund does not expect to make in-kind distributions, and if it does, the fund
will pay, during any 90-day period, your redemption proceeds in cash up to
either $250,000 or 1% of the fund's net assets, whichever is less.

14
<PAGE> 21

INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Because it is costly to maintain small
accounts, the MFS funds have generally reserved the right to automatically
redeem shares and close your account when it contains less than $500 due to your
redemptions or exchanges. Before making this automatic redemption, you will be
notified and given 60 days to make additional investments to avoid having your
shares redeemed.

15
<PAGE> 22

VII INVESTOR SERVICES AND PROGRAMS

As a shareholder of the fund, you have available to you a number of services and
investment programs. Some of these services and programs may not be available to
you if your shares are held in the name of your financial adviser or if your
investment in the fund is made through a retirement plan.

-- DISTRIBUTION OPTIONS

The following distribution options are generally available to all accounts and
you may change your distribution option as often as you desire by notifying
MFSC:

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

- - Dividends (including short-term capital gains) in cash; capital gain
distributions reinvested in additional shares; or

- - Dividends and capital gain distributions in cash.

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

-- PURCHASE AND REDEMPTION PROGRAMS

For your convenience, the following purchase and redemption programs are made
available to you with respect to class A, B and C shares, without extra charge:

AUTOMATIC INVESTMENT PLAN. You can make cash investments of $50 or more through
your checking account or savings account on any day of the month. If you do not
specify a date, the investment will automatically occur on the first business
day of the month.

AUTOMATIC EXCHANGE PLAN. If you have an account balance of at least $5,000 in
any MFS fund, you may participate in the automatic exchange plan, a dollar-cost
averaging program. This plan permits you to make automatic monthly or quarterly
exchanges from your account in an MFS fund for shares of the same class of
shares of other MFS funds. You may make exchanges of at least $50 to up to six
different funds under this plan. Exchanges will generally be made at net asset
value without any sales charges. If you exchange shares out of the MFS Money
Market Fund or MFS Government Money Market Fund, or if you exchange class A
shares out of the MFS Cash Reserve Fund, into class A shares of any other MFS
fund, you will pay the initial sales charge if you have not already paid this
charge on these shares.

16
<PAGE> 23

REINVEST WITHOUT A SALES CHARGE. You can reinvest dividend and capital gain
distributions into your account without a sales charge to add to your investment
easily and automatically.

DISTRIBUTION INVESTMENT PROGRAM. You may purchase shares of any MFS fund without
paying an initial sales charge or a CDSC upon redemption by automatically
reinvesting a minimum of $50 of dividend and capital gain distributions from the
same class of another MFS fund.

LETTER OF INTENT (LOI). If you intend to invest $50,000 or more in the MFS funds
(including the MFS Fixed Fund) within 13 months, you may buy class A shares of
the funds at the reduced sales charge as though the total amount were invested
in class A shares in one lump sum. If you intend to invest $1 million or more
under this program, the time period is extended to 36 months. If the intended
purchases are not completed within the time period, shares will automatically be
redeemed from a special escrow account established with a portion of your
investment at the time of purchase to cover the higher sales charge you would
have paid had you not purchased your shares through this program.

RIGHT OF ACCUMULATION. You will qualify for a lower sales charge on your
purchases of class A shares when your new investment in class A shares, together
with the current (offering price) value of all your holdings in the MFS funds
(including the MFS Fixed Fund), reaches a reduced sales charge level.

SYSTEMATIC WITHDRAWAL PLAN. You may elect to automatically receive (or designate
someone else to receive) regular periodic payments of at least $100. Each
payment under this systematic withdrawal is funded through the redemption of
your fund shares. For class B and C shares, you can receive up to 10% (15% for
certain IRA distributions) of the value of your account through these payments
in any one year (measured at the time you establish this plan). You will incur
no CDSC on class B and C shares redeemed under this plan. For class A shares,
there is no similar percentage limitation; however, you may incur the CDSC (if
applicable) when class A shares are redeemed under this plan.

17
<PAGE> 24

VIII OTHER INFORMATION

-- PRICING OF FUND SHARES

The price of each class of the fund's shares is based on its net asset value.
The net asset value of each class of shares is determined at the close of
regular trading each day that the New York Stock Exchange is open for trading
(generally, 4:00 p.m., Eastern time) (referred to as the valuation time). To
determine net asset value, the fund values its assets at current market values,
or at fair value as determined by the Adviser under the direction of the Board
of Trustees that oversees the Fund if current market values are unavailable.
Fair value pricing may be used by the fund when current market values are
unavailable or when an event occurs after the close of the exchange on which the
fund's portfolio securities are principally traded that is likely to have
changed the value of the securities. The use of fair value pricing by the fund
may cause the net asset value of its shares to differ significantly from the net
asset value that would be calculated using current market values.

You will receive the net asset value next calculated, after the deduction of
applicable sales charges and any required tax withholding, if your order is
complete (has all required information) and MFSC receives your order by:

- - the valuation time, if placed directly by you (not through a financial adviser
such as a broker or bank) to MFSC; or

- - MFSC's close of business, if placed through a financial adviser, so long as
the financial adviser received your order by the valuation time.

The fund invests in certain securities which are primarily listed on foreign
exchanges that trade on weekends and other days when the fund does not price its
shares. Therefore, the value of the fund's shares may change on days when you
will not be able to purchase or redeem the fund's shares.

-- DISTRIBUTIONS

The fund intends to pay substantially all of its net income (including net
short-term capital gain) to shareholders as dividends at least annually. Any
realized net capital gains are also distributed at least annually.

-- TAX CONSIDERATIONS

TAXABILITY OF DISTRIBUTIONS. As long as the fund qualifies for treatment as a
regulated investment company (which it has in the past and intends to do in the
future), it pays no federal income tax on the earnings it distributes to
shareholders.

You will normally have to pay federal income taxes, and any state or local
taxes, on the distributions you receive from the Fund, whether you take the
distributions in cash or reinvest them in additional shares. Distributions
designated as capital gain dividends are taxable as long-term capital gains.
Other distributions are generally taxable as ordinary income. Some dividends
paid in January may be taxable as if they had been paid the previous December.

The Form 1099 that is mailed to you every January details your distributions
and how they are treated for federal tax purposes.

18
<PAGE> 25

Fund distributions will reduce the Fund's net asset value per share.
Therefore, if you buy shares shortly before the record date of a distribution,
you may pay the full price for the shares and then effectively receive a portion
of the purchase price back as a taxable distribution.

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

TAXABILITY OF TRANSACTIONS. Anytime you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transaction.

-- UNIQUE NATURE OF FUND

MFS may serve as the investment adviser to other funds which have similar
investment goals and principal investment policies and risks to the fund, and
which may be managed by the fund's portfolio manager(s). While the fund may have
many similarities to these other funds, its investment performance will differ
from their investment performance. This is due to a number of differences
between the funds, including differences in sales charges, expense ratios and
cash flows.

-- YEAR 2000 ISSUES

The fund could be adversely affected if the computer systems used by MFS, the
fund's other service providers or the companies in which the fund invests do not
properly process date-related information from and after January 1, 2000 (the
"Year 2000 Issue"). MFS recognizes the importance of the Year 2000 Issue and, to
address Year 2000 compliance, created a Year 2000 Program Management Office in
1996, which is separately funded, has a specialized staff and reports directly
to MFS Senior Management. The Office, with the help of external consultants, is
responsible for ascertaining that all internal systems, data feeds and third
party applications are Year 2000 compliant. While MFS is confident that all MFS
systems will be Year 2000 compliant before the turn of the century, there are
significant systems interdependencies in the domestic and foreign markets for
securities, the business environments in which companies held by the fund
operate and in MFS' own business environment. MFS has been actively working with
the fund's other service providers to identify and respond to potential problems
in an effort to ensure Year 2000 compliance or develop contingency plans. Year
2000 compliance is also one of the factors considered by MFS in its ongoing
assessment of

19
<PAGE> 26

companies in which the fund invests. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the fund.

-- PROVISION OF ANNUAL AND SEMIANNUAL REPORTS

To avoid sending duplicate copies of materials to households, only one copy of
the fund's annual and semiannual report will be mailed to shareholders having
the same residential address on the fund's records. However, any shareholder may
contact MFSC (see back cover for address and phone number) to request that
copies of these reports be sent personally to that shareholder.

20
<PAGE> 27

IX FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund's
financial performance for the past 5 years, or, if the fund has not been in
operation that long, since the time it commenced investment operations. Certain
information reflects financial results for a single fund share. The total
returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the fund (assuming reinvestment of all
distributions). This information has been audited by the fund's independent
auditors, whose report, together with the fund's financial statements, are
included in the fund's Annual Report to shareholders. These financial statements
are incorporated by reference into the SAI. The fund's independent auditors are
Ernst & Young LLP.

CLASS A SHARES

................................................................................

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1996*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share
outstanding throughout the period):
Net asset value -- beginning of
period $ 16.79 $ 12.26 $ 10.00
Income from investment
operations# --
Net investment income (loss)sec. $ (0.14) $(0.11) $ 0.02
Net realized and unrealized gain on
investments and foreign currency
transactions 2.32### 6.67 2.24
Total from investment operations $ 2.18 $ 6.56 $ 2.26
Less distributions declared to
shareholders -- From net realized
gain on investments and foreign
currency transactions $ (0.18) (2.03) --
Net asset value -- end of period $ 18.79 $ 16.79 $ 12.26
Total return++ 13.07% 59.54% 22.60%++
Ratios (to average net
assets)/Supplemental datasec.:
Expenses## 1.36% 1.29% 0.44%+
Net investment income (loss) (0.66)% (0.82)% 0.23%+
Portfolio turnover 56% 82% 104%
Net assets at end of period (000
omitted) $168,536 $21,699 $10,145
</TABLE>

- ---------
* For the period from the inception of Class A shares on January 2, 1996,
through August 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.

## The fund has an expense offset arrangement which reduces the fund's
custodian fee based upon the amount of cash maintained by the fund with its
custodian and dividend disbursing agent. The fund's expenses are calculated
without reduction for this expense offset arrangement.

21
<PAGE> 28

### The per share amount is not in accordance with the net realized and
unrealized loss for the period because of the timing of sales of Fund
shares and the amount of per share realized and unrealized gains and losses
at such time.

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

(S) Subject to reimbursement by the Fund, MFS voluntarily agreed to maintain
expenses of the fund at not more than 1.50% per annum of average daily
net assets from January 2, 1996 through August 31, 1996 and to maintain
expenses of the fund, exclusive of management, distribution, and service
fees, at not more than 0.50% per annum of average daily net assets from
April 14, 1997 through August 31, 1998. The Adviser and/or the
Distributor voluntarily waived portions of their fees. To the extent
actual expenses were over/under these limitations, the net investment
income per share and the ratios would have been:

<TABLE>
<S> <C> <C> <C>
Net investment loss $(0.15) $(0.15) $(0.05)
Ratios (to average net assets):
Expenses## 1.43% 1.59% 1.84%+
Net investment loss (0.72)% (1.12)% (0.66)%+
</TABLE>

CLASS B AND C SHARES

................................................................................

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, 1998 AUGUST 31, 1997* AUGUST 31, 1998 AUGUST 31, 1997*
CLASS B CLASS B CLASS C CLASS C
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout the period):
Net asset value --
beginning of period $ 16.75 $ 12.53 $ 16.77 $ 12.53
Income from investment
operations# -- Net
investment loss(S) $ (0.28) $(0.09) $ (0.28) $(0.09)
Net realized and
unrealized gain on
investments and
foreign currency
transactions 2.30### 4.31 2.31### 4.33
Total from investment
operations $ 2.02 $ 4.22 $ 2.03 $ 4.24
--------- ------- --------- -------
Less distributions
declared to
shareholders from net
realized gain on
investments and
foreign currency
transactions $ (0.18) $ -- $ (0.17) $ --
Net asset value -- end
of period $ 18.59 $ 16.75 $ 18.63 $ 16.77
--------- ------- --------- -------
Total return 12.12% 33.76%++ 12.20% 33.92%++
</TABLE>

22
<PAGE> 29

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997* 1998 1997*
CLASS B CLASS B CLASS C CLASS C
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios (to average net
assets)/ Supplemental
data(S):
Expenses## 2.08% 2.02%+ 2.08% 2.04%+
Net investment loss (1.36)% (1.46)%+ (1.37)% (1.48)%+
Portfolio turnover 56% 82% 56% 82%
Net assets at end of
period (000 omitted) $ 196,519 $15,735 $ 52,668 $ 6,048
</TABLE>

- ---------
* For the period from the inception of class B and class C shares on April
11, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.

## The fund has an expense offset arrangement which reduces the fund's
custodian fee based upon the amount of cash maintained by the fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.

(S) Subject to reimbursement by the Fund, MFS voluntarily agreed to maintain
expenses of the fund at not more than 1.50% per annum of average daily net
assets from January 2, 1996 through August 31, 1996 and to maintain
expenses of the fund, exclusive of management, distribution, and service
fees, at not more than 0.50% per annum of average daily net assets from
April 14, 1997 through August 31, 1998. The Adviser and/or the Distributor
voluntarily waived portions of their fees. To the extent actual expenses
were over/under these limitations, the net investment income per share and
the ratios would have been:

<TABLE>
<S> <C> <C> <C> <C>
Net investment loss $ -- $(0.12) $ -- $(0.13)
Ratios (to average net
assets):
Expenses## -- 2.51%+ -- 2.56%+
Net investment loss -- (1.95)%+ -- (1.99)%+
</TABLE>

23
<PAGE> 30

APPENDIX A

-- INVESTMENT TECHNIQUES AND PRACTICES

In pursuing its investment objective, the fund may engage in the following
investment techniques and practices, which are described, together with their
risks, in the SAI.

INVESTMENT TECHNIQUES/PRACTICES
................................................................................

- - SYMBOLS

X permitted

- -- not permitted

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

<TABLE>
<S> <C> <C>
Debt Securities
Asset-Backed Securities
Collateralized Mortgage Obligations and
Multiclass Pass-Through Securities --
Corporate Asset-Backed Securities --
Mortgage Pass-Through Securities --
Stripped Mortgage-Backed Securities --
Corporate Securities X
Loans and Other Direct Indebtedness --
Lower Rated Bonds --
Municipal Bonds --
Speculative Bonds --
U.S. Government Securities X
Variable and Floating Rate Obligations --
Zero Coupon Bonds, Deferred Interest Bonds
and PIK Bonds X
Equity Securities X
Foreign Securities Exposure
Brady Bonds --
Depositary Receipts X
Dollar-Denominated Foreign Debt Securities X
Emerging Markets X
Foreign Securities X
Forward Contracts X
Futures Contracts X
Indexed Securities X
Inverse Floating Rate Obligations --
Investment in Other Investment Companies X
Laddering --
Lending of Portfolio Securities X
Leveraging Transactions
Bank Borrowings --
</TABLE>

A-1
<PAGE> 31

INVESTMENT TECHNIQUES/PRACTICES (CONTINUED)
................................................................................

<TABLE>
<S> <C> <C>
Mortgage "Dollar-Roll" Transactions --
Reverse Repurchase Agreements --
Options
Options on Foreign Currencies X
Options on Futures Contracts X
Options on Securities X
Options on Stock Indices X
Reset Options X
"Yield Curve" Options X
Repurchase Agreements X
Restricted Securities X
Short Sales X
Short Sales Against the Box X
Short Term Instruments X
Swaps and Related Derivative Instruments X
Temporary Borrowings X
Temporary Defensive Positions X
Warrants X
"When-issued" Securities X
</TABLE>

A-2
<PAGE> 32

APPENDIX B

-- SALES CHARGE CATEGORIES AVAILABLE TO CERTAIN RETIREMENT PLANS

Purchases made under the following four categories are not subject to an initial
sales charge. However, a CDSC of 1% will be deducted from redemption proceeds if
the redemption is made within 12 months of purchase. The CDSC is based on the
value of the shares redeemed (excluding reinvested dividend and capital gain
distributions) or the total cost of the shares, whichever is less.

- - Investments in class A shares by certain retirement plans subject to the
Employee Retirement Income Security Act of 1974, as amended (referred to as
ERISA), if, prior to July 1, 1996

* the plan had established an account with MFSC; and

* the sponsoring organization had demonstrated to the satisfaction of MFD
that either;

+ the employer had at least 25 employees; or

+ the total purchases by the retirement plan of class A shares of the
MFS Family of Funds (the MFS Funds) would be in the amount of at least
$250,000 within a reasonable period of time, as determined by MFD in
its sole discretion

- - Investments in class A shares by certain retirement plans subject to ERISA, if

* the retirement plan and/or sponsoring organization participates in the
MFS Fundamental 401(k) Program or any similar recordkeeping system made
available by MFSC (referred to as the MFS participant recordkeeping
system);

* the plan establishes an account with MFSC on or after July 1, 1996; and

* the total purchases by the retirement plan of class A shares of the MFS
Funds will be in the amount of at least $500,000 within a reasonable
period of time, as determined by MFD in its sole discretion

* the plan has not redeemed its class B shares in the MFS funds in order to
purchase class A shares under this category.

- - Investments in class A shares by certain retirement plans subject to ERISA, if

* the plan establishes an account with MFSC on or after July 1, 1996; and

* the plan has, at the time of purchase, a market value of $500,000 or more
invested in shares of any class or classes of the MFS Funds

THE RETIREMENT PLAN WILL QUALIFY UNDER THIS CATEGORY ONLY IF THE PLAN OR
ITS SPONSORING ORGANIZATION INFORMS MFSC PRIOR TO THE PURCHASES THAT THE
PLAN HAS A MARKET VALUE OF $500,000 OR MORE INVESTED IN SHARES OF ANY
CLASS OR CLASSES OF THE MFS FUNDS; MFSC HAS NO OBLIGATION INDEPENDENTLY
TO DETERMINE WHETHER SUCH A PLAN QUALIFIES UNDER THIS CATEGORY; AND

- - Investments in class A shares by certain retirement plans subject to ERISA, if

* the plan establishes an account with MFSC on or after July 1, 1997;

* the plan's records are maintained on a pooled basis by MFSC; and

B-1
<PAGE> 33

* the sponsoring organization demonstrates to the satisfaction of MFD that,
at the time of purchase, the employer has at least 200 eligible employees
and the plan has aggregate assets of at least $2,000,000

B-2
<PAGE> 34

MFS(R) STRATEGIC GROWTH FUND

If you want more information about the fund, the following documents are
available free upon request:

ANNUAL/SEMIANNUAL REPORTS. These reports contain information about the fund's
actual investments. Annual reports discuss the effect of recent market
conditions and the fund's investment strategy on the fund's performance during
its last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI, dated November 17, 1998,
provides more detailed information about the fund and is incorporated into this
prospectus by reference.

YOU CAN GET FREE COPIES OF THE ANNUAL/SEMIANNUAL REPORTS, THE SAI AND OTHER
INFORMATION ABOUT THE FUND, AND MAKE INQUIRIES ABOUT THE FUND, BY CONTACTING:

MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116-3741
Telephone: 1-800-225-2606
Internet: http://www.mfs.com

Information about the fund (including its prospectus, SAI and shareholder
reports) can be reviewed and copied at the:

Public Reference Room

Securities and Exchange Commission

Washington, D.C., 20549-6009

Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information about
the fund are available on the Commission's Internet website at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section at the above
address.

The fund's Investment Company Act file number is 811-4777

MSG-1-11/98 224M 90/290/390/890

<PAGE> 35

[Strategic Growth Fund LOGO]

<TABLE>
<S> <C> <C>
[MFS 75 YEARS LOGO] STATEMENT OF ADDITIONAL
INFORMATION
A SERIES OF MFS SERIES TRUST I
500 BOYLSTON STREET, BOSTON, MA 02116
(617) 954-5000

This Statement of Additional Information, as This SAI is divided into two Parts -- Part I and
amended or supplemented from time to time (the Part II. Part I contains information that is
"SAI"), sets forth information which may be of particular to the Fund, while Part II contains
interest to investors but which is not information that generally applies to each of
necessarily included in the Fund's Prospectus the funds in the MFS Family of Funds (the "MFS
dated November 17, 1998. This SAI should be read Funds"). Each Part of the SAI has a variety of
in conjunction with the Prospectus. The Fund's appendices which can be found at the end of Part
financial statements are incorporated into this I and Part II, respectively.
SAI by reference to the Fund's most recent THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED
Annual Report to shareholders. A copy of the FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY
Annual Report accompanies this SAI. You may IF PRECEDED OR ACCOMPANIED BY A CURRENT
obtain a copy of the Fund's Prospectus and PROSPECTUS.
Annual Report without charge by contacting MFS
Service Center, Inc. (see back cover for address
and phone number).
</TABLE>
<PAGE> 36

STATEMENT OF ADDITIONAL INFORMATION

PART I

Part I of this SAI contains information that is particular to the Fund.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I Definitions................................................. 1

II Management of the Fund...................................... 1

The Fund.................................................... 1

Trustees and Officers -- Identification and Background...... 1

Trustee Compensation........................................ 1

Affiliated Service Provider Compensation.................... 1

III Sales Charges and Distribution Plan Payments................ 1

Sales Charges............................................... 1

Distribution Plan Payments.................................. 1

IV Portfolio Transactions and Brokerage Commissions............ 1

V Share Ownership............................................. 1

VI Performance Information..................................... 1

VII Investment Techniques, Practices, Risks and Restrictions.... 1

Investment Techniques, Practices and Risks.................. 1

Investment Restrictions..................................... 1

VIII Tax Considerations.......................................... 3

IX Independent Auditors and Financial Statements............... 3

Appendix A -- Trustees and Officers -- Identification and
Background.................................................. A-1

Appendix B -- Trustee Compensation.......................... B-1

Appendix C -- Affiliated Service Provider Compensation...... C-1

Appendix D -- Sales Charges and Distribution Plan
Payments.................................................... D-1

Appendix E -- Portfolio Transactions and Brokerage
Commissions................................................. E-1

Appendix F -- Share Ownership............................... F-1

Appendix G -- Performance Information....................... G-1
</TABLE>

<PAGE> 37

I DEFINITIONS
"Fund" - MFS Strategic Growth Fund, a series of the Trust.

"Trust" - MFS Series Trust I, a Massachusetts business Trust, organized on July
22, 1986. The Trust was known as "MFS Lifetime Managed Sectors Fund" prior to
August 1, 1993, and as "Lifetime Managed Sectors Trust" prior to August 3, 1992.

"MFS" or the "Adviser" - Massachusetts Financial Services Company, a Delaware
corporation.

"MFD" - MFS Fund Distributors, Inc., a Delaware corporation.

"MFSC" - MFS Service Center, Inc., a Delaware corporation.

"Prospectus" - The Prospectus of the Fund, dated November 17, 1998, as amended
or supplemented from time to time.

II MANAGEMENT OF THE FUND

THE FUND
The Fund is a diversified series of the Trust. The Trust is an open-end
management investment company.

TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
The identification and background of the Trustees and officers of the Trust are
set forth in Appendix A of this Part I.

TRUSTEE COMPENSATION
Compensation paid to the non-interested Trustees and to Trustees who are not
officers of the Trust, for certain specified periods, is set forth in Appendix B
of this Part I.

AFFILIATED SERVICE PROVIDER COMPENSATION
Compensation paid by the Fund to its affiliated service providers -- to MFS, for
investment advisory and administrative services, and to MFSC, for transfer
agency services -- for certain specified periods is set forth in Appendix C to
this Part \I.

III SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS

SALES CHARGES
Sales charges paid in connection with the purchase and sale of Fund shares for
certain specified periods are set forth in Appendix D to this Part I, together
with the Fund's schedule of dealer reallowances.

DISTRIBUTION PLAN PAYMENTS
Payments made by the Fund under the Distribution Plan for its most recent fiscal
year end are set forth in Appendix D to this Part I.

IV PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brokerage commissions paid by the Fund for certain specified periods, and
information concerning purchases by the Fund of securities issued by its regular
broker-dealers for its most recent fiscal year, are set forth in Appendix E to
this Part I.

V SHARE OWNERSHIP
Information concerning the ownership of Fund shares by Trustees and officers of
the Trust as a group, by investors who control the Fund, if any, and by
investors who own 5% or more of any class of Fund shares, if any, is set forth
in Appendix F to this Part I.

VI PERFORMANCE INFORMATION
Performance information, as quoted by the Fund in sales literature and marketing
materials, is set forth in Appendix G to this Part I.

VII INVESTMENT TECHNIQUES, PRACTICES, RISKS AND RESTRICTIONS

INVESTMENT TECHNIQUES, PRACTICES AND RISKS

The investment objective and principal investment policies of the Fund are
described in the Prospectus. In pursuing its investment objective and principal
investment policies, the Fund may engage in a number of investment techniques
and practices, which involve certain risks. These investment techniques and
practices, which may be changed without shareholder approval unless indicated
otherwise, are identified in Appendix A to the Prospectus, and are more fully
described, together with their associated risks, in Part II of this SAI. The
following percentage limitations apply to these investment techniques and
practices:

- - Foreign Securities Exposure may not exceed 20% of the Fund's net assets

- - Lending of Portfolio Securities may not exceed 30% of the Fund's net assets

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions which cannot be changed without
the approval of the holders of a majority of the Fund's shares (which, as used
in this SAI, means the lesser of (i) more than 50% of the outstanding shares of
the Trust or a series or class, as applicable or (ii) 67% or more of the
outstanding shares of the Trust or a series or class, as applicable, present at
a meeting at which holders of more than 50% of the outstanding shares of the
Trust or a series or class, as applicable are represented in person or by
proxy).

Terms used below (such as Options and Futures Contracts) are defined in Part II
of this SAI.

The Fund may not:

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

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

(3) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real

Part I -- 1
<PAGE> 38

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

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

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

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

Except with respect to Investment Restriction (1) and non-fundamental policy
(1), these investment restrictions and policies are adhered to at the time of
purchase or utilization of assets; a subsequent change in circumstances will not
be considered to result in a violation of policy.

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

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

(2) invest more than 15% of the value of the Fund's net assets, valued at the
lower of cost or market, in warrants. Included within such amount, but not
to exceed 10% of the value of the Fund's net assets, may be warrants which
are not listed on the New York or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to
be without value;

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

(4) purchase securities issued by any other investment company in excess of
the amount permitted by the 1940 Act; currently, the Fund does not intend
to invest more than 5% of its net assets in such securities;

(5) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the
Trust, or is an officer or a director of the investment adviser of the
Fund, if one or more of such persons also owns beneficially more than 1/2
of 1% of the securities of such issuer, and such persons owning more than
1/2 of 1% of such securities together own beneficially more than 5% of
such securities;

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

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

(8) pledge, mortgage or hypothecate in excess of 33% of its gross assets. For
purposes of this restriction,

Part I -- 2
<PAGE> 39

collateral arrangements with respect to any type of option (including
Options on Futures Contracts, Options, Options on Stock Indices and
Options on Foreign Currencies), any short sale, any type of futures
contract (including Futures Contracts), Forward Contracts and payments of
initial and variation margin in connection therewith, are not considered a
pledge of assets;

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

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

VIII TAX CONSIDERATIONS
For a discussion of tax considerations, see Part II of this SAI.

IX INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Ernst & Young LLP are the Fund's independent auditors, providing audit services,
tax services, and assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission.

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

Part I -- 3
<PAGE> 40

PART I - APPENDIX A

TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust are listed below, together with their
principal occupations during the past five years. (Their titles may have varied
during that period.)

TRUSTEES
JEFFREY L. SHAMES,* Chairman (born 6/2/55)
Massachusetts Financial Services Company, Chairman and Chief Executive Officer

RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former Chairman and
Director (prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge
Trust Company, Director

MARSHALL N. COHAN (born 11/14/26)
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida

LAWRENCE H. COHN, M.D., (born 3/11/37)
Brigham and Women's Hospital, Chief of Cardiac Surgery; Harvard Medical School,
Professor of Surgery
Address: 75 Francis Street, Boston, Massachusetts

THE HON. SIR J. DAVID GIBBONS, KBE (born 6/15/27)
Edmund Gibbons Limited, Chief Executive Officer; Colonial Insurance Company
Ltd., Director and Chairman
Address: 21 Reid Street, Hamilton, Bermuda

ABBY M. O'NEILL (born 4/27/28)
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: 30 Rockefeller Plaza, Room 5600, New York, New York

WALTER E. ROBB, III (born 8/18/26)
Benchmark Advisors, Inc. (corporate financial consultants), President and
Treasurer; Benchmark Consulting Group, Inc. (office services), President;
CitiFunds and CitiSelect Folios (mutual funds), Trustee
Address: 110 Broad Street, Boston, Massachusetts

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

J. DALE SHERRATT (born 9/23/38)
Insight Resources, Inc. (acquisition planning specialists), President; Wellfleet
Investments (investor in health care companies), Managing General Partner (since
1993)
Address: 294 Washington Street, Boston, Massachusetts

WARD SMITH (born 9/13/30)
NACCO Industries (holding company), Chairman (prior to June 1994); Sundstrand
Corporation (diversified mechanical manufacturer), Director
Address: 36080 Shaker Blvd., Hunting Valley, Ohio

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

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

ELLEN MOYNIHAN,* Assistant Treasurer (born 11/13/57)
Massachusetts Financial Services Company, Vice President (since September 1996);
Deloitte & Touch LLP, Senior Manager (prior to September 1996)

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

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

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

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

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

Part I -- A-1
<PAGE> 41

PART I - APPENDIX B

TRUSTEE COMPENSATION

The Fund pays the compensation of non-interested Trustees and of Trustees who
are not officers of the Trust, who currently receive a fee of $1,250 per year
plus $225 per meeting and $225 per committee meeting attended, together with
such Trustee's out-of-pocket expenses. In addition, the Trust has a retirement
plan for these Trustees as described under the caption "Management of the
Fund -- Trustee Retirement Plan" in Part II. The Retirement Age under the plan
is 75.

TRUSTEE COMPENSATION TABLE
................................................................................

<TABLE>
<CAPTION>
RETIREMENT
BENEFIT TOTAL
TRUSTEE ACCRUED ESTIMATED TRUSTEE FEES
FEES AS PART OF CREDITED FROM FUND AND
FROM FUND YEARS OF FUND
TRUSTEE FUND(1) EXPENSE(1) SERVICE(2) COMPLEX(3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard B. Bailey 0 82 6 242,022
Marshall N. Cohan 0 99 6 148,067
Dr. Lawrence Cohn 0 82 16 123,917
Sir David Gibbons 0 82 6 129,842
Abby M. O'Neill 0 82 7 129,842
Walter E. Robb, III 0 99 6 148,067
Arnold D. Scott 0 0 N/A 0
James L. Shames 0 0 N/A 0
J. Dale Sherratt 0 116 18 184,067
Ward Smith 0 116 10 184,067
</TABLE>

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

(2) Based upon normal retirement age (75).

(3) Information provided is provided for calendar year 1997. All Trustees served
as Trustees of 42 funds within the MFS fund complex (having aggregate net
assets at December 31, 1997, of approximately $18.8 billion) except Mr.
Bailey, who served as Trustee of 69 funds within the MFS complex (having
aggregate net assets at December, 1997 of approximately $47.8 billion).

ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)

................................................................................

<TABLE>
<CAPTION>
Years of Service
AVERAGE
TRUSTEE FEES 3 5 7 10 OR MORE
- --------------------------------------------
<S> <C> <C> <C> <C>
$2,205 331 551 772 1,103
2,820 423 705 987 1,410
3,435 515 859 1,202 1,717
4,049 607 1,012 1,417 2,025
4,664 700 1,166 1,632 2,332
5,279 792 1,320 1,848 2,639
</TABLE>

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

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

Part I -- B-1
<PAGE> 42

PART I - APPENDIX C

AFFILIATED SERVICE PROVIDER COMPENSATION
................................................................................

The Fund paid compensation to its affiliated service providers over the
specified periods as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED PAID TO MFS AMOUNT PAID TO MFS FOR PAID TO MFSC AMOUNT AGGREGATE
FOR ADVISORY WAIVED ADMINISTRATIVE FOR TRANSFER WAIVED AMOUNT PAID
SERVICES BY MFS SERVICES AGENCY SERVICES BY MFSC TO MFS AND MFSC
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 31, 1998 $1,898,993 N/A $36,964 $291,036 N/A $2,226,993
August 31, 1997 $146,570 N/A $1,974** $17,935 N/A $166,479
August 31, 1996* $0 $43,311 N/A $0 $8,675 $0
</TABLE>

- -------------------------------
* From January 2, 1996, the commencement of the Fund's investment operations.

** From March 1, 1997, the commencement of the Master Administrative Service
Agreement.

Part I -- C-1
<PAGE> 43

PART I - APPENDIX D

SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS

SALES CHARGES
................................................................................

The following sales charges were paid during the specified periods:

<TABLE>
<CAPTION>
Class A Initial Sales Charges: CDSC Paid to MFD on:
RETAINED REALLOWED CLASS A CLASS B CLASS C
FISCAL YEAR END TOTAL BY MFD TO DEALERS SHARES SHARES SHARES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 31, 1998 $3,963,072 $581,154 $3,381,918 $21,300 $106,839 $11,271
August 31, 1997 $322,213 $46,851 $275,362 $12 $403 $437
August 31, 1996* N/A N/A N/A N/A N/A N/A
</TABLE>

- -------------------------------
* From January 2, 1996, the commencement date of the Fund's investment
operations.

DEALER REALLOWANCES
As shown above, MFD pays (or "reallows") a portion of the Class A initial sales
charge to dealers. The dealer reallowance as expressed as a percentage of the
Class A shares' offering price is:

<TABLE>
<CAPTION>
DEALER REALLOWANCE AS A
AMOUNT OF PURCHASE PERCENT OF OFFERING PRICE
<S> <C>
Less than $50,000 5.00%

$50,000 but less than $100,000 4.00%

$100,000 but less than $250,000 3.20%

$250,000 but less than $500,000 2.25%

$500,000 but less than $1,000,000 1.70%

$1,000,000 or more None*
</TABLE>

- -------------------------------
* A CDSC will apply to such purchase.

DISTRIBUTION PLAN PAYMENTS
................................................................................

During the fiscal year ended August 31, 1998, the Fund made the following
Distribution Plan payments:

<TABLE>
<CAPTION>
Amount of Distribution and Service Fees:
Class of Shares Paid By Fund Retained By MFD Paid to Dealers
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $284,990 $55,465 $229,525
Class B Shares $1,051,236 $789,002 $262,234
Class C Shares $290,929 $367 $290,562
</TABLE>

Distribution plan payments retained by MFD are used to compensate MFD for
commissions advanced by MFD to dealers upon sale of fund shares.

Part I -- D-1
<PAGE> 44

PART I - APPENDIX E

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

BROKERAGE COMMISSIONS
................................................................................

The following brokerage commissions were paid by the Fund during the specified
time periods:

<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
FISCAL YEAR END PAID BY FUND
- ---------------------------------------------------------
<S> <C>
August 31, 1998 $661,238
August 31, 1997 $ 52,060
August 31, 1996 $ 19,205
</TABLE>

SECURITIES ISSUED BY REGULAR BROKER-DEALERS
................................................................................

During the fiscal year ended August 31, 1998, the Fund purchased securities
issued by the following regular broker-dealers of the Fund, which had the
following values as of August 31, 1998:

<TABLE>
<CAPTION>
VALUE OF SECURITIES
BROKER-DEALER AS OF AUGUST 31, 1998
- ---------------------------------------------------------
<S> <C>
Merrill Lynch $ 1,097,844
Morgan Stanley-Dean Witter $ 6,893,470
General Electric Capital Corp $12,600,000
</TABLE>

Part I -- E-1
<PAGE> 45

PART I - APPENDIX F

SHARE OWNERSHIP

OWNERSHIP BY TRUSTEES AND OFFICERS

As of October 31, 1998, the Trustees and officers of the Trust as a group owned
less than 1% of any class of the Fund's shares, not including 949,970 Class I
shares of the Fund (which represent approximately 95% of the outstanding Class I
shares of the Fund) owned of record by certain employee benefit plans of MFS of
which Messrs. Scott and Shames are Trustees.

25% OR GREATER OWNERSHIP

The following table identifies those investors who own 25% or more of the Fund's
shares (all share classes taken together) as of October 31, 1998, and are
therefore presumed to control the Fund:

<TABLE>
<CAPTION>
JURISDICTION OF ORGANIZATION
NAME AND ADDRESS OF INVESTOR (IF A COMPANY) PERCENTAGE OWNERSHIP
<S> <C> <C>
None
</TABLE>

5% OR GREATER OWNERSHIP OF SHARE CLASS

The following table identifies those investors who own 5% or more of any class
of the Fund's shares as of October 31, 1998:

<TABLE>
<CAPTION>
NAME AND ADDRESS OF INVESTOR
OWNERSHIP PERCENTAGE
..........................................................................................
<S> <C> <C>
MLPF&S for the Sole Benefit of its Customers 6.73% of Class B shares
Attn: Fund Administration 97GT4
4800 Deer Lake Drive E 3rd FL
Jacksonville, FL 32246-6484
..........................................................................................
MLPF&S for the Sole Benefit of its Customers 14.51% of Class C shares
Attn: Fund Administration 97N52
4800 Deer Lake Drive E 3rd FL
Jacksonville, FL 32246-6484
..........................................................................................
TRS MFS DEF Contribution Plan 94.33% of Class I shares
c/o Mark Leary 19th FL
Mass Financial Services
500 Boylston Street
Boston, MA 02116-3740
..........................................................................................
</TABLE>

Part I -- F-1
<PAGE> 46

PART I - APPENDIX G

PERFORMANCE INFORMATION
................................................................................

All performance quotations are as of August 31, 1998.

<TABLE>
<CAPTION>
AVERAGE ANNUAL ACTUAL 30-
TOTAL RETURNS DAY YIELD 30-DAY YIELD CURRENT
--------------------- (INCLUDING (WITHOUT ANY DISTRIBUTION
1 YEAR LIFE OF FUND WAIVERS) WAIVERS) RATE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares, with initial sales
charge (SEC Performance) 6.57% 31.76%* N/A N/A N/A

Class A Shares, at a net asset value 34.31% 34.72%* N/A N/A N/A

Class B Shares, with CDSC (SEC
Performance) 8.12% 33.16% N/A N/A N/A

Class B Shares, at net asset value 33.58% 34.18% N/A N/A N/A

Class C Shares, with CDSC (SEC
Performance) 11.20% 34.27% N/A N/A N/A

Class C Shares, at net asset value 33.72% 34.27% N/A N/A N/A

Class I Shares, at net asset value 34.54% 33.74% N/A N/A N/A
</TABLE>

- -------------------------------
* From the class inception date on January 2, 1996.

Class A share performance calculated according to Securities and Exchange
Commission (referred to as the SEC) rules (referred to as SEC performance) takes
into account the deduction of the 5.75% maximum sales charge. Class B SEC
performance takes into account the deduction of the applicable contingent
deferred sales charge (referred to as a CDSC), which declines over six years
from 4% to 0%. Class C SEC performance takes into account the deduction of the
1% CDSC. The fund initially offered class A shares on January 2, 1996, class B
and C shares on April 11, 1997 and Class I shares on January 2, 1997.

Class B and class C share performance include the performance of the fund's
class A shares for periods prior to the offering of class B and class C shares.
Class B and class C share performance generally would have been lower than class
A share performance had class B and class C shares been offered for the entire
period, because the operating expenses (e.g., distribution and service fees)
attributable to class B and class C shares are higher than those of class A
shares. Class B and class C share SEC performance has been adjusted to take into
account the CDSC applicable to class B and class C shares, rather than the
initial sales charge applicable to class A shares.

Class I share performance includes the performance of the fund's class A shares
for periods prior to the offering of class I shares. Class I share performance
generally would have been higher than class A share performance had class I
shares been offered for the entire period, because operating expenses (e.g.,
distribution and service fees) attributable to class I shares are lower than
those of class A shares. Class I share performance has been adjusted to take
into account the fact that class I shares have no initial sales charge.

Performance results include any applicable expense subsidies and waivers, which
may cause the results to be more favorable. Current subsidies and waivers may be
discontinued at any time.

Part I -- G-1
<PAGE> 47

STATEMENT OF ADDITIONAL INFORMATION

PART II

Part II of this SAI describes policies and practices that apply to each of
the Funds in the MFS Family of Funds. References in this Part II to a "Fund"
means each Fund in the MFS Family of Funds, unless noted otherwise.
References in this Part II to a "Trust" means the Massachusetts business
trust of which the Fund is a series, or, if the Fund is not a series of a
Massachusetts business trust, references to a "Trust" shall mean the Fund.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I Management of the Fund...................................... 1

Trustees/Officers........................................... 1

Investment Adviser.......................................... 1

Administrator............................................... 2

Custodian................................................... 2

Shareholder Servicing Agent................................. 2

Distributor................................................. 2

II Principal Share Characteristics............................. 2

Class A Shares.............................................. 2

Class B Shares, Class C Shares and Class I Shares........... 2

Waiver of Sales Charges..................................... 3

Dealer Commissions and Concessions.......................... 3

General..................................................... 3

III Distribution Plan........................................... 3

Features Common to Each Class of Shares..................... 3

Features Unique to Each Class of Shares..................... 4

IV Investment Techniques, Practices and Risks.................. 5

V Net Income and Distributions................................ 5

Money Market Funds.......................................... 5

Other Funds................................................. 5

VI Tax Considerations.......................................... 5

Taxation of the Fund........................................ 5

Taxation of Shareholders.................................... 6

Special Rules for Municipal Fund Distributions.............. 7
</TABLE>

<PAGE> 48

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
VII Portfolio Transactions and Brokerage Commissions............ 8

VIII Determination of Net Asset Value............................ 9

Money Market Funds.......................................... 9

Other Funds................................................. 10

IX Performance Information..................................... 10

Money Market Funds.......................................... 10

Other Funds................................................. 11

General..................................................... 11

MFS Firsts.................................................. 12

X Shareholder Services........................................ 13

Investment and Withdrawal Programs.......................... 13

Exchange Privilege.......................................... 15

Tax-Deferred Retirement Plans............................... 16

XI Description of Shares, Voting Rights and Liabilities........ 16

Appendix A -- Waivers of Sales Charges...................... A-1

Appendix B -- Dealer Commissions and Concessions............ B-1

Appendix C -- Investment Techniques, Practices and Risks.... C-1
</TABLE>

<PAGE> 49

I MANAGEMENT OF THE FUND

TRUSTEES/OFFICERS
BOARD OVERSIGHT -- The Board of Trustees which oversees the Fund provides broad
supervision over the affairs of the Fund. The Adviser is responsible for the
investment management of the Fund's assets, and the officers of the Trust are
responsible for its operations.

TRUSTEE RETIREMENT PLAN -- The Trust has a retirement plan for Trustees who are
non-interested Trustees and Trustees who are not officers of the Trust. Under
this plan, a Trustee will retire upon reaching a specified age (see Part I --
"Appendix B ") ("Retirement Age") and if the Trustee has completed at least 5
years of service, he would be entitled to annual payments during his lifetime of
up to 50% of such Trustee's average annual compensation (based on the three
years prior to his retirement) depending on his length of service. A Trustee may
also retire prior to his Retirement Age and receive reduced payments if he has
completed at least 5 years of service. Under the plan, a Trustee (or his
beneficiaries) will also receive benefits for a period of time in the event the
Trustee is disabled or dies. These benefits will also be based on the Trustee's
average annual compensation and length of service. The Fund will accrue its
allocable portion of compensation expenses under the retirement plan each year
to cover the current year's service and amortize past service cost.

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

INVESTMENT ADVISER

The Trust has retained Massachusetts Financial Services Company ("MFS" or the
"Adviser") as the Fund's investment adviser. MFS and its predecessor
organizations have a history of money management dating from 1924. MFS is a
subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings, Inc., which
in turn is an indirect wholly owned subsidiary of Sun Life of Canada (an
insurance company).

MFS has retained, on behalf of certain MFS Funds, sub-investment advisers to
assist MFS in the management of the Fund's assets. A description of these
sub-advisers, the services they provide and their compensation is provided under
the caption "Management of the Fund -- Sub-Adviser" in Part I of this SAI for
Funds which use sub-advisers.

INVESTMENT ADVISORY AGREEMENT -- The Adviser manages the Fund pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Adviser provides the Fund with overall investment advisory
services. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. For these services and facilities, the
Adviser receives an annual management fee, computed and paid monthly, as
disclosed in the Prospectus under the heading "Management of the Fund[s]."

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

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

The Advisory Agreement has an initial two year term and continues in effect
thereafter only if such continuance is specifically approved at least annually
by the Board of Trustees or by vote of a majority of the Fund's shares (as
defined in "Investment Restrictions" in Part I of this SAI) and, in either case,
by a majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party. The Advisory Agreement terminates
automatically if it is assigned and may be terminated without penalty

Part II -- 1
<PAGE> 50

by vote of a majority of the Fund's shares (as defined in "Investment
Restrictions" in Part I of this SAI), or by either party on not more than 60
days' nor less than 30 days' written notice. The Advisory Agreement provides
that if MFS ceases to serve as the Adviser to the Fund, the Fund will change its
name so as to delete the initials "MFS" and that MFS may render services to
others and may permit other fund clients to use the initials "MFS" in their
names. The Advisory Agreement also provides that neither the Adviser nor its
personnel shall be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in the execution
and management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Advisory Agreement.

ADMINISTRATOR
MFS provides the Fund with certain financial, legal, compliance, shareholder
communications and other administrative services pursuant to a Master
Administrative Services Agreement. Under this Agreement, the Fund pays MFS an
administrative fee up to 0.015% per annum of the Fund's average daily net
assets. This fee reimburses MFS for a portion of the costs it incurs to provide
such services.

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

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

DISTRIBUTOR
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS, serves as
distributor for the continuous offering of shares of the Fund pursuant to an
Amended and Restated Distribution Agreement (the "Distribution Agreement"). The
Distribution Agreement has an initial two year term and continues in effect
thereafter only if such continuance is specifically approved at least annually
by the Board of Trustees or by vote of a majority of the Fund's shares (as
defined in "Investment Restrictions" in Part I of this SAI) and in either case,
by a majority of the Trustees who are not parties to the Distribution Agreement
or interested persons of any such party. The Distribution Agreement terminates
automatically if it is assigned and may be terminated without penalty by either
party on not more than 60 days' nor less than 30 days' notice.

II PRINCIPAL SHARE CHARACTERISTICS
Set forth below is a description of Class A, B, C and I shares offered by the
MFS Family of Funds. Some MFS Funds may not offer each class of shares -- see
the Prospectus of the Fund to determine which classes of shares the Fund offers.

CLASS A SHARES
MFD acts as agent in selling Class A shares of the Fund to dealers. The public
offering price of Class A shares of the Fund is their net asset value next
computed after the sale plus a sales charge which varies based upon the quantity
purchased. The public offering price of a Class A share of the Fund is
calculated by dividing the net asset value of a Class A share by the difference
(expressed as a decimal) between 100% and the sales charge percentage of
offering price applicable to the purchase (see "How to Purchase, Exchange and
Redeem Shares" in the Prospectus). The sales charge scale set forth in the
Prospectus applies to purchases of Class A shares of the Fund alone or in
combination with shares of all classes of certain other funds in the MFS Family
of Funds and other funds (as noted under Right of Accumulation) by any person,
including members of a family unit (e.g., husband, wife and minor children) and
bona fide trustees, and also applies to purchases made under the Right of
Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs"
below). A group might qualify to obtain quantity sales charge discounts (see
"Investment and Withdrawal Programs" below). Certain purchases of Class A shares
may be subject to a 1% CDSC instead of an initial sales charge, as described in
the Fund's Prospectus.

CLASS B SHARES, CLASS C SHARES
AND CLASS I SHARES
MFD acts as agent in selling Class B, Class C and Class I shares of the Fund.
The public offering price of Class B, Class C and Class I shares is their net
asset value next

Part II -- 2
<PAGE> 51

computed after the sale. Class B and C shares are generally subject to a CDSC,
as described in the Fund's Prospectus.

WAIVER OF SALES CHARGES
In certain circumstances, the initial sales charge imposed upon purchases of
Class A shares and the CDSC imposed upon redemptions of Class A, B and C shares
are waived. These circumstances are described in Appendix A of this Part II.
Such sales are made without a sales charge to promote good will with employees
and others with whom MFS, MFD and/or the Fund have business relationships,
because the sales effort, if any, involved in making such sales is negligible,
or in the case of certain CDSC waivers, because the circumstances surrounding
the redemption of Fund shares were not foreseeable or voluntary.

DEALER COMMISSIONS AND CONCESSIONS
MFD pays commission and provides concessions to dealers that sell Fund shares.
These dealer commissions and concession are described in Appendix B of this Part
II.

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

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

In certain circumstances, the fees described below may not be imposed, are
being waived or do not apply to certain MFS Funds. Current distribution and
service fees for each Fund are reflected under the caption "Expense Summary" in
the Prospectus.

FEATURES COMMON TO EACH CLASS OF SHARES
There are features of the Distribution Plan that are common to each Class of
shares, as described below.

SERVICE FEES -- The Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom such
dealer is the dealer or holder of record. MFD may from time to time reduce the
amount of the service fees paid for shares sold prior to a certain date. Service
fees may be reduced for a dealer that is the holder or dealer of record for an
investor who owns shares of the Fund having an aggregate net asset value at or
above a certain dollar level. Dealers may from time to time be required to meet
certain criteria in order to receive service fees. MFD or its affiliates are
entitled to retain all service fees payable under the Distribution Plan for
which there is no dealer of record or for which qualification standards have not
been met as partial consideration for personal services and/or account
maintenance services performed by MFD or its affiliates to shareholder accounts.

DISTRIBUTION FEES -- The Distribution Plan provides that the Fund may pay MFD
a distribution fee in addition to the service fee described above based on the
average daily net assets attributable to the Designated Class as partial
consideration for distribution services performed and expenses incurred in the
performance of MFD's obligations under its distribution agreement with the Fund.
MFD pays commissions to dealers as well as expenses of printing prospectuses and
reports used for sales purposes, expenses with respect to the preparation and
printing of sales literature and other distribution related expenses, including,
without limitation, the cost necessary to provide distribution-related services,
or personnel, travel, office expense and equipment. The amount of the
distribution fee paid by the Fund with respect to each class differs under the
Distribution Plan, as does the use by MFD of such distribution fees. Such
amounts and uses are described below in the discussion of the provisions of the
Distribution Plan relating to each Class of shares. While the amount of
compensation received by MFD in the form of distribution fees during any year
may be more or less than the expenses incurred by MFD under its distribution
agreement with the Fund, the Fund is not liable to MFD for any losses MFD may
incur in performing services under its distribution agreement with the Fund.

OTHER COMMON FEATURES -- Fees payable under the Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The provisions of

Part II -- 3
<PAGE> 52

the Distribution Plan relating to operating policies as well as initial
approval, renewal, amendment and termination are substantially identical as they
relate to each Class of shares covered by the Distribution Plan.

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

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

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

No service fees will be paid: (i) to any dealer who is the holder or dealer or
record for investors who own Class A shares having an aggregate net asset value
less than $750,000, or such other amount as may be determined from time to time
by MFD (MFD, however, may waive this minimum amount requirement from time to
time); or (ii) to any insurance company which has entered into an agreement with
the Fund and MFD that permits such insurance company to purchase Class A shares
from the Fund at their net asset value in connection with annuity agreements
issued in connection with the insurance company's separate accounts.

The distribution fee paid to MFD under the Distribution Plan is equal, on an
annual basis, to 0.10% of the Fund's average daily net assets attributable to
Class A shares (0.25% per annum for certain Funds). As noted above, MFD may use
the distribution fee to cover distribution-related expenses incurred by it under
its distribution agreement with the Fund, including commissions to dealers and
payments to wholesalers employed by MFD (e.g., MFD pays commissions to dealers
with respect to purchases of $1 million or more and purchases by certain
retirement plans of Class A shares which are sold at net asset value but which
are subject to a 1% CDSC for one year after purchase). In addition, to the
extent that the aggregate service and distribution fees paid under the
Distribution Plan do not exceed 0.35% per annum of the average daily net assets
of the Fund attributable to Class A shares (0.50% per annum for certain Funds),
the Fund is permitted to pay such distribution-related expenses or other
distribution-related expenses.

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

Except in the case of the first year service fee, no service fees will be paid
to any securities dealer who is the holder or dealer of record for investors who
own Class B shares having an aggregate net asset value of less than $750,000 or
such other amount as may be determined by MFD from time to time. MFD, however,
may waive this minimum amount requirement from time to time.

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

CLASS C SHARES -- Class C shares are offered at net asset value without an
initial sales charge but subject to a CDSC of 1.00% upon redemption during the
first year. MFD will pay a commission to dealers of 1.00% of the purchase price
of Class C shares purchased through dealers at the time of purchase. In
compensation for this 1.00% commission paid by MFD to dealers, MFD will retain
the 1.00% per annum Class C distribution and service fees paid by the Fund with
respect to

Part II -- 4
<PAGE> 53

such shares for the first year after purchase, and dealers will become eligible
to receive from MFD the ongoing 1.00% per annum distribution and service fees
paid by the Fund to MFD with respect to such shares commencing in the thirteenth
month following purchase.

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

IV INVESTMENT TECHNIQUES, PRACTICES AND RISKS

Set forth in Appendix C of this Part II is a description of investment
techniques and practices which the MFS Funds may generally use in pursuing their
investment objectives and principal investment policies, and the risks
associated with these investment techniques and practices. The Fund will engage
only in certain of these investment techniques and practices, as identified in
Part I. Investment practices and techniques that are not identified in Part I do
not apply to the Fund.

V NET INCOME AND DISTRIBUTIONS

MONEY MARKET FUNDS
The net income attributable to each MFS Fund that is a money market fund is
determined each day during which the New York Stock Exchange is open for trading
(see "Determination of Net Asset Value" below for a list of days the Exchange is
closed).

For this purpose, the net income attributable to shares of a money market fund
(from the time of the immediately preceding determination thereof) shall consist
of (i) all interest income accrued on the portfolio assets of the money market
fund, (ii) less all actual and accrued expenses of the money market fund
determined in accordance with generally accepted accounting principles, and
(iii) plus or minus net realized gains and losses and net unrealized
appreciation or depreciation on the assets of the money market fund, if any.
Interest income shall include discount earned (including both original issue and
market discount) on discount paper accrued ratably to the date of maturity.

Since the net income is declared as a dividend each time the net income is
determined, the net asset value per share (i.e., the value of the net assets of
the money market fund divided by the number of shares outstanding) remains at
$1.00 per share immediately after each such determination and dividend
declaration. Any increase in the value of a shareholder's investment,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares in the shareholder's account.

It is expected that the shares of the money market fund will have a positive
net income at the time of each determination thereof. If for any reason the net
income determined at any time is a negative amount, which could occur, for
instance, upon default by an issuer of a portfolio security, the money market
fund would first offset the negative amount with respect to each shareholder
account from the dividends declared during the month with respect to each such
account. If and to the extent that such negative amounts exceeds such declared
dividends at the end of the month (or during the month in the case of an account
liquidated in its entirety), the money market fund could reduce the number of
its outstanding shares by treating each shareholder of the money market fund as
having contributed to its capital that number of full and fractional shares of
the money market fund in the account of such shareholder which represents its
proportion of such excess. Each shareholder of the money market fund will be
deemed to have agreed to such contribution in these circumstances by its
investment in the money market fund. This procedure would permit the net asset
value per share of the money market fund to be maintained at a constant $1.00
per share.

OTHER FUNDS
Each MFS Fund other than the MFS money market funds intends to distribute to its
shareholders dividends equal to all of its net investment income with such
frequency as is disclosed in the Fund's prospectus. These Funds' net investment
income consists of non-capital gain income less expenses. In addition, these
Funds intend to distribute net realized short- and long-term capital gains, if
any, at least annually. Shareholders will be informed of the tax consequences of
such distributions, including whether any portion represents a return of
capital, after the end of each calendar year.

VI TAX CONSIDERATIONS

The following discussion is a brief summary of some of the important federal
(and, where noted, state) income tax consequences affecting the Fund and its
shareholders. The discussion is very general, and therefore prospective
investors are urged to consult their tax advisors about the impact an investment
in the Fund may have on their own federal, state and local taxes.

TAXATION OF THE FUND

FEDERAL TAXES -- The Fund (even if it is a fund in a Trust with multiple series)
is treated as a separate entity for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or
in the case of a new Fund, intends to elect) to be, and intends to qualify to be
treated each year as, a "regulated investment company" under Subchapter M of the
Code by meeting all applicable requirements of Subchapter M, including
requirements as to the nature of the Fund's gross income, the amount of its
distributions (as a percentage of both its overall

Part II -- 5
<PAGE> 54

income and any tax-exempt income), and the composition of its portfolio assets.
As a regulated investment company, the fund will not be subject to any federal
income or excise taxes on its net investment income and net realized capital
gains that it distributes to shareholders in accordance with the timing
requirements imposed by the Code. The Fund's foreign-source income, if any, may
be subject to foreign withholding taxes. If the Fund failed to qualify as a
"regulated investment company" in any year, it would incur regular federal
corporate income tax on all of its taxable income, whether or not distributed,
and Fund distributions would generally be taxable as ordinary dividend income to
the shareholders.

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

TAXATION OF SHAREHOLDERS

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

Any Fund distribution, other than dividends that are declared by the fund on a
daily basis will have the effect of reducing the per share net asset value of
Fund shares by the amount of the distribution. Shareholders purchasing shares
shortly before the record date of any distribution (other than an
exempt-interest dividend) may thus pay the full price for the shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.

DIVIDENDS-RECEIVED DEDUCTION -- If the Fund receives dividend income from U.S.
corporations, a portion of the Fund's ordinary income dividends is normally
eligible for the dividends-received deduction for corporations if the recipient
otherwise qualifies for that deduction with respect to its holding of Fund
shares. Availability of the deduction for particular corporate shareholders is
subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax or result in certain basis adjustments.

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

DISTRIBUTION/ACCOUNTING POLICIES -- The Fund's current distribution and
accounting policies will affect the amount, timing, and character of
distributions to shareholders and may, under certain circumstances, make an
economic return of capital taxable to shareholders.

FOREIGN INCOME TAXES -- Investment income received by the Fund and gains with
respect to foreign securities may be subject to foreign income taxes withheld at
the source. The United States has entered into tax treaties with many foreign
countries that may entitle the Fund to a reduced rate of tax or an exemption
from tax on such income; the Fund intends to qualify for treaty reduced rates
where available. It is not possible, however, to determine the Fund's effective
rate of foreign tax in advance, since the amount of the Fund's assets to be
invested within various countries is not known.

If the Fund holds more than 50% of its assets in foreign stock and securities
at the close of its taxable year, it may elect to "pass through" to its
shareholders foreign income taxes paid by it. If the Fund so elects,
shareholders will be required to treat their pro rata portions of the foreign
income taxes paid by the Fund as part of the amounts distributed to them by it
and thus includable in their gross income for federal income tax purposes.
Shareholders who itemize deductions would then be allowed to claim a deduction
or credit (but not both) on their federal income tax returns for such amounts,
subject to certain limitations. Shareholders who do not itemize deductions would
(subject to such limitations) be able to claim a credit but not a deduction. No
deduction will be permitted to individuals in computing their alternative
minimum tax liability. If the Fund is not eligible, or does not elect, to "pass
through" to its shareholders foreign income taxes it has paid, shareholders will
not be able to claim any deduction or credit for any part of the foreign taxes
paid by the Fund.

U.S. TAXATION OF NON-U.S. PERSONS -- Dividends and certain other payments (but
not including distributions of net capital gains) to persons who are not
citizens or residents of the United States or U.S. entities ("Non-U.S. Persons")
are

Part II -- 6
<PAGE> 55

generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold at that rate on taxable dividends and other payments to Non-U.S.
Persons that are subject to such withholding. The Fund may withhold at a lower
rate permitted by an applicable treaty if the shareholder provides the
documentation required by the Fund. Any amounts overwithheld may be recovered by
such persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period appropriate to such claims.

BACKUP WITHHOLDING -- The Fund is also required in certain circumstances to
apply backup withholding at the rate of 31% on taxable dividends and capital
gain distributions (and redemption proceeds, if applicable) paid to any
non-corporate shareholder (including a Non-U.S. Person) who does not furnish to
the Fund certain information and certifications or who is otherwise subject to
backup withholding. Backup withholding will not, however, be applied to payments
that have been subject to 30% withholding.

FOREIGN INCOME TAXATION OF NON-U.S. PERSONS -- Distributions received from the
Fund by Non-U.S. Persons may also be subject to tax under the laws of their own
jurisdictions.

STATE AND LOCAL INCOME TAXES: U.S. GOVERNMENT SECURITIES -- Dividends paid by
the Fund that are derived from interest on obligations of the U.S. Government
and certain of its agencies and instrumentalities (but generally not
distributions of capital gains realized upon the disposition of such
obligations) may be exempt from state and local income taxes. The Fund generally
intends to advise shareholders of the extent to which its dividends consist of
such interest. Shareholders are urged to consult their tax advisors regarding
the possible exclusion of such portion of their dividends for state and local
income tax purposes.

CERTAIN SPECIFIC INVESTMENTS -- Any investment in zero coupon bonds, deferred
interest bonds, payment-in-kind bonds, certain stripped securities, and certain
securities purchased at a market discount will cause the Fund to recognize
income prior to the receipt of cash payments with respect to those securities.
To distribute this income (as well as non-cash income described in the next two
paragraphs) and avoid a tax on the Fund, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund. Any investment in
residual interests of a CMO that has elected to be treated as a real estate
mortgage investment conduit, or "REMIC," can create complex tax problems,
especially if the Fund has state or local governments or other tax-exempt
organizations as shareholders.

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

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

SPECIAL RULES FOR MUNICIPAL FUND DISTRIBUTIONS

The following special rules apply to shareholders of funds whose objective is to
invest primarily in obligations that pay interest that is exempt from federal
income tax ("Municipal Funds").

TAX EXEMPT DISTRIBUTIONS -- The portion of a Municipal Fund's distributions of
net investment income that is attributable to interest from tax-exempt
securities will be designated by the Fund as an "exempt-interest dividend" under
the Code and will generally be exempt from federal income tax in the hands of
shareholders so long as at least 50% of the total value of the Fund's assets
consists of tax-exempt securities at the close of each quarter of the Fund's
taxable year. Distributions of tax-exempt interest earned from certain
securities may, however, be treated as an item of tax preference for
shareholders under the federal alternative minimum tax, and all exempt-interest
dividends may increase a corporate shareholder's alternative minimum tax. Except
when the Fund provides actual monthly percentage breakdowns, the percentage of
income designated as tax-exempt will be applied uniformly to all distributions
by the Fund of net investment income made during each fiscal year of the Fund
and may differ from the percentage of distributions consisting of tax-exempt
interest in any particular month. Shareholders are

Part II -- 7
<PAGE> 56

required to report exempt-interest dividends received from the Fund on their
federal income tax returns.

TAXABLE DISTRIBUTIONS -- A Municipal Fund may also earn some income that is
taxable (including interest from any obligations that lose their federal tax
exemption) and may recognize capital gains and losses as a result of the
disposition of securities and from certain options and futures transactions.
Shareholders normally will have to pay federal income tax on the
non-exempt-interest dividends and capital gain distributions they receive from
the Fund, whether paid in cash or reinvested in additional shares. However, the
Fund does not expect that the non-tax-exempt portion of its net investment
income, if any, will be substantial. Because the Fund expects to earn primarily
tax-exempt interest income, it is expected that no Fund dividends will qualify
for the dividends-received deduction for corporations.

CONSEQUENCES OF DISTRIBUTIONS BY A MUNICIPAL FUND: EFFECT OF ACCRUED
TAX-EXEMPT INCOME -- Shareholders redeeming shares after tax-exempt income has
been accrued but not yet declared as a dividend should be aware that a portion
of the proceeds realized upon redemption of the shares will reflect the
existence of such accrued tax-exempt income and that this portion will be
subject to tax as a capital gain even though it would have been tax-exempt had
it been declared as a dividend prior to the redemption. For this reason, if a
shareholder wishes to redeem shares of a Municipal Fund that does not declare
dividends on a daily basis, the shareholder may wish to consider whether he or
she could obtain a better tax result by redeeming immediately after the Fund
declares dividends representing substantially all the ordinary income (including
tax-exempt income) accrued for that month.

CERTAIN ADDITIONAL INFORMATION FOR MUNICIPAL FUND SHAREHOLDERS -- Interest on
indebtedness incurred by shareholders to purchase or carry Fund shares will not
be deductible for federal income tax purposes. Exempt-interest dividends are
taken into account in calculating the amount of social security and railroad
retirement benefits that may be subject to federal income tax. Entities or
persons who are "substantial users" (or persons related to "substantial users")
of facilities financed by private activity bonds should consult their tax
advisors before purchasing Fund shares.

CONSEQUENCES OF REDEMPTION OF SHARES -- Any loss realized on a redemption of
Municipal Fund shares held for six months or less will be disallowed to the
extent of any exempt-interest dividends received with respect to those shares.
If not disallowed, any such loss will be treated as a long-term capital loss to
the extent of any distributions of net capital gain made with respect to those
shares.

STATE AND LOCAL INCOME TAXES:

MUNICIPAL OBLIGATIONS -- The exemption of exempt-interest dividends for federal
income tax purposes does not necessarily result in exemption under the income
tax laws of any state or local taxing authority. Some states do exempt from tax
that portion of an exempt-interest dividend that represents interest received by
a regulated investment company on its holdings of securities issued by that
state and its political subdivisions and instrumentalities. Therefore, the Fund
will report annually to its shareholders the percentage of interest income
earned by it during the preceding year on Municipal Bonds and will indicate, on
a state-by-state basis only, the source of such income.

VII PORTFOLIO TRANSACTIONS AND

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

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

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

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

Part II -- 8
<PAGE> 57

particular transaction or their respective overall responsibilities to the Fund
or to their other clients. Not all of such services are useful or of value in
advising the Fund.

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

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

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

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

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

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

VIII DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the New York Stock Exchange is open for trading. (As of the date of
this SAI, the Exchange is open for trading every weekday except for the
following holidays (or the days on which they are observed): New Year's Day;
Martin Luther King Day; Presidents' Day; Good Friday; Memorial Day; Independence
Day; Labor Day; Thanksgiving Day and Christmas Day.) This determination is made
once each day as of the close of regular trading on the Exchange by deducting
the amount of the liabilities attributable to the class from the value of the
assets attributable to the class and dividing the difference by the number of
shares of the class outstanding.

MONEY MARKET FUNDS
Portfolio securities of each MFS Fund that is a money market fund are valued at
amortized cost, which the Board of Trustees which oversees the money market fund
has 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 Board of Trustees determines that it does not constitute
fair value for such purposes. Each money market fund will limit its portfolio to
those investments in U.S. dollar-denominated instruments which its Board of
Trustees determines present minimal credit risks, and which are of high quality
as determined by any major rating service or, in the case of any instrument that
is

Part II -- 9
<PAGE> 58

not so rated, of comparable quality as determined by the Board of Trustees. Each
money market fund has also agreed to maintain a dollar-weighted average maturity
of 90 days or less and to invest only in securities maturing in 13 months or
less. The Board of Trustees which oversee each money market fund has established
procedures designed to stabilize its net asset value per share, as computed for
the purposes of sales and redemptions, at $1.00 per share. If the Board
determines that a deviation from the $1.00 per share price may exist which may
result in a material dilution or other unfair result to investors or existing
shareholders, it will take corrective action it regards as necessary and
appropriate, which action could include the sale of instruments prior to
maturity (to realize capital gains or losses); shortening average portfolio
maturity; withholding dividends; or using market quotations for valuation
purposes.

OTHER FUNDS
The following valuation techniques apply to each MFS Fund that is not a money
market fund.

Equity securities in the Fund's portfolio are valued at the last sale price on
the exchange on which they are primarily traded or on the Nasdaq stock market
system for unlisted national market issues, or at the last quoted bid price for
listed securities in which there were no sales during the day or for unlisted
securities not reported on the Nasdaq stock market system. Bonds and other fixed
income securities (other than short-term obligations) of U.S. issuers in the
Fund's portfolio are valued on the basis of valuations furnished by a pricing
service which utilizes both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Forward Contracts will be valued
using a pricing model taking into consideration market data from an external
pricing source. Use of the pricing services has been approved by the Board of
Trustees.

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

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

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

IX PERFORMANCE INFORMATION

MONEY MARKET FUNDS
Each MFS Fund that is a money market fund will provide current annualized and
effective annualized yield quotations based on the daily dividends of shares of
the money market fund. These quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.

Any current yield quotation of a money market fund which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the 1933 Act
shall consist of an annualized historical yield, carried at least to the nearest
hundredth of one percent based on a specific seven calendar day period and shall
be calculated by dividing the net change in the value of an account having a
balance of one share of that class at the beginning of the period by the value
of the account at the beginning of the period and multiplying the quotient by
365/7. For this purpose the net change in account value would reflect the value
of additional shares purchased with dividends declared on the original share and
dividends declared on both the original share and any such additional shares,
but would not reflect any realized gains or losses from the sale of securities
or any unrealized appreciation or depreciation on portfolio securities. In
addition, any effective yield quotation of a money market fund so used shall be
calculated by compounding the current yield quotation for such period by
multiplying such quotation by 7/365, adding 1 to the product, raising the sum to
a power equal to 365/7, and subtracting 1 from the result. These yield
quotations should not be considered as representative of the yield of a money
market fund in the future since the yield will vary based on the type, quality
and maturities of the securities held in its portfolio, fluctuations in
short-term interest rates and changes in the money market fund's expenses.

Part II -- 10
<PAGE> 59

OTHER FUNDS
Each MFS Fund that is not a money market fund may quote the following
performance results.

TOTAL RATE OF RETURN -- The Fund will calculate its total rate of return for
each class of shares for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment of
$1,000 (made with all distributions reinvested and reflecting the CDSC or the
maximum public offering price) to reach the value of that investment at the end
of the periods. The Fund may also calculate (i) a total rate of return, which is
not reduced by any applicable CDSC and therefore may result in a higher rate of
return, (ii) a total rate of return assuming an initial account value of $1,000,
which will result in a higher rate of return since the value of the initial
account will not be reduced by any applicable sales charge and/or (iii) total
rates of return which represent aggregate performance over a period or year-
by-year performance, and which may or may not reflect the effect of the maximum
or other sales charge or CDSC.

The Fund offers multiple classes of shares which were initially offered for
sale to, and purchased by, the public on different dates (the class "inception
date"). The calculation of total rate of return for a class of shares which has
a later class inception date than another class of shares of the Fund is based
both on (i) the performance of the Fund's newer class from its inception date
and (ii) the performance of the Fund's oldest class from its inception date up
to the class inception date of the newer class.

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

YIELD -- Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class for the 30-day period.
The yield for each class of the Fund is calculated by dividing the net
investment income allocated to that class earned during the period by the
maximum offering price per share of that class of the Fund on the last day of
the period. The resulting figure is then annualized. Net investment income per
share of a class is determined by dividing (i) the dividends and interest
allocated to that class during the period, minus accrued expense of that class
for the period by (ii) the average number of shares of the class entitled to
receive dividends during the period multiplied by the maximum offering price per
share on the last day of the period. The Fund's yield calculations assume a
maximum sales charge of 5.75% in the case of Class A shares and no payment of
any CDSC in the case of Class B and Class C shares.

TAX-EQUIVALENT YIELD -- The tax-equivalent yield for a class of shares of a
Fund is calculated by determining the rate of return that would have to be
achieved on a fully taxable investment in such shares to produce the after-tax
equivalent of the yield of that class. In calculating tax-equivalent yield, a
Fund assumes certain federal tax brackets for shareholders and does not take
into account state taxes.

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

GENERAL
From time to time the Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors

Part II -- 11
<PAGE> 60

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

From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers; investment
philosophies, strategies, techniques and criteria used in the selection of
securities to be purchased or sold for the Fund; the Fund's portfolio holdings;
the investment research and analysis process; the formulation and evaluation of
investment recommendations; and the assessment and evaluation of credit,
interest rate, market and economic risks, and similar or related matters.

The Fund may also quote evaluations mentioned in independent radio or
television broadcasts.

From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax deferral.

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

From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; tax management strategies; estate
planning; general investment techniques (e.g., asset allocation and disciplined
saving and investing); business succession; ideas and information provided
through the MFS Heritage Planning(sm) program, an intergenerational financial
planning assistance program; issues with respect to insurance (e.g., disability
and life insurance and Medicare supplemental insurance); issues regarding
financial and health care management for elderly family members; and other
similar or related matters.

The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are low. While such a strategy does not
assure a profit or guard against a loss in a declining market, the investor's
average cost per share can be lower than if fixed numbers of shares are
purchased at the same intervals.

From time to time, the Fund may also advertise annual returns showing the
cumulative value of an initial investment in the Fund in various amounts over
specified periods, with capital gain and dividend distributions invested in
additional shares or taken in cash, and with no adjustment for any income taxes
(if applicable) payable by shareholders.

MFS FIRSTS
MFS has a long history of innovations.

- -- 1924 -- Massachusetts Investors Trust is established as the first open-end
mutual fund in America.

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

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

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

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

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

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

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

Part II -- 12
<PAGE> 61

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

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

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

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

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

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

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

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

X SHAREHOLDER SERVICES

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

LETTER OF INTENT -- If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with shares of any class of MFS Funds or MFS Fixed Fund
(a bank collective investment fund) within a 13-month period (or 36-month
period, in the case of purchases of $1 million or more), the shareholder may
obtain Class A shares of the Fund at the same reduced sales charge as though the
total quantity were invested in one lump sum by completing the Letter of Intent
section of the Account Application or filing a separate Letter of Intent
application (available from MFSC) within 90 days of the commencement of
purchases. Subject to acceptance by MFD and the conditions mentioned below, each
purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the Letter of Intent application.
The shareholder or his dealer must inform MFD that the Letter of Intent is in
effect each time shares are purchased. The shareholder makes no commitment to
purchase additional shares, but if his purchases within 13 months (or 36 months
in the case of purchases of $1 million or more) plus the value of shares
credited toward completion of the Letter of Intent do not total the sum
specified, he will pay the increased amount of the sales charge as described
below. Instructions for issuance of shares in the name of a person other than
the person signing the Letter of Intent application must be accompanied by a
written statement from the dealer stating that the shares were paid for by the
person signing such Letter. Neither income dividends nor capital gain
distributions taken in additional shares will apply toward the completion of the
Letter of Intent. Dividends and distributions of other MFS Funds automatically
reinvested in shares of the Fund pursuant to the Distribution Investment Program
will also not apply toward completion of the Letter of Intent.

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

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

RIGHT OF ACCUMULATION -- A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, Class B and
Class C shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a
discount level. See "Purchases" in the Prospectus for the sales charges on
quantity discounts. A shareholder must provide MFSC (or his investment dealer
must provide MFD) with information to verify that the quantity sales charge
discount is applicable at the time the investment is made.

SUBSEQUENT INVESTMENT BY TELEPHONE -- Each shareholder may purchase additional
shares of any MFS Fund by telephoning MFSC toll-free at (800) 225-2606. The
minimum purchase amount is $50 and the maximum purchase amount is $100,000.
Shareholders wishing to avail themselves of this telephone purchase privilege
must so elect on their Account Application and designate thereon a bank and
account number from which purchases will be made. If a telephone

Part II -- 13
<PAGE> 62

purchase request is received by MFSC on any business day prior to the close of
regular trading on the Exchange (generally, 4:00 p.m., Eastern time), the
purchase will occur at the closing net asset value of the shares purchased on
that day. MFSC may be liable for any losses resulting from unauthorized
telephone transactions if it does not follow reasonable procedures designed to
verify the identity of the caller. MFSC will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.

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

SYSTEMATIC WITHDRAWAL PLAN -- A shareholder may direct MFSC to send him (or
anyone he designates) regular periodic payments based upon the value of his
account. Each payment under a Systematic Withdrawal Plan ("SWP") must be at
least $100, except in certain limited circumstances. The aggregate withdrawals
of Class B and Class C shares in any year pursuant to a SWP generally are
limited to 10% of the value of the account at the time of establishment of the
SWP. SWP payments are drawn from the proceeds of share redemptions (which would
be a return of principal and, if reflecting a gain, would be taxable).
Redemptions of Class B and Class C shares will be made in the following order:
(i) shares representing reinvested distributions; (ii) shares representing
undistributed capital gains and income; and (iii) to the extent necessary,
shares representing direct investments subject to the lowest CDSC. The CDSC will
be waived in the case of redemptions of Class B and Class C shares pursuant to a
SWP, but will not be waived in the case of SWP redemptions of Class A shares
which are subject to a CDSC. To the extent that redemptions for such periodic
withdrawals exceed dividend income reinvested in the account, such redemptions
will reduce and may eventually exhaust the number of shares in the shareholder's
account. All dividend and capital gain distributions for an account with a SWP
will be received in full and fractional shares of the Fund at the net asset
value in effect at the close of business on the record date for such
distributions. To initiate this service, shares having an aggregate value of at
least $5,000 either must be held on deposit by, or certificates for such shares
must be deposited with, MFSC. With respect to Class A shares, maintaining a
withdrawal plan concurrently with an investment program would be disadvantageous
because of the sales charges included in share purchases and the imposition of a
CDSC on certain redemptions. The shareholder may deposit into the account
additional shares of the Fund, change the payee or change the dollar amount of
each payment. MFSC may charge the account for services rendered and expenses
incurred beyond those normally assumed by the Fund with respect to the
liquidation of shares. No charge is currently assessed against the account, but
one could be instituted by MFSC on 60 days' notice in writing to the shareholder
in the event that the Fund ceases to assume the cost of these services. The Fund
may terminate any SWP for an account if the value of the account falls below
$5,000 as a result of share redemptions (other than as a result of a SWP) or an
exchange of shares of the Fund for shares of another MFS Fund. Any SWP may be
terminated at any time by either the shareholder or the Fund.

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

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

AUTOMATIC EXCHANGE PLAN -- Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of shares
of other MFS Funds selected by the shareholder (if available for sale). Under
the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to
six different funds effective on the seventh day of each month or of every third
month, depending whether monthly or quarterly exchanges are elected by the
shareholder. If the seventh day of the month is not a business day, the
transaction will be processed on the next business day. Generally, the initial
transfer will occur after receipt and processing by MFSC of an application in
good order. Exchanges will continue to be made from a shareholder's account in
any MFS Fund, as long as the balance of the account is sufficient to complete
the exchanges. Additional

Part II -- 14
<PAGE> 63

payments made to a shareholder's account will extend the period that exchanges
will continue to be made under the Automatic Exchange Plan. However, if
additional payments are added to an account subject to the Automatic Exchange
Plan shortly before an exchange is scheduled, such funds may not be available
for exchanges until the following month; therefore, care should be used to avoid
inadvertently terminating the Automatic Exchange Plan through exhaustion of the
account balance.

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

A shareholder's right to make additional investments in any of the MFS Funds,
to make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan. The
Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.

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

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

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

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

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

Part II -- 15
<PAGE> 64

imposed with respect to any subsequent exchanges between such Class A shares and
Units with respect to shares on which the initial sales charge has already been
paid. In the event that a shareholder initially purchases Units and then
exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period
will commence upon such exchange, and the applicability of the CDSC with respect
to subsequent exchanges shall be governed by the rules set forth above in this
paragraph.

GENERAL -- Each Exchange Request must be in proper form (i.e., if in
writing -- signed by the record owner(s) exactly as the shares are registered;
if by telephone -- proper account identification is given by the dealer or
shareholder of record), and each exchange must involve either shares having an
aggregate value of at least $1,000 ($50 in the case of retirement plan
participants whose sponsoring organizations subscribe to MFS FUNDamental 401(k)
Plan or another similar 401(k) recordkeeping system made available by MFSC) or
all the shares in the account. Each exchange involves the redemption of the
shares of the Fund to be exchanged and the purchase of shares of the same class
of the other MFS Fund. Any gain or loss on the redemption of the shares
exchanged is reportable on the shareholder's federal income tax return, unless
both the shares received and the shares surrendered in the exchange are held in
a tax-deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone. If the Exchange
Request is received by MFSC prior to the close of regular trading on the
Exchange the exchange usually will occur on that day if all the requirements set
forth above have been complied with at that time. However, payment of the
redemption proceeds by the Fund, and thus the purchase of shares of the other
MFS Fund, may be delayed for up to seven days if the Fund determines that such a
delay would be in the best interest of all its shareholders. Investment dealers
which have satisfied criteria established by MFD may also communicate a
shareholder's Exchange Request to MFD by facsimile subject to the requirements
set forth above.

Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or MFSC. A
shareholder considering an exchange should obtain and read the prospectus of the
other fund and consider the differences in objectives and policies before making
any exchange.

Any state income tax advantages for investment in shares of each
state-specific series of MFS Municipal Series Trust may only benefit residents
of such states. Investors should consult with their own tax advisers to be sure
this is an appropriate investment, based on their residency and each state's
income tax laws. The exchange privilege (or any aspect of it) may be changed or
discontinued and is subject to certain limitations imposed from time to time at
the discretion of the Funds in order to protect the Funds.

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

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

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

- Simplified Employee Pension (SEP-IRA) Plans;

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

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

- Certain other qualified pension and profit-sharing plans.

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

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

Class C shares are not currently available for purchase by any retirement plan
qualified under Internal Revenue Code Section 401(a) or 403(b) if the retirement
plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar Section 401(a) or 403(b) recordkeeping program made
available by MFSC.

XI DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one or
more separate series and to divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in that series. The Declaration of Trust further authorizes
the Trustees to classify

Part II -- 16
<PAGE> 65

or reclassify any series of shares into one or more classes. Each share of a
class of the Fund represents an equal proportionate interest in the assets of
the Fund allocable to that class. Upon liquidation of the Fund, shareholders of
each class of the Fund are entitled to share pro rata in the Fund's net assets
allocable to such class available for distribution to shareholders. The Trust
reserves the right to create and issue a number of series and additional classes
of shares, in which case the shares of each class of a series would participate
equally in the earnings, dividends and assets allocable to that class of the
particular series.

Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
To the extent a shareholder of the Fund owns a controlling percentage of the
Fund's shares, such shareholder may affect the outcome of such matters to a
greater extent than other Fund shareholders. Although Trustees are not elected
annually by the shareholders, the Declaration of Trust provides that a Trustee
may be removed from office at a meeting of shareholders by a vote of two-thirds
of the outstanding shares of the Trust. A meeting of shareholders will be called
upon the request of shareholders of record holding in the aggregate not less
than 10% of the outstanding voting securities of the Trust. No material
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of the Trust's outstanding shares (as defined in "Investment
Restrictions" in Part I of this SAI). The Trust or any series of the Trust may
be terminated (i) upon the merger or consolidation of the Trust or any series of
the Trust with another organization or upon the sale of all or substantially all
of its assets (or all or substantially all of the assets belonging to any series
of the Trust), if approved by the vote of the holders of two-thirds of the
Trust's or the affected series' outstanding shares voting as a single class, or
of the affected series of the Trust, except that if the Trustees recommend such
merger, consolidation or sale, the approval by vote of the holders of a majority
of the Trust's or the affected series' outstanding shares will be sufficient, or
(ii) upon liquidation and distribution of the assets of a Fund, if approved by
the vote of the holders of two-thirds of its outstanding shares of the Trust, or
(iii) by the Trustees by written notice to its shareholders. If not so
terminated, the Trust will continue indefinitely.

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

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

Part II -- 17
<PAGE> 66

PART II - APPENDIX A

WAIVERS OF SALES CHARGES

This Appendix sets forth the various circumstances in which all applicable sales
charges are waived (Section I), the initial sales charge and the CDSC for Class
A shares are waived (Section II), and the CDSC for Class B and Class C shares is
waived (Section III). As used in this Appendix, the term "dealer" includes any
broker, dealer, bank (including bank trust departments), registered investment
adviser, financial planner and any other financial institutions having a selling
agreement or other similar agreement with MFD.

I WAIVERS OF ALL APPLICABLE SALES CHARGES

In the following circumstances, the initial sales charge imposed on purchases of
Class A shares and the CDSC imposed on certain redemptions of Class A shares and
on redemptions of Class B and Class C shares, as applicable, are waived:

DIVIDEND REINVESTMENT
- Shares acquired through dividend or capital gain reinvestment; and

- Shares acquired by automatic reinvestment of distributions of dividends and
capital gains of any fund in the MFS Funds pursuant to the Distribution
Investment Program.

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

AFFILIATES OF AN MFS FUND/CERTAIN DEALERS.
Shares acquired by:
- Officers, eligible directors, employees (including retired employees) and
agents of MFS, Sun Life or any of their subsidiary companies;

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

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

- Employees or registered representatives of dealers;

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

- Institutional Clients of MFS or MFS Institutional Advisors, Inc.

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

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

- Individual Retirement Accounts ("IRAs")

- Death or disability of the IRA owner.

- Section 401(a) Plans ("401(a) Plans") and Section 403(b) Employer Sponsored
Plans ("ESP Plans")

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

- Loan from 401(a) or ESP Plan;

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

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

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

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

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

Part II -- A-1
<PAGE> 67

c Shares purchased by certain retirement plans or trust accounts if: (i)
the plan is currently a party to a retirement plan recordkeeping or
administration services agreement with MFD or one of its affiliates and
(ii) the shares purchased or redeemed represent transfers from or
transfers to plan investments other than the MFS Funds for which
retirement plan recordkeeping services are provided under the terms of
such agreement.

- Section 403(b) Salary Reduction Only Plans
("SRO Plans")

c Death or disability of SRO Plan participant.

CERTAIN TRANSFERS OF REGISTRATION
(CDSC WAIVER ONLY).
Shares transferred:
- To an IRA rollover account where any sales charges with respect to the shares
being reregistered would have been waived had they been redeemed; and

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

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

II WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A shares
and the CDSC imposed on certain redemptions of Class A shares are waived:

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

INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
- Shares acquired by insurance company separate accounts.

RETIREMENT PLANS
- Administrative Services Arrangements

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

- Reinvestment of Distributions from Qualified Retirement Plans

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

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

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

c Tax-free returns of excess IRA contributions.

- 401(a) Plans

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

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

- ESP Plans and SRO Plans

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

- 401(a) Plans and ESP Plans

c where the retirement plan and/or sponsoring organization does not
subscribe to the MFS Participant Recordkeeping System; and

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

provided, however, that the CDSC will not be waived (i.e., it will be imposed)
(a) with respect to plans which establish an account with MFSC on or after
November 1, 1997, in the event that the plan makes a complete redemption of
all of its shares in the MFS Family of

Part II -- A-2
<PAGE> 68

Funds, or (b) with respect to plans which establish an account with MFSC prior
to November 1, 1997, in the event that there is a change in law or regulations
which result in a material adverse change to the tax advantaged nature of the
plan, or in the event that the plan and/or sponsoring organization: (i)
becomes insolvent or bankrupt; (ii) is terminated under ERISA or is liquidated
or dissolved; or (iii) is acquired by, merged into, or consolidated with any
other entity.

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

III WAIVERS OF CLASS B AND CLASS C SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B and Class C shares is
waived:

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

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

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

RETIREMENT PLANS. Shares redeemed on account of distributions made under the
following circumstances:
- IRAs, 401(a) Plans, ESP Plans and SRO Plans

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

c Salary Reduction Simplified Employee Pension Plans ("SAR-SEP Plans")

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

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

- 401(a) and ESP Plans Only
(Class B CDSC Waiver Only)

c By a retirement plan whose sponsoring organization subscribes to the MFS
Participant Recordkeeping System and which established an account with
MFSC between July 1, 1996 and December 31, 1998; provided, however, that
the CDSC will not be waived (i.e., it will be imposed) in the event that
there is a change in law or regulations which results in a material
adverse change to the tax advantaged nature of the plan, or in the event
that the plan and/or sponsoring organization: (i) becomes insolvent or
bankrupt; (ii) is terminated under ERISA or is liquidated or dissolved;
or (iii) is acquired by, merged into, or consolidated with any other
entity.

c By a retirement plan whose sponsoring organization subscribes to the MFS
Recordkeeper Plus product and which established its account with MFSC on
or after January 1, 1999 (provided that the plan establishment paperwork
is received by MFSC in good order on or after November 15, 1998). A plan
with a pre-existing account(s) with any MFS Fund which switches to the
MFS Recordkeeper Plus product will not become eligible for this waiver
category.

Part II -- A-3
<PAGE> 69

PART II - APPENDIX B

DEALER COMMISSIONS AND CONCESSIONS
This Appendix describes the various commissions paid and concessions made to
dealers by MFD in connection with the sale of Fund shares. As used in this
Appendix, the term "dealer" includes any broker, dealer, bank (including bank
trust departments), registered investment adviser, financial planner and any
other financial institutions having a selling agreement or other similar
agreement with MFD.

CLASS A SHARES
Purchases Subject to an Initial Sales Charge. For purchases of Class A shares
subject to an initial sales charge, MFD reallows a portion of the initial sales
charge to dealers (which are alike for all dealers), as shown in Appendix D to
Part I of this SAI. The difference between the total amount invested and the sum
of (a) the net proceeds to the Fund and (b) the dealer reallowance, is the
amount of the initial sales charge retained by MFD (as shown in Appendix D to
Part I of this SAI). Because of rounding in the computation of offering price,
the portion of the sales charge retained by MFD may vary and the total sales
charge may be more or less than the sales charge calculated using the sales
charge expressed as a percentage of the offering price or as a percentage of the
net amount invested as listed in the Prospectus.

Purchases Subject to a CDSC (but not an Initial Sales Charge). For purchases
of Class A shares subject to a CDSC, MFD pays commissions to dealers on new
investments made through such dealers as follows:

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

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

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

For purchases of Class B shares by a retirement plan whose sponsoring
organization subscribes to the MFS Participant Recordkeeping System and which
established its account with MFSC between July 1, 1996 and December 31, 1998,
MFD pays an amount to dealers equal to 3.00% of the amount purchased through
such dealers (rather than the 4.00% payment described above), which is comprised
of a commission of 2.75% plus the advancement of the first year service fee
equal to 0.25% of the purchase price payable under the Fund's Distribution Plan.

For purchases of Class B shares by a retirement plan whose sponsoring
organization subscribes to the MFS Recordkeeper Plus product and which has
established its account with MFSC on or after January 1, 1999 (provided that the
plan establishment paperwork is received by MFSC in good order on or after
November 15, 1998), MFD pays no up front commissions to dealers, but instead
pays an amount to dealers equal to 1% per annum of the average daily net assets
of the Fund attributable to plan assets, payable at the rate of 0.25% at the end
of each calendar quarter, in arrears. This commission structure is not available
with respect to a plan with a pre-existing account(s) with any MFS Fund which
seeks to switch to the MFS Recordkeeper Plus product.

CLASS C SHARES
For purchases of Class C shares, MFD will pay dealers 1.00% of the purchase
price of Class C shares purchased through dealers and, as compensation therefor,
MFD will retain the 1.00% per annum distribution and service fee paid under the
Fund's Distribution Plan to MFD for the first year after purchase.

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

Part II -- B-1
<PAGE> 70

PART II - APPENDIX C

INVESTMENT TECHNIQUES, PRACTICES AND RISKS

Set forth below is a description of investment techniques and practices which
the MFS Funds may generally use in pursuing their investment objectives and
principal investment policies, and the associated risks associated with these
investment techniques and practices. The Fund will engage only in certain of
these investment techniques and practices, as identified in Appendix A of the
Fund's Prospectus. Investment practices and techniques that are not identified
in Appendix A of the Fund's Prospectus do not apply to the Fund.

INVESTMENT TECHNIQUES AND PRACTICES

DEBT SECURITIES

To the extent the Fund invests in the following types of debt securities, its
net asset value may change as the general levels of interest rates fluctuate.
When interest rates decline, the value of debt securities can be expected to
rise. Conversely, when interest rates rise, the value of debt securities can be
expected to decline. The Fund's investment in debt securities with longer terms
to maturity are subject to greater volatility than the Fund's shorter-term
obligations.

ASSET-BACKED SECURITIES: The Fund may purchase the following types of
asset-backed securities:

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES: The Fund may invest a portion of its assets in collateralized
mortgage obligations or "CMOs," which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities (such collateral referred to
collectively as "Mortgage Assets"). Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities.

Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a CMO in innumerable ways. In a common
structure, payments of principal, including any principal prepayments, on the
Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
Certain CMOs may be stripped (securities which provide only the principal or
interest factor of the underlying security). See "Stripped Mortgage-Backed
Securities" below for a discussion of the risks of investing in these stripped
securities and of investing in classes consisting of interest payments or
principal payments.

The Fund may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier.

CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate
asset-backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and automobile
loan receivables, representing the obligations of a number of different parties.
These securities present certain risks. For instance, in the case of credit card
receivables, these securities may not have the benefit of any security interest
in the related collateral. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. Most
issuers of automobile receivables permit the servicers to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities. The underlying assets (e.g., loans) are
also subject to prepayments which shorten the securities weighted average life
and may lower their return.

Corporate asset-backed securities are backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate default ensures
payment through insurance policies or letters of credit obtained by the issuer
or sponsor from third parties. The Fund will not pay any additional or separate
fees for credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.

MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities. Mortgage pass-

Part II -- C-1
<PAGE> 71

through securities are securities representing interests in "pools" of mortgage
loans. Monthly payments of interest and principal by the individual borrowers on
mortgages are passed through to the holders of the securities (net of fees paid
to the issuer or guarantor of the securities) as the mortgages in the underlying
mortgage pools are paid off. The average lives of mortgage pass-throughs are
variable when issued because their average lives depend on prepayment rates. The
average life of these securities is likely to be substantially shorter than
their stated final maturity as a result of unscheduled principal prepayment.
Prepayments on underlying mortgages result in a loss of anticipated interest,
and all or part of a premium if any has been paid, and the actual yield (or
total return) to the Fund may be different than the quoted yield on the
securities. Mortgage premiums generally increase with falling interest rates and
decrease with rising interest rates. Like other fixed income securities, when
interest rates rise the value of mortgage pass-through security generally will
decline; however, when interest rates are declining, the value of mortgage
pass-through securities with prepayment features may not increase as much as
that of other fixed-income securities. In the event of an increase in interest
rates which results in a decline in mortgage prepayments, the anticipated
maturity of mortgage pass-through securities held by the Fund may increase,
effectively changing a security which was considered short or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities.

Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")); or
guaranteed by agencies or instrumentalities of the U.S. Government (such as the
Federal National Mortgage Association "FNMA") or the Federal Home Loan Mortgage
Corporation, ("FHLMC") which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities may also be issued by non-governmental issuers (such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers). Some of these
mortgage pass-through securities may be supported by various forms of insurance
or guarantees.

Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through securities (such as
securities issued by the GNMA) are described as "modified pass-through." These
securities entitle the holder to receive all interests and principal payments
owed on the mortgages in the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether the mortgagor actually makes the
payment.

The principal governmental guarantor of mortgage pass-through securities is
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration ("FHA")-insured or Veterans
Administration ("VA")-guaranteed mortgages. These guarantees, however, do not
apply to the market value or yield of mortgage pass-through securities. GNMA
securities are often purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.

Government-related guarantors (i.e., whose guarantees are not backed by the
full faith and credit of the U.S. Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages (i.e., mortgages not insured
or guaranteed by any governmental agency) from a list of approved
seller/servicers which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks, credit unions and mortgage
bankers. Pass-through securities issued by FNMA are guaranteed as to timely
payment by FNMA of principal and interest.

FHLMC is also a government-sponsored corporation owned by private
stockholders. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages (i.e., not federally insured or guaranteed)
for FHLMC's national portfolio. FHLMC guarantees timely payment of interest and
ultimate collection of principal regardless of the status of the underlying
mortgage loans.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass
through pools of mortgage loans. Such issuers may also be the originators and/or
servicers of the underlying mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various

Part II -- C-2
<PAGE> 72

forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit. The insurance and guarantees are issued
by governmental entities, private insurers and the mortgage poolers. There can
be no assurance that the private insurers or guarantors can meet their
obligations under the insurance policies or guarantee arrangements. The Fund may
also buy mortgage-related securities without insurance or guarantees.

STRIPPED MORTGAGE-BACKED SECURITIES: The Fund may invest a portion of its
assets in stripped mortgage-backed securities ("SMBS") which are derivative
multiclass mortgage securities issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans,
including savings and loan institutions, mortgage banks, commercial banks and
investment banks.

SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the Mortgage Assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"I0" class) while the other class will receive all of the principal (the
principal-only or "P0" class). The yield to maturity on an I0 is extremely
sensitive to the rate of principal payments, including prepayments on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities. The market value of the class consisting primarily or entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. Because SMBS were only recently introduced, established trading
markets for these securities have not yet developed, although the securities are
traded among institutional investors and investment banking firms.

CORPORATE SECURITIES: The Fund may invest in debt securities, such as
convertible and non-convertible bonds, notes and debentures, issued by
corporations, limited partnerships and other similar entities.

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

These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which the
Fund would assume all of the rights of the lending institution in a loan or as
an assignment, pursuant to which the Fund would purchase an assignment of a
portion of a lenders interest in a loan either directly from the lender or
through an intermediary. The Fund may also purchase trade or other claims
against companies, which generally represent money owned by the company to a
supplier of goods or services. These claims may also be purchased at a time when
the company is in default.

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

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

LOWER RATED BONDS: The Fund may invest in fixed income securities rated Ba or
lower by Moody's or BB or lower by

Part II -- C-3
<PAGE> 73

S&P or Fitch and comparable unrated securities (commonly known as "junk bonds").
No minimum rating standard is required by the Fund. These securities are
considered speculative and, while generally providing greater income than
investments in higher rated securities, will involve greater risk of principal
and income (including the possibility of default or bankruptcy of the issuers of
such securities) and may involve greater volatility of price (especially during
periods of economic uncertainty or change) than securities in the higher rating
categories and because yields vary over time, no specific level of income can
ever be assured. These lower rated high yielding fixed income securities
generally tend to reflect economic changes (and the outlook for economic
growth), short-term corporate and industry developments and the market's
perception of their credit quality (especially during times of adverse
publicity) to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although these
lower rated fixed income securities are also affected by changes in interest
rates). In the past, economic downturns or an increase in interest rates have,
under certain circumstances, caused a higher incidence of default by the issuers
of these securities and may do so in the future, especially in the case of
highly leveraged issuers. The prices for these securities may be affected by
legislative and regulatory developments. The market for these lower rated fixed
income securities may be less liquid than the market for investment grade fixed
income securities. Furthermore, the liquidity of these lower rated securities
may be affected by the market's perception of their credit quality. Therefore,
the Adviser's judgment may at times play a greater role in valuing these
securities than in the case of investment grade fixed income securities, and it
also may be more difficult during times of certain adverse market conditions to
sell these lower rated securities to meet redemption requests or to respond to
changes in the market.

While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the Adviser's
own independent and ongoing review of credit quality. To the extent a Fund
invests in these lower rated securities, the achievement of its investment
objectives may be a more dependent on the Adviser's own credit analysis than in
the case of a fund investing in higher quality fixed income securities. These
lower rated securities may also include zero coupon bonds, deferred interest
bonds and PIK bonds.

MUNICIPAL BONDS: The Fund may invest in debt securities issued by or on behalf
of states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies or instrumentalities, the
interest on which is exempt from federal income tax ("Municipal Bonds").
Municipal Bonds include debt securities which pay interest income that is
subject to the alternative minimum tax. The Fund may invest in Municipal Bonds
whose issuers pay interest on the Bonds from revenues from projects such as
multifamily housing, nursing homes, electric utility systems, hospitals or life
care facilities.

If a revenue bond is secured by payments generated from a project, and the
revenue bond is also secured by a lien on the real estate comprising the
project, foreclosure by the indenture trustee on the lien for the benefit of the
bondholders creates additional risks associated with owning real estate,
including environmental risks.

Housing revenue bonds typically are issued by a state, county or local housing
authority and are secured only by the revenues of mortgages originated by the
authority using the proceeds of the bond issue. Because of the impossibility of
precisely predicting demand for mortgages from the proceeds of such an issue,
there is a risk that the proceeds of the issue will be in excess of demand,
which would result in early retirement of the bonds by the issuer. Moreover,
such housing revenue bonds depend for their repayment upon the cash flow from
the underlying mortgages, which cannot be precisely predicted when the bonds are
issued. Any difference in the actual cash flow from such mortgages from the
assumed cash flow could have an adverse impact upon the ability of the issuer to
make scheduled payments of principal and interest on the bonds, or could result
in early retirement of the bonds. Additionally, such bonds depend in part for
scheduled payments of principal and interest upon reserve funds established from
the proceeds of the bonds, assuming certain rates of return on investment of
such reserve funds. If the assumed rates of return are not realized because of
changes in interest rate levels or for other reasons, the actual cash flow for
scheduled payments of principal and interest on the bonds may be inadequate. The
financing of multi-family housing projects is affected by a variety of factors,
including satisfactory completion of construction within cost constraints, the
achievement and maintenance of a sufficient level of occupancy, sound management
of the developments, timely and adequate increases in rents to cover increases
in operating expenses, including taxes, utility rates and maintenance costs,
changes in applicable laws and governmental regulations and social and economic
trends.

Electric utilities face problems in financing large construction programs in
inflationary periods, cost increases and delay occasioned by environmental
considerations (particularly with respect to nuclear facilities), difficulty in
obtaining fuel at reasonable prices, the cost of competing fuel sources,
difficulty in obtaining sufficient rate increases and other regulatory problems,
the effect of energy conservation and difficulty of the capital market to absorb
utility debt.

Health care facilities include life care facilities, nursing homes and
hospitals. Life care facilities are alternative forms of long-term housing for
the elderly which offer residents the independence of condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state industrial
development authorities. Since the bonds are secured only by the revenues of
each facility and not by state or

Part II -- C-4
<PAGE> 74

local government tax payments, they are subject to a wide variety of risks.
Primarily, the projects must maintain adequate occupancy levels to be able to
provide revenues adequate to maintain debt service payments. Moreover, in the
case of life care facilities, since a portion of housing, medical care and other
services may be financed by an initial deposit, there may be risk if the
facility does not maintain adequate financial reserves to secure estimated
actuarial liabilities. The ability of management to accurately forecast
inflationary cost pressures weighs importantly in this process. The facilities
may also be affected by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health care
or conventional housing facilities in the private or public sector. Hospital
bond ratings are often based on feasibility studies which contain projections of
expenses, revenues and occupancy levels. A hospital's gross receipts and net
income available to service its debt are influenced by demand for hospital
services, the ability of the hospital to provide the services required,
management capabilities, economic developments in the service area, efforts by
insurers and government agencies to limit rates and expenses, confidence in the
hospital, service area economic developments, competition, availability and
expense of malpractice insurance, Medicaid and Medicare funding, and possible
federal legislation limiting the rates of increase of hospital charges.

The Fund may invest in municipal lease securities. These are undivided
interests in a portion of an obligation in the from of a lease or installment
purchase which is issued by state and local governments to acquire equipment and
facilities. Municipal leases frequently have special risks not normally
associated with general obligation or revenue bonds. Leases and installment
purchase or conditional sale contracts (which normally provide for title to the
leased asset to pass eventually to the governmental issuer) have evolved as a
means for governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the inclusion
in many leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Although the obligations
will be secured by the leased equipment or facilities, the disposition of the
property in the event of non-appropriation or foreclosure might, in some cases,
prove difficult. There are, of course, variations in the security of municipal
lease securities, both within a particular classification and between
classifications, depending on numerous factors.

The Fund may also invest in bonds for industrial and other projects, such as
sewage or solid waste disposal or hazardous waste treatment facilities.
Financing for such projects will be subject to inflation and other general
economic factors as well as construction risks including labor problems,
difficulties with construction sites and the ability of contractors to meet
specifications in a timely manner. Because some of the materials, processes and
wastes involved in these projects may include hazardous components, there are
risks associated with their production, handling and disposal.

SPECULATIVE BONDS: The Fund may invest in fixed income and convertible
securities rated Baa by Moody's or BBB by S&P or Fitch and comparable unrated
securities. These securities, while normally exhibiting adequate protection
parameters, have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher grade securities.

U.S. GOVERNMENT SECURITIES: The Fund may invest in U.S. Government Securities
including (i) U.S. Treasury obligations, all of which are backed by the full
faith and credit of the U.S. Government and (ii) U.S. Government Securities,
some of which are backed by the full faith and credit of the U.S. Treasury,
e.g., direct pass-through certificates of the Government National Mortgage
Association ("GNMA"); some of which are backed only by the credit of the issuer
itself, e.g., obligations of the Student Loan Marketing Association; and some of
which are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations, e.g., obligations of the Federal National
Mortgage Association ("FNMA").

U.S. Government Securities also include interest in trust or other entities
representing interests in obligations that are issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.

VARIABLE AND FLOATING RATE OBLIGATIONS: The Fund may invest in floating or
variable rate securities. Investments in floating or variable rate securities
normally will involve industrial development or revenue bonds which provide that
the rate of interest is set as a specific percentage of a designated base rate,
such as rates on Treasury Bonds or Bills or the prime rate at a major commercial
bank, and that a bondholder can demand payment of the obligations on behalf of
the Fund on short notice at par plus accrued interest, which amount may be more
or less than the amount the bondholder paid for them. The maturity of floating
or variable rate obligations (including participation interests therein) is
deemed to be the longer of (i) the notice period required before the Fund is
entitled to receive payment of the obligation upon demand or (ii) the period
remaining until the obligation's next interest rate adjustment. If not redeemed
by the Fund through the demand feature, the obligations mature on a specified
date which may range up to thirty years from the date of issuance.

ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: The Fund may invest in
zero coupon bonds, deferred interest bonds and bonds on which the interest is
payable in

Part II -- C-5
<PAGE> 75

kind ("PIK bonds"). Zero coupon and deferred interest bonds are debt obligations
which are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity or the first interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular payment
of interest begins. PIK bonds are debt obligations which provide that the issuer
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value than debt
obligations which make regular payments of interest. The Fund will accrue income
on such investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations.

EQUITY SECURITIES

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

FOREIGN SECURITIES EXPOSURE
The Fund may invest in various types of foreign securities, or securities which
provide the Fund with exposure to foreign securities or foreign currencies, as
discussed below:

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

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

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

Part II -- C-6
<PAGE> 76

issuer of the underlying security. ADRs may also be subject to exchange rate
risks if the underlying foreign securities are denominated in a foreign
currency.

DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES: The Fund may invest in
dollar-denominated foreign debt securities. Investing in dollar-denominated
foreign debt represents a greater degree of risk than investing in domestic
securities, due to less publicly available information, less securities
regulation, war or expropriation. Special considerations may include higher
brokerage costs and thinner trading markets. Investments in foreign countries
could be affected by other factors including extended settlement periods.

EMERGING MARKETS: The Fund may invest in securities of government,
government-related, supranational and corporate issuers located in emerging
markets. Such investments entail significant risks as described below.

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

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

- - Foreign Currencies -- The securities in which the Fund invests may be
denominated in foreign currencies and international currency units and the
Fund may invest a portion of its assets directly in foreign currencies.
Accordingly, the weakening of these currencies and units against the U.S.
dollar may result in a decline in the Fund's asset value.

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

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

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

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

The risk also exists that an emergency situation may arise in one or more
emerging markets, as a result of which trading of securities may cease or may
be substantially curtailed and prices for the Fund's securities in such
markets may not be readily available. The Fund

Part II -- C-7
<PAGE> 77

may suspend redemption of its shares for any period during which an emergency
exists, as determined by the Securities and Exchange Commission (the "SEC").
Accordingly, if the Fund believes that appropriate circumstances exist, it will
promptly apply to the SEC for a determination that an emergency is present.
During the period commencing from the Fund's identification of such condition
until the date of the SEC action, the Fund's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Board of Trustees.

- - Sovereign Debt -- Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole, the governmental entity's policy towards the International Monetary
Fund and the political constraints to which a governmental entity may be
subject. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to reduce
principal and interest on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may
further impair such debtor's ability or willingness to service its debts in a
timely manner. Consequently, governmental entities may default on their
sovereign debt. Holders of sovereign debt (including the Fund) may be
requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceedings by
which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.

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

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

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

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

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

FOREIGN SECURITIES: The Fund may invest in dollar-denominated and non
dollar-denominated foreign securities. Investing in securities of foreign
issuers generally involves risks not ordinarily associated with investing in
securities of domestic

Part II -- C-8
<PAGE> 78

issuers. These include changes in currency rates, exchange control regulations,
securities settlement practices, governmental administration or economic or
monetary policy (in the United States or abroad) or circumstances in dealings
between nations. Costs may be incurred in connection with conversions between
various currencies. Special considerations may also include more limited
information about foreign issuers, higher brokerage costs, different accounting
standards and thinner trading markets. Foreign securities markets may also be
less liquid, more volatile and less subject to government supervision than in
the United States. Investments in foreign countries could be affected by other
factors including expropriation, confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods. As a result of its investments in foreign
securities, the Fund may receive interest or dividend payments, or the proceeds
of the sale or redemption of such securities, in the foreign currencies in which
such securities are denominated. Under certain circumstances, such as where the
Adviser believes that the applicable exchange rate is unfavorable at the time
the currencies are received or the Adviser anticipates, for any other reason,
that the exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. While the holding of currencies will permit the Fund
to take advantage of favorable movements in the applicable exchange rate, such
strategy also exposes the Fund to risk of loss if exchange rates move in a
direction adverse to the Fund's position. Such losses could reduce any profits
or increase any losses sustained by the Fund from the sale or redemption of
securities and could reduce the dollar value of interest or dividend payments
received.

FORWARD CONTRACTS

The Fund may enter into contracts for the purchase or sale of a specific
currency at a future date at a price set at the time the contract is entered
into (a "Forward Contract"), for hedging purposes (e.g., to protect its current
or intended investments from fluctuations in currency exchange rates) as well as
for non-hedging purposes.

A Forward Contract to sell a currency may be entered into where the Fund seeks
to protect against an anticipated increase in the exchange rate for a specific
currency which could reduce the dollar value of portfolio securities denominated
in such currency. Conversely, the Fund may enter into a Forward Contract to
purchase a given currency to protect against a projected increase in the dollar
value of securities denominated in such currency which the Fund intends to
acquire.

If a hedging transaction in Forward Contracts is successful, the decline in
the dollar value of portfolio securities or the increase in the dollar cost of
securities to be acquired may be offset, at least in part, by profits on the
Forward Contract. Nevertheless, by entering into such Forward Contracts, the
Fund may be required to forego all or a portion of the benefits which otherwise
could have been obtained from favorable movements in exchange rates. The Fund
does not presently intend to hold Forward Contracts entered into until maturity,
at which time it would be required to deliver or accept delivery of the
underlying currency, but will seek in most instances to close out positions in
such Contracts by entering into offsetting transactions, which will serve to fix
the Fund's profit or loss based upon the value of the Contracts at the time the
offsetting transaction is executed.

The Fund will also enter into transactions in Forward Contracts for other than
hedging purposes, which presents greater profit potential but also involves
increased risk. For example, the Fund may purchase a given foreign currency
through a Forward Contract if, in the judgment of the Adviser, the value of such
currency is expected to rise relative to the U.S. dollar. Conversely, the Fund
may sell the currency through a Forward Contract if the Adviser believes that
its value will decline relative to the dollar.

The Fund will profit if the anticipated movements in foreign currency exchange
rates occur, which will increase its gross income. Where exchange rates do not
move in the direction or to the extent anticipated, however, the Fund may
sustain losses which will reduce its gross income. Such transactions, therefore,
could be considered speculative and could involve significant risk of loss.

The use by the Fund of Forward Contracts also involves the risks described
under the caption "Special Risk Factors -- Options, Futures, Forwards, Swaps and
Other Derivative Transactions" in this Appendix.

FUTURES CONTRACTS
The Fund may purchase and sell futures contracts ("Futures Contracts") on stock
indices, foreign currencies, interest rates or interest-rate related
instruments, indices of foreign currencies or commodities. The Fund may also
purchase and sell Futures Contracts on foreign or domestic fixed income
securities or indices of such securities including municipal bond indices and
any other indices of foreign or domestic fixed income securities that may become
available for trading. Such investment strategies will be used for hedging
purposes and for non-hedging purposes, subject to applicable law.

A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument, foreign currency
or commodity, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a Futures Contract provides
for a specified settlement month in which, in the case of the majority of
commodities, interest rate and foreign currency futures contracts, the
underlying commodities, fixed income securities or currency are delivered by the
seller and paid for by the purchaser, or on which, in the case of index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral

Part II -- C-9
<PAGE> 79

agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures Contracts call for settlement only on the expiration
date and cannot be "exercised" at any other time during their term.

The purchase or sale of a Futures Contract differs from the purchase or sale
of a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index or
instrument underlying the Futures Contract fluctuates, making positions in the
Futures Contract more or less valuable -- a process known as "mark-to-market."

Purchases or sales of stock index futures contracts are used to attempt to
protect the Fund's current or intended stock investments from broad fluctuations
in stock prices. For example, the Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of the Fund's securities portfolio that might otherwise result. If
such decline occurs, the loss in value of portfolio securities may be offset, in
whole or part, by gains on the futures position. When the Fund is not fully
invested in the securities market and anticipates a significant market advance,
it may purchase stock index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the cost of
securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in stock index futures contracts will be closed out. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position, but under unusual market
conditions, a long futures position may be terminated without a related purchase
of securities.

Interest rate Futures Contracts may be purchased or sold to attempt to protect
against the effects of interest rate changes on the Fund's current or intended
investments in fixed income securities. For example, if the Fund owned long-term
bonds and interest rates were expected to increase, the Fund might enter into
interest rate futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling some of the long-term bonds in the
Fund's portfolio. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the Fund's interest
rate futures contracts would increase at approximately the same rate, subject to
the correlation risks described below, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have.

Similarly, if interest rates were expected to decline, interest rate futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
long-term bonds at higher prices. Since the fluctuations in the value of the
interest rate futures contracts should be similar to that of long-term bonds,
the Fund could protect itself against the effects of the anticipated rise in the
value of long-term bonds without actually buying them until the necessary cash
became available or the market had stabilized. At that time, the interest rate
futures contracts could be liquidated and the Fund's cash reserves could then be
used to buy long-term bonds on the cash market. The Fund could accomplish
similar results by selling bonds with long maturities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market may be more liquid than the cash market in certain
cases or at certain times, the use of interest rate futures contracts as a
hedging technique may allow the Fund to hedge its interest rate risk without
having to sell its portfolio securities.

The Fund may purchase and sell foreign currency futures contracts for hedging
purposes, to attempt to protect its current or intended investments from
fluctuations in currency exchange rates. Such fluctuations could reduce the
dollar value of portfolio securities denominated in foreign currencies, or
increase the dollar cost of foreign-denominated securities to be acquired, even
if the value of such securities in the currencies in which they are denominated
remains constant. The Fund may sell futures contracts on a foreign currency, for
example, where it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to the dollar. In
the event such decline occurs, the resulting adverse effect on the value of
foreign-denominated securities may be offset, in whole or in part, by gains on
the futures contracts.

Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. Where the Fund purchases futures contracts under such
circumstances, however, and the prices of securities to be acquired instead
decline, the Fund will sustain losses on its futures position which could reduce
or eliminate the benefits of the reduced cost of portfolio securities to be
acquired.

The use by the Fund of Futures Contracts also involves the risks described
under the caption "Special Risk Factors -- Options, Futures, Forwards, Swaps and
Other Derivative Transactions" in this Appendix.

INDEXED SECURITIES

The Fund may purchase securities with principal and/or interest payments whose
prices are indexed to the prices of other securities, securities indices,
currencies, precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. The Fund may also purchase indexed deposits with
similar characteristics. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold,

Part II -- C-10
<PAGE> 80

resulting in a security whose price tends to rise and fall together with gold
prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other. Certain indexed
securities may expose the Fund to the risk of loss of all or a portion of the
principal amount of its investment and/or the interest that might otherwise have
been earned on the amount invested.

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

INVERSE FLOATING RATE OBLIGATIONS
The Fund may invest in so-called "inverse floating rate obligations" or
"residual interest bonds" or other obligations or certificates relating thereto
structured to have similar features. In creating such an obligation, a
municipality issues a certain amount of debt and pays a fixed interest rate.
Half of the debt is issued as variable rate short term obligations, the interest
rate of which is reset at short intervals, typically 35 days. The other half of
the debt is issued as inverse floating rate obligations, the interest rate of
which is calculated based on the difference between a multiple of (approximately
two times) the interest paid by the issuer and the interest paid on the
short-term obligation. Under usual circumstances, the holder of the inverse
floating rate obligation can generally purchase an equal principal amount of the
short term obligation and link the two obligations in order to create long-term
fixed rate bonds. Because the interest rate on the inverse floating rate
obligation is determined by subtracting the short-term rate from a fixed amount,
the interest rate will decrease as the short-term rate increases and will
increase as the short-term rate decreases. The magnitude of increases and
decreases in the market value of inverse floating rate obligations may be
approximately twice as large as the comparable change in the market value of an
equal principal amount of long-term bonds which bear interest at the rate paid
by the issuer and have similar credit quality, redemption and maturity
provisions.

INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund's investment in other investment companies is limited in amount by the
1940 Act so that the Fund may purchase shares in another investment company
unless (i) such a purchase would cause the Fund to own in aggregate more than 3%
of the total outstanding voting stock of the company or (ii) such a purchase
would cause the Fund to have more than 5% of its total assets invested in one
investment company or more than 10% of its total assets invested in aggregate in
all other investment companies. Such investment may also involve the payment of
substantial premiums above the value of such investment companies' portfolio
securities, and the total return on such investment will be reduced by the
operating expenses and fees of such other investment companies, including
advisory fees.

LADDERING
As one way of managing the Fund's exposure to interest rate fluctuations, the
Adviser may engage in a portfolio management strategy known as "laddering."
Under this strategy, the Fund will allocate a portion of its assets in
securities with remaining maturities of less than 1 year, a portion of its
assets in securities with remaining maturities of 1 to 2 years, a portion of its
assets in securities with remaining maturities of 2 to 3 years, a portion of its
assets in securities with remaining maturities of 3 to 4 years and a portion of
its assets in securities with remaining maturities of 4 to 5 years. Under normal
market conditions, approximately 50% or more of the assets of the Fund will be
devoted to this strategy. The Adviser will actively manage securities within
each rung of the "ladder." "Laddering" does not require that individual bonds
are held to maturity.

The Adviser believes that "laddering" provides additional stability to the
Fund's portfolio by allocating the Fund's assets across a range of securities
with shorter-term maturities. For example, in periods of rising interest rates
and falling bond prices, the bonds with one- and two-year remaining maturities
generally lose less of their value than bonds with four- and five-year remaining
maturities; conversely, in periods of falling interest rates and corresponding
rising bond prices, the principal value of the bonds with four- and five-year
remaining maturities generally increase more than the bonds with one-and
two-year remaining maturities. Furthermore, with the passage of time, individual
bonds held in the Fund's portfolio tend to become less volatile as the time of
their remaining maturity decreases. In addition, bonds with four- and five-year
remaining maturities generally provide higher income than bonds with one- and
two-year remaining maturities.

"Laddering" does not assure profit and does not protect against loss in a
declining market.

Part II -- C-11
<PAGE> 81

LENDING OF PORTFOLIO SECURITIES
The Fund may seek to increase its income by lending portfolio securities. Such
loans will usually be made only to member firms of the New York Stock Exchange
(the "Exchange") (and subsidiaries thereof) and member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in cash, an irrevocable letter of credit or United States ("U.S.") Treasury
securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The Fund would have the right to call a
loan and obtain the securities loaned at any time on customary industry
settlement notice (which will not usually exceed five business days). For the
duration of a loan, the Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would also
receive compensation from the investment of the collateral (if the collateral is
in the form of cash). The Fund would not, however, have the right to vote any
securities having voting rights during the existence of the loan, but the Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or of the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the loans would
be made only to firms deemed by the Adviser to be of good standing, and when, in
the judgment of the Adviser, the consideration which can be earned currently
from securities loans of this type justifies the attendant risk.

LEVERAGING TRANSACTIONS
The Fund may engage in the types of transactions described below, which involve
"leverage" because in each case the Fund receives cash which it can invest in
portfolio securities and has a future obligation to make a payment. The use of
these transactions by the Fund will generally cause its net asset value to
increase or decrease at a greater rate than would otherwise be the case. Any
investment income or gains earned from the portfolio securities purchased with
the proceeds from these transactions which is in excess of the expenses
associated from these transactions can be expected to cause the value of the
Fund's shares and distributions on the Fund's shares to rise more quickly than
would otherwise be the case. Conversely, if the investment income or gains
earned from the portfolio securities purchased with proceeds from these
transactions fail to cover the expenses associated with these transactions, the
value of the Fund's shares is likely to decrease more quickly than otherwise
would be the case and distributions thereon will be reduced or eliminated.
Hence, these transactions are speculative, involve leverage and increase the
risk of owning or investing in the shares of the Fund. These transactions also
increase the Fund's expenses because of interest and similar payments and
administrative expenses associated with them. Unless the appreciation and income
on assets purchased with proceeds from these transactions exceed the costs
associated with them, the use of these transactions by a Fund would diminish the
investment performance of the Fund compared with what it would have been without
using these transactions.

BANK BORROWINGS: The Fund may borrow money for investment purposes from banks
and invest the proceeds in accordance with its investment objectives and
policies.

MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions pursuant to which it sells mortgage-backed securities for
delivery in the future and simultaneously contracts to repurchase substantially
similar securities on a specified future date. During the roll period, the Fund
foregoes principal and interest paid on the mortgage-backed securities. The Fund
is compensated for the lost interest by the difference between the current sales
price and the lower price for the future purchase (often referred to as the
"drop") as well as by the interest earned on, and gains from, the investment of
the cash proceeds of the initial sale. The Fund may also be compensated by
receipt of a commitment fee.

If the income and capital gains from the Fund's investment of the cash from
the initial sale do not exceed the income, capital appreciation and gain or loss
that would have been realized on the securities sold as part of the dollar roll,
the use of this technique will diminish the investment performance of the Fund
compared with what the performance would have been without the use of the dollar
rolls. Dollar roll transactions involve the risk that the market value of the
securities the Fund is required to purchase may decline below the agreed upon
repurchase price of those securities. If the broker/dealer to whom the Fund
sells securities becomes insolvent, the Fund's right to purchase or repurchase
securities may be restricted. Successful use of mortgage dollar rolls may depend
upon the Adviser's ability to correctly predict interest rates and prepayments.
There is no assurance that dollar rolls can be successfully employed.

REVERSE REPURCHASE AGREEMENTS: The Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund will sell securities and
receive cash proceeds, subject to its agreement to repurchase the securities at
a later date for a fixed price reflecting a market rate of interest. There is a
risk that the counter party to a reverse repurchase agreement will be unable or
unwilling to complete the transaction as scheduled, which may result in losses
to the Fund. The Fund will invest the proceeds received under a reverse
repurchase agreement in accordance with its investment objective and policies.

OPTIONS

The Fund may invest in the following types of options, which involves the risks
described under the caption "Special Risk Factors -- Option, Futures, Forwards,
Swaps and Other Derivative Transactions" in this Appendix:

OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write options on
foreign currencies for hedging and non-

Part II -- C-12
<PAGE> 82

hedging purposes in a manner similar to that in which Futures Contracts on
foreign currencies, or Forward Contracts, will be utilized. For example, a
decline in the dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Fund may purchase put
options on the foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount in dollars and
will thereby offset, in whole in part, the adverse effect on its portfolio which
otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effect of the adverse movements in
exchange rates. As in the case of other types of options, however, the benefit
to the Fund deriving from purchases of foreign currency options will be reduced
by the amount of the premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the benefits of
advantageous changes in such rates. The Fund may write options on foreign
currencies for the same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign-denominated securities due
to adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received less related transaction costs. As in the case of other types of
options, therefore, the writing of Options on Foreign Currencies will constitute
only a partial hedge.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. Foreign currency options written by the
Fund will generally be covered in a manner similar to the covering of other
types of options. As in the case of other types of options, however, the writing
of a foreign currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected direction. If this
does not occur, the option may be exercised and the Fund would be required to
purchase or sell the underlying currency at a loss which may not be offset by
the amount of the premium. Through the writing of options on foreign currencies,
the Fund also may be required to forego all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The use of foreign currency options for non-hedging purposes, like the use of
other types of derivatives for such purposes, presents greater profit potential
but also significant risk of loss and could be considered speculative.

OPTIONS ON FUTURES CONTRACTS: The Fund also may purchase and write options to
buy or sell those Futures Contracts in which it may invest ("Options on Futures
Contracts") as described above under "Futures Contracts." Such investment
strategies will be used for hedging purposes and for non-hedging purposes,
subject to applicable law.

An Option on a Futures Contract provides the holder with the right to enter
into a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an Option on a Futures Contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.

A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same type (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.

Options on Futures Contracts that are written or purchased by the Fund on U.S.
exchanges are traded on the same contract market as the underlying Futures
Contract, and, like Futures Contracts, are subject to regulation by the
Commodity Futures Trading Commission (the "CFTC") and the performance guarantee
of the exchange clearinghouse. In addition, Options on Futures Contracts may be
traded on foreign exchanges. The Fund may cover the writing of call Options on
Futures Contracts (a) through purchases of the underlying Futures Contract, (b)
through ownership of the instrument, or instruments included in the index,
underlying the Futures Contract, or (c) through the holding of a call on the
same Futures Contract and in the same principal amount as the call written where
the exercise price of the call held (i) is equal to or less than the exercise
price of the call written or (ii) is greater than the exercise price of the call
written if the Fund owns liquid and unencumbered assets equal to the difference.
The Fund may cover the writing of put Options on Futures Contracts (a) through
sales of the underlying Futures Contract, (b) through the ownership of liquid
and unencumbered assets

Part II -- C-13
<PAGE> 83

equal to the value of the security or index underlying the Futures Contract, or
(c) through the holding of a put on the same Futures Contract and in the same
principal amount as the put written where the exercise price of the put held (i)
is equal to or greater than the exercise price of the put written or where the
exercise price of the put held (ii) is less than the exercise price of the put
written if the Fund owns liquid and unencumbered assets equal to the difference.
Put and call Options on Futures Contracts may also be covered in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Upon the exercise of a
call Option on a Futures Contract written by the Fund, the Fund will be required
to sell the underlying Futures Contract which, if the Fund has covered its
obligation through the purchase of such Contract, will serve to liquidate its
futures position. Similarly, where a put Option on a Futures Contract written by
the Fund is exercised, the Fund will be required to purchase the underlying
Futures Contract which, if the Fund has covered its obligation through the sale
of such Contract, will close out its futures position.

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

The Fund may purchase Options on Futures Contracts for hedging purposes
instead of purchasing or selling the underlying Futures Contracts. For example,
where a decrease in the value of portfolio securities is anticipated as a result
of a projected market-wide decline or changes in interest or exchange rates, the
Fund could, in lieu of selling Futures Contracts, purchase put options thereon.
In the event that such decrease occurs, it may be offset, in whole or in part,
by a profit on the option. Conversely, where it is projected that the value of
securities to be acquired by the Fund will increase prior to acquisition, due to
a market advance or changes in interest or exchange rates, the Fund could
purchase call Options on Futures Contracts than purchasing the underlying
Futures Contracts.

OPTIONS ON SECURITIES: The Fund may write (sell) covered put and call options,
and purchase put and call options, on securities. Call and put options written
by the Fund may be covered in the manner set forth below.

A call option written by the Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration if the Fund owns liquid and unencumbered assets equal to the
amount of cash consideration) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund holds a call on
the same security and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the Fund owns liquid and unencumbered assets equal to the difference.
A put option written by the Fund is "covered" if the Fund owns liquid and
unencumbered assets with a value equal to the exercise price, or else holds a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written or where the exercise price of the put held is
less than the exercise price of the put written if the Fund owns liquid and
unencumbered assets equal to the difference. Put and call options written by the
Fund may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counterparty with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.

Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case of
a written put option will permit the Fund to write another put option to the
extent that the Fund owns liquid and unencumbered assets. Such transactions
permit the Fund to generate additional premium income, which will partially
offset declines in the value of portfolio securities or increases in the cost of
securities to be acquired. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments of the Fund, provided that another
option on such security is not written. If the Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction in connection with the option prior to or
concurrent with the sale of the security.

The Fund will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option written by the Fund is less than the
premium received from

Part II -- C-14
<PAGE> 84

writing the option, or if the premium received in connection with the closing of
an option purchased by the Fund is more than the premium paid for the original
purchase. Conversely, the Fund will suffer a loss if the premium paid or
received in connection with a closing transaction is more or less, respectively,
than the premium received or paid in establishing the option position. Because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option previously written by the Fund is likely to be
offset in whole or in part by appreciation of the underlying security owned by
the Fund.

The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call option the Fund determines to write
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected
that the price of the underlying security will decline moderately during the
option period. Buy-and-write transactions using out-of-the-money call options
may be used when it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, the Fund's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the difference between the
Fund's purchase price of the security and the exercise price, less related
transaction costs. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be offset in part,
or entirely, by the premium received.

The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received, less related transaction costs. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may elect
to close the position or retain the option until it is exercised, at which time
the Fund will be required to take delivery of the security at the exercise
price; the Fund's return will be the premium received from the put option minus
the amount by which the market price of the security is below the exercise
price, which could result in a loss. Out-of-the-money, at-the-money and
in-the-money put options may be used by the Fund in the same market environments
that call options are used in equivalent buy-and-write transactions.

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

By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price above its
then-current market value, resulting in a capital loss unless the security
subsequently appreciates in value. The writing of options on securities will not
be undertaken by the Fund solely for hedging purposes, and could involve certain
risks which are not present in the case of hedging transactions. Moreover, even
where options are written for hedging purposes, such transactions constitute
only a partial hedge against declines in the value of portfolio securities or
against increases in the value of securities to be acquired, up to the amount of
the premium.

The Fund may also purchase options for hedging purposes or to increase its
return. Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit the
Fund to sell the securities at the exercise price, or to close out the options
at a profit. By using put options in this way, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.

The Fund may also purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. If such
increase occurs, the call option will permit the Fund to purchase the securities
at the exercise price, or to close out the options at a profit. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.

OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put options
and purchase call and put options on

Part II -- C-15
<PAGE> 85

stock indices. In contrast to an option on a security, an option on a stock
index provides the holder with the right but not the obligation to make or
receive a cash settlement upon exercise of the option, rather than the right to
purchase or sell a security. The amount of this settlement is generally equal to
(i) the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a call) or is below (in the case of a put) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." The Fund may cover written call options on stock indices by owning
securities whose price changes, in the opinion of the Adviser, are expected to
be similar to those of the underlying index, or by having an absolute and
immediate right to acquire such securities without additional cash consideration
(or for additional cash consideration if the Fund owns liquid and unencumbered
assets equal to the amount of cash consideration) upon conversion or exchange of
other securities in its portfolio. Where the Fund covers a call option on a
stock index through ownership of securities, such securities may not match the
composition of the index and, in that event, the Fund will not be fully covered
and could be subject to risk of loss in the event of adverse changes in the
value of the index. The Fund may also cover call options on stock indices by
holding a call on the same index and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the Fund owns liquid and unencumbered assets equal to the
difference. The Fund may cover put options on stock indices by owning liquid and
unencumbered assets with a value equal to the exercise price, or by holding a
put on the same stock index and in the same principal amount as the put written
where the exercise price of the put held (a) is equal to or greater than the
exercise price of the put written or (b) is less than the exercise price of the
put written if the Fund owns liquid and unencumbered assets equal to the
difference. Put and call options on stock indices may also be covered in such
other manner as may be in accordance with the rules of the exchange on which, or
the counterparty with which, the option is traded and applicable laws and
regulations.

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

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

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

The index underlying a stock index option may be a "broad-based" index, such
as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
Index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based on narrower
market indices, such as the Standard & Poor's 100 Index, or on indices of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks so included. The composition of the index is changed periodically.

RESET OPTIONS: In certain instances, the Fund may purchase or write options on
U.S. Treasury securities which provide for periodic adjustment of the strike
price and may also provide for the periodic adjustment of the premium during the
term of each such option. Like other types of options, these transactions, which
may be referred to as "reset" options or "adjustable strike" options grant the
purchaser the right to purchase (in the case of a call) or sell (in the case of
a put), a specified type of U.S. Treasury security at any time up to a stated
expiration date (or, in certain instances, on such date). In contrast to other
types of options, however, the price at which the underlying security may be
purchased or sold under a "reset" option is determined at various intervals
during the term of the option, and such price fluctuates from interval to
interval based on changes in the market value of the underlying security. As a
result, the strike price of a "reset" option,

Part II -- C-16
<PAGE> 86

at the time of exercise, may be less advantageous than if the strike price had
been fixed at the initiation of the option. In addition, the premium paid for
the purchase of the option may be determined at the termination, rather than the
initiation, of the option. If the premium for a reset option written by the Fund
is paid at termination, the Fund assumes the risk that (i) the premium may be
less than the premium which would otherwise have been received at the initiation
of the option because of such factors as the volatility in yield of the
underlying Treasury security over the term of the option and adjustments made to
the strike price of the option, and (ii) the option purchaser may default on its
obligation to pay the premium at the termination of the option. Conversely,
where the Fund purchases a reset option, it could be required to pay a higher
premium than would have been the case at the initiation of the option.

"YIELD CURVE" OPTIONS: The Fund may also enter into options on the "spread," or
yield differential, between two fixed income securities, in transactions
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.

Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Fund may purchase or write such options for
hedging purposes. For example, the Fund may purchase a call option on the yield
spread between two securities, if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. The Fund may also purchase or write
yield curve options for other than hedging purposes (i.e., in an effort to
increase its current income) if, in the judgment of the Adviser, the Fund will
be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated. Yield curve options written by the Fund
will be "covered". A call (or put) option is covered if the Fund holds another
call (or put) option on the spread between the same two securities and owns
liquid and unencumbered assets sufficient to cover the Fund's net liability
under the two options. Therefore, the Fund's liability for such a covered option
is generally limited to the difference between the amount of the Fund's
liability under the option written by the Fund less the value of the option held
by the Fund. Yield curve options may also be covered in such other manner as may
be in accordance with the requirements of the counterparty with which the option
is traded and applicable laws and regulations. Yield curve options are traded
over-the-counter and because they have been only recently introduced,
established trading markets for these securities have not yet developed.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with sellers who are member firms
(or a subsidiary thereof) of the New York Stock Exchange or members of the
Federal Reserve System, recognized primary U.S. Government securities dealers or
institutions which the Adviser has determined to be of comparable
creditworthiness. The securities that the Fund purchases and holds through its
agent are U.S. Government securities, the values of which are equal to or
greater than the repurchase price agreed to be paid by the seller. The
repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to the Fund together with the repurchase price
on repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the Government securities.

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

RESTRICTED SECURITIES
The Fund may purchase securities that are not registered under the Securities
Act of 1933, as amended ("1933 Act") ("restricted securities"), including those
that can be offered and sold to "qualified institutional buyers" under Rule 144A
under the 1933 Act ("Rule 144A securities") and commercial paper issued under
Section 4(2) of the 1933 Act ("4(2) Paper"). A determination is made, based upon
a continuing review of the trading markets for the Rule 144A security or 4(2)
Paper, whether such security is liquid and thus not subject to the Fund's
limitation on investing in illiquid investments. The Board of Trustees has
adopted guidelines and delegated to MFS the daily function of determining and
monitoring the liquidity of Rule 144A securities and 4(2) Paper. The Board,
however, retains oversight of the liquidity determinations focusing on factors
such as valuation,

Part II -- C-17
<PAGE> 87

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

SHORT SALES
The Fund may seek to hedge investments or realize additional gains through short
sales. The Fund may make short sales, which are transactions in which the Fund
sells a security it does not own, in anticipation of a decline in the market
value of that security. To complete such a transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing it at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Fund. Until the security is replaced, the Fund is
required to repay the lender any dividends or interest which accrue during the
period of the loan. To borrow the security, the Fund also may be required to pay
a premium, which would increase the cost of the security sold. The net proceeds
of the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out. The Fund also
will incur transaction costs in effecting short sales.

The Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends or interest the Fund may be required to pay in connection with a short
sale.

Whenever the Fund engages in short sales, it identifies liquid and
unencumbered assets in an amount that, when combined with the amount of
collateral deposited with the broker connection with the short sale, equals the
current market value of the security sold short.

SHORT SALES AGAINST THE BOX

The Fund may make short sales "against the box," i.e., when a security identical
to one owned by the Fund is borrowed and sold short. If the Fund enters into a
short sale against the box, it is required to segregate securities equivalent in
kind and amount to the securities sold short (or securities convertible or
exchangeable into such securities) and is required to hold such securities while
the short sale is outstanding. The Fund will incur transaction costs, including
interest, in connection with opening, maintaining, and closing short sales
against the box.

SHORT TERM INSTRUMENTS

The Fund may hold cash and invest in cash equivalents, such as short-term U.S.
Government Securities, commercial paper and bank instruments.

SWAPS AND RELATED DERIVATIVE INSTRUMENTS

The Fund may enter into interest rate swaps, currency swaps and other types of
available swap agreements, including swaps on securities, commodities and
indices, and related types of derivatives, such as caps, collars and floors. A
swap is an agreement between two parties pursuant to which each party agrees to
make one or more payments to the other on regularly scheduled dates over a
stated term, based on different interest rates, currency exchange rates,
security or commodity prices, the prices or rates of other types of financial
instruments or assets or the levels of specified indices. Under a typical swap,
one party may agree to pay a fixed rate or a floating rate determined by
reference to a specified instrument, rate or index, multiplied in each case by a
specified amount (the "notional amount"), while the other party agrees to pay an
amount equal to a different floating rate multiplied by the same notional
amount. On each payment date, the obligations of parties are netted, with only
the net amount paid by one party to the other. All swap agreements entered into
by the Fund with the same counterparty are generally governed by a single master
agreement, which provides for the netting of all amounts owed by the parties
under the agreement upon the occurrence of an event of default, thereby reducing
the credit risk to which such party is exposed.

Swap agreements are typically individually negotiated and structured to provide
exposure to a variety of different types of investments or market factors. Swap
agreements may be entered into for hedging or non-hedging purposes and therefore
may increase or decrease the Fund's exposure to the underlying instrument, rate,
asset or index. Swap agreements can take many different forms and are known by a
variety of names. The Fund is not limited to any particular form or variety of
swap agreement if the Adviser determines it is consistent with the Fund's
investment objective and policies.

For example, the Fund may enter into an interest rate swap in order to protect
against declines in the value of fixed income securities held by the Fund. In
such an instance, the Fund would agree with a counterparty to pay a fixed rate
(multiplied by a notional amount) and the counterparty would agree to pay a
floating rate multiplied by the same notional amount. If interest rates rise,
resulting in a diminution in the value of the Fund's portfolio, the Fund would
receive payments under the swap that would offset, in whole or part, such
diminution in value. The Fund may also enter into swaps to modify its exposure
to particular markets or instruments, such as a currency swap between the dollar
and another currency which would have the effect of increasing or decreasing the
Fund's

Part II -- C-18
<PAGE> 88

exposure to each such currency. The Fund might also enter into a swap on a
particular security, or a basket or index of securities, in order to gain
exposure to the underlying security or securities, as an alternative to
purchasing such securities. Such transactions could be more efficient or less
costly in certain instances than an actual purchase or sale of the securities.

The Fund may enter into other related types of over-the-counter derivatives,
such as "caps", "floors", "collars" and options on swaps, or "swaptions", for
the same types of hedging or non-hedging purposes. Caps and floors are similar
to swaps, except that one party pays a fee at the time the transaction is
entered into and has no further payment obligations, while the other party is
obligated to pay an amount equal to the amount by which a specified fixed or
floating rate exceeds or is below another rate (multiplied by a notional
amount). Caps and floors, therefore, are also similar to options. A collar is in
effect a combination of a cap and a floor, with payments made only within or
outside a specified range of prices or rates. A swaption is an option to enter
into a swap agreement. Like other types of options, the buyer of a swaption pays
a non-refundable premium for the option and obtains the right, but not the
obligation, to enter into the underlying swap on the agreed-upon terms.

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

The most significant factor in the performance of swaps, caps, floors and
collars is the change in the underlying price, rate or index level that
determines the amount of payments to be made under the arrangement. If the
Adviser is incorrect in its forecasts of such factors, the investment
performance of the Fund would be less than what it would have been if these
investment techniques had not been used. If a swap agreement calls for payments
by the Fund, the Fund must be prepared to make such payments when due. In
addition, if the counterparty's creditworthiness would decline, the value of the
swap agreement would be likely to decline, potentially resulting in losses.

If the counterparty defaults, the Fund's risk of loss consists of the net amount
of payments that the Fund is contractually entitled to receive. The Fund
anticipates that it will be able to eliminate or reduce its exposure under these
arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty, but there can be no
assurance that it will be able to do so.

The uses by the Fund of Swaps and related derivative instruments also involves
the risks described under the caption "Special Risk Factors -- Options, Futures,
Forwards, Swaps and Other Derivative Transactions" in this Appendix.

TEMPORARY BORROWINGS

The Fund may borrow money for temporary purposes (e.g., to meet redemption
requests or settle outstanding purchases of portfolio securities).

TEMPORARY DEFENSIVE POSITIONS
During periods of unusual market conditions when the Adviser believes that
investing for temporary defensive purposes is appropriate, or in order to meet
anticipated redemption requests, a large portion or all of the assets of the
Fund may be invested in cash (including foreign currency) or cash equivalents,
including, but not limited to, obligations of banks (including certificates of
deposit, bankers' acceptances, time deposits and repurchase agreements),
commercial paper, short-term notes, U.S. Government Securities and related
repurchase agreements.

WARRANTS

The Fund may invest in warrants. Warrants are securities that give the Fund the
right to purchase equity securities from the issuer at a specific price (the
"strike price") for a limited period of time. The strike price of warrants
typically is much lower than the current market price of the underlying
securities, yet they are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying securities and may
offer greater potential for capital appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. Also, the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to the expiration date. These factors can make warrants
more speculative than other types of investments.

"WHEN-ISSUED" SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward delivery"
basis which means that the securities will be delivered to the Fund at a future
date usually beyond customary settlement time. The commitment to purchase a
security for which payment will be made on a future date may be deemed a
separate security. In general, the Fund does not pay for such securities until
received, and does not start earning interest on the securities until the
contractual settlement date. While awaiting delivery of securities purchased on
such bases, a Fund will identify liquid and unencumbered assets equal to its
forward delivery commitment.

Part II -- C-19
<PAGE> 89

SPECIAL RISK FACTORS -- OPTIONS, FUTURES, FORWARDS, SWAPS AND OTHER DERIVATIVE
TRANSACTIONS

RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO: The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in derivatives, including options, Futures
Contracts, Options on Futures Contracts, Forward Contracts, swaps and other
types of derivatives depends on the degree to which price movements in the
underlying index or instrument correlate with price movements in the relevant
portion of the Fund's portfolio. In the case of derivative instruments based on
an index, the portfolio will not duplicate the components of the index, and in
the case of derivative instruments on fixed income securities, the portfolio
securities which are being hedged may not be the same type of obligation
underlying such derivatives. The use of derivatives for "cross hedging" purposes
(such as a transaction in a Forward Contract on one currency to hedge exposure
to a different currency) may involve greater correlation risks. Consequently,
the Fund bears the risk that the price of the portfolio securities being hedged
will not move in the same amount or direction as the underlying index or
obligation.

If the Fund purchases a put option on an index and the index decreases less
than the value of the hedged securities, the Fund would experience a loss which
is not completely offset by the put option. It is also possible that there may
be a negative correlation between the index or obligation underlying an option
or Futures Contract in which the Fund has a position and the portfolio
securities the Fund is attempting to hedge, which could result in a loss on both
the portfolio and the hedging instrument. It should be noted that stock index
futures contracts or options based upon a narrower index of securities, such as
those of a particular industry group, may present greater risk than options or
futures based on a broad market index. This is due to the fact that a narrower
index is more susceptible to rapid and extreme fluctuations as a result of
changes in the value of a small number of securities. Nevertheless, where the
Fund enters into transactions in options or futures on narrowly-based indices
for hedging purposes, movements in the value of the index should, if the hedge
is successful, correlate closely with the portion of the Fund's portfolio or the
intended acquisitions being hedged.

The trading of derivatives for hedging purposes entails the additional risk of
imperfect correlation between movements in the price of the derivative and the
price of the underlying index or obligation. The anticipated spread between the
prices may be distorted due to the differences in the nature of the markets such
as differences in margin requirements, the liquidity of such markets and the
participation of speculators in the derivatives markets. In this regard, trading
by speculators in derivatives has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict, particularly near
the expiration of such instruments.

The trading of Options on Futures Contracts also entails the risk that changes
in the value of the underlying Futures Contracts will not be fully reflected in
the value of the option. The risk of imperfect correlation, however, generally
tends to diminish as the maturity date of the Futures Contract or expiration
date of the option approaches.

Further, with respect to options on securities, options on stock indices,
options on currencies and Options on Futures Contracts, the Fund is subject to
the risk of market movements between the time that the option is exercised and
the time of performance thereunder. This could increase the extent of any loss
suffered by the Fund in connection with such transactions.

In writing a covered call option on a security, index or futures contract, the
Fund also incurs the risk that changes in the value of the instruments used to
cover the position will not correlate closely with changes in the value of the
option or underlying index or instrument. For example, where the Fund covers a
call option written on a stock index through segregation of securities, such
securities may not match the composition of the index, and the Fund may not be
fully covered. As a result, the Fund could be subject to risk of loss in the
event of adverse market movements.

The writing of options on securities, options on stock indices or Options on
Futures Contracts constitutes only a partial hedge against fluctuations in the
value of the Fund's portfolio. When the Fund writes an option, it will receive
premium income in return for the holder's purchase of the right to acquire or
dispose of the underlying obligation. In the event that the price of such
obligation does not rise sufficiently above the exercise price of the option, in
the case of a call, or fall below the exercise price, in the case of a put, the
option will not be exercised and the Fund will retain the amount of the premium,
less related transaction costs, which will constitute a partial hedge against
any decline that may have occurred in the Fund's portfolio holdings or any
increase in the cost of the instruments to be acquired.

Where the price of the underlying obligation moves sufficiently in favor of
the holder to warrant exercise of the option, however, and the option is
exercised, the Fund will incur a loss which may only be partially offset by the
amount of the premium it received. Moreover, by writing an option, the Fund may
be required to forego the benefits which might otherwise have been obtained from
an increase in the value of portfolio securities or other assets or a decline in
the value of securities or assets to be acquired. In the event of the occurrence
of any of the foregoing adverse market events, the Fund's overall return may be
lower than if it had not engaged in the hedging transactions.

RISKS OF NON-HEDGING TRANSACTIONS: The Fund may enter transactions in
derivatives for non-hedging purposes as well as hedging purposes. Non-hedging
transactions in such instruments involve greater risks and may result in losses
which may not be offset by increases in the value of portfolio securities or
declines in the cost of securities to be acquired. The Fund will only write
covered options, such that liquid and

Part II -- C-20
<PAGE> 90

unencumbered assets necessary to satisfy an option exercise will be identified,
unless the option is covered in such other manner as may be in accordance with
the rules of the exchange on which, or the counterparty with which, the option
is traded and applicable laws and regulations. Nevertheless, the method of
covering an option employed by the Fund may not fully protect it against risk of
loss and, in any event, the Fund could suffer losses on the option position
which might not be offset by corresponding portfolio gains. The Fund may also
enter into futures, Forward Contracts or swaps for non-hedging purposes. For
example, the Fund may enter into such a transaction as an alternative to
purchasing or selling the underlying instrument or to obtain desired exposure to
an index or market. In such instances, the Fund will be exposed to the same
economic risks incurred in purchasing or selling the underlying instrument or
instruments. However, transactions in futures, Forward Contracts or swaps may be
leveraged, which could expose the Fund to greater risk of loss than such
purchases or sales. Entering into transactions in derivatives for other than
hedging purposes, therefore, could expose the Fund to significant risk of loss
if the prices, rates or values of the underlying instruments or indices do not
move in the direction or to the extent anticipated.

With respect to the writing of straddles on securities, the Fund incurs the
risk that the price of the underlying security will not remain stable, that one
of the options written will be exercised and that the resulting loss will not be
offset by the amount of the premiums received. Such transactions, therefore,
create an opportunity for increased return by providing the Fund with two
simultaneous premiums on the same security, but involve additional risk, since
the Fund may have an option exercised against it regardless of whether the price
of the security increases or decreases.

RISK OF A POTENTIAL LACK OF A LIQUID SECONDARY MARKET: Prior to exercise or
expiration, a futures or option position can only be terminated by entering into
a closing purchase or sale transaction. This requires a secondary market for
such instruments on the exchange on which the initial transaction was entered
into. While the Fund will enter into options or futures positions only if there
appears to be a liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular contract at any specific time. In
that event, it may not be possible to close out a position held by the Fund, and
the Fund could be required to purchase or sell the instrument underlying an
option, make or receive a cash settlement or meet ongoing variation margin
requirements. Under such circumstances, if the Fund has insufficient cash
available to meet margin requirements, it will be necessary to liquidate
portfolio securities or other assets at a time when it is disadvantageous to do
so. The inability to close out options and futures positions, therefore, could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
and could result in trading losses.

The liquidity of a secondary market in a Futures Contract or option thereon
may be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures or option positions and requiring
traders to make additional margin deposits. Prices have in the past moved to the
daily limit on a number of consecutive trading days.

The trading of Futures Contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse equipment failures,
government intervention, insolvency of a brokerage firm or clearinghouse or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

MARGIN: Because of low initial margin deposits made upon the establishment of a
futures, forward or swap position (certain of which may require no initial
margin deposits) and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. Where the
Fund enters into such transactions for hedging purposes, any losses incurred in
connection therewith should, if the hedging strategy is successful, be offset,
in whole or in part, by increases in the value of securities or other assets
held by the Fund or decreases in the prices of securities or other assets the
Fund intends to acquire. Where the Fund enters into such transactions for other
than hedging purposes, the margin requirements associated with such transactions
could expose the Fund to greater risk.

POTENTIAL BANKRUPTCY OF A CLEARINGHOUSE OR BROKER: When the Fund enters into
transactions in exchange-traded futures or options, it is exposed to the risk of
the potential bankruptcy of the relevant exchange clearinghouse or the broker
through which the Fund has effected the transaction. In that event, the Fund
might not be able to recover amounts deposited as margin, or amounts owed to the
Fund in connection with its transactions, for an indefinite period of time, and
could sustain losses of a portion or all of such amounts, Moreover, the
performance guarantee of an exchange clearinghouse generally extends only to its
members and the Fund could sustain losses, notwithstanding such guarantee, in
the event of the bankruptcy of its broker.

TRADING AND POSITION LIMITS: The exchanges on which futures and options are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). Further, the CFTC and the various contract markets have established
limits referred to as "speculative position

Part II -- C-21
<PAGE> 91

limits" on the maximum net long or net short position which any person may hold
or control in a particular futures or option contract. An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. The Adviser does not believe that these
trading and position limits will have any adverse impact on the strategies for
hedging the portfolios of the Fund.

RISKS OF OPTIONS ON FUTURES CONTRACTS: The amount of risk the Fund assumes when
it purchases an Option on a Futures Contract is the premium paid for the option,
plus related transaction costs. In order to profit from an option purchased,
however, it may be necessary to exercise the option and to liquidate the
underlying Futures Contract, subject to the risks of the availability of a
liquid offset market described herein. The writer of an Option on a Futures
Contract is subject to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate with movements
in the price of the underlying security, index, currency or Futures Contract.

RISKS OF TRANSACTIONS IN FOREIGN CURRENCIES AND OVER-THE-COUNTER DERIVATIVES AND
OTHER TRANSACTIONS NOT CONDUCTED ON U.S. EXCHANGES: Transactions in Forward
Contracts on foreign currencies, as well as futures and options on foreign
currencies and transactions executed on foreign exchanges, are subject to all of
the correlation, liquidity and other risks outlined above. In addition, however,
such transactions are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on the
value of positions held by the Fund. Further, the value of such positions could
be adversely affected by a number of other complex political and economic
factors applicable to the countries issuing the underlying currencies.

Further, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying contracts thereon. As a result, the available information
on which trading systems will be based may not be as complete as the comparable
data on which the Fund makes investment and trading decisions in connection with
other transactions. Moreover, because the foreign currency market is a global,
24-hour market, events could occur in that market which will not be reflected in
the forward, futures or options market until the following day, thereby making
it more difficult for the Fund to respond to such events in a timely manner.

Settlements of exercises of over-the-counter Forward Contracts or foreign
currency options generally must occur within the country issuing the underlying
currency, which in turn requires traders to accept or make delivery of such
currencies in conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships, fees, taxes or other
charges.

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

In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and the Fund could be required to retain options
purchased or written, or Forward Contracts or swaps entered into, until
exercise, expiration or maturity. This in turn could limit the Fund's ability to
profit from open positions or to reduce losses experienced, and could result in
greater losses.

Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearinghouse, and the Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby
restricting the Fund's ability to enter into desired hedging transactions. The
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.

Options on securities, options on stock indices, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the same
manner as those entered into on U.S. exchanges, and may be subject to different
margin, exercise, settlement or expiration procedures. As a result, many of the
risks of over-the-counter trading may be present in connection with such
transactions.

Part II -- C-22
<PAGE> 92

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation (the
"OCC"), thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting
the Fund to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.

POLICIES ON THE USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS: In order to
assure that the Fund will not be deemed to be a "commodity pool" for purposes of
the Commodity Exchange Act, regulations of the CFTC require that the Fund enter
into transactions in Futures Contracts and Options on Futures Contracts only (i)
for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation value of the
Fund's assets. In addition, the Fund must comply with the requirements of
various state securities laws in connection with such transactions.

Part II -- C-23
<PAGE> 93

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

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

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

SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606

MAILING ADDRESS:
P.O. Box 2281, Boston, MA 02107-9906

INDEPENDENT AUDITORS
Ernst & Young LLP

200 Clarendon Street, Boston, MA 02116

MFS(R) STRATEGIC GROWTH FUND

[MFS LOGO]

500 Boylston Street, Boston, MA 02116 MSG-16-11/98

<PAGE> 94
MFS SERIES TRUST I

MFS(R) STRATEGIC GROWTH FUND

PART C

ITEM 23. FINANCIAL STATEMENTS AND EXHIBITS

MFS STRATEGIC GROWTH FUND

(a) FINANCIAL STATEMENTS INCLUDED IN PARTS A AND B:

INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the years ended August 31, 1998 and August 31, 1997:
Financial Highlights

INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At August 31, 1998:
Portfolio of Investments*
Statement of Assets and Liabilities*

For the years ended August 31, 1998 and August 31, 1997:
Statement of Changes in Net Assets*

For the year ended August 31, 1998:
Statement of Operations*

* Incorporated by reference to the Annual Report to Shareholders dated
August 31, 1998, filed with the SEC on October 29, 1998.

(b) EXHIBITS:

1 (a) Amended and Restated Declaration of Trust, dated
January 6, 1995. (4)

(b) Amendment to Declaration of Trust, dated October
12, 1995. (5)

(c) Amendment to Declaration of Trust, dated February
21, 1996. (6)
<PAGE> 95
(d) Amendment to Declaration of Trust, dated June 12,
1996. (7)

(e) Amendment to Declaration of Trust, dated October
9, 1996. (8)

(f) Amendment to Declaration of Trust, dated December
19, 1996 to redesignate Class P Shares as Class I
Shares. (12)

(g) Amendment to Declaration of Trust, dated April 9,
1997 to redesignate MFS(R) Aggressive Growth Fund
as MFS Strategic Growth Fund. (12)

(h) Amendment to Declaration of Trust, dated February
19, 1998 to add a new series. (16)

(i) Amendment to Declaration of Trust, dated August
24, 1998 to redesignate MFS(R) World Asset
Allocation Fund as MFS(R) Global Asset Allocation
Fund; filed herewith.

(j) Amendment to Declaration of Trust, dated October
30, 1998 to terminate MFS(R) Real Estate
Investment Fund; filed herewith.

2 Amended and Restated By-Laws dated December 14,
1994. (4)

3 Form of Share Certificate for Classes of shares.
(7)

4 (a) Investment Advisory Agreement for MFS(R) Cash
Reserve Fund, dated September 1, 1993. (5)

(b) Investment Advisory Agreement for MFS(R) Managed
Sectors Fund, dated September 1, 1993. (5)

(d) Investment Advisory Agreement for MFS(R) Equity
Income Fund, dated January 2, 1996. (6)

(e) Amendment to Investment Advisory Agreement for
MFS(R) Research Growth and Income Fund, dated
January 2, 1997. (12)
<PAGE> 96
(f) Investment Advisory Agreement for MFS(R) Core
Growth Fund, dated January 2, 1996. (6)

(g) Investment Advisory Agreement for MFS(R)
Aggressive Growth Fund, dated January 2, 1996. (6)

(h) Investment Advisory Agreement for MFS(R) Special
Opportunities Fund, dated January 2, 1996. (6)

(i) Investment Advisory Agreement for MFS(R)
Convertible Securities Fund, dated January 2,
1997. (12)

(j) Investment Advisory Agreement for MFS(R) Blue Chip
Fund, dated January 2, 1997. (12)

(k) Investment Advisory Agreement for MFS(R) New
Discovery Fund, dated October 30, 1997. (14)

(l) Investment Advisory Agreement for MFS(R) Science
and Technology Fund, dated January 2, 1997. (12)

(m) Investment Advisory Agreement for MFS(R) Research
International Fund, dated January 2, 1997. (12)

(n) Investment Advisory Agreement for MFS(R) Real
Estate Investment Fund, dated March 16, 1998. (16)

(o) Amendment to Investment Advisory Agreement for MFS
Equity Income Fund, dated July 1, 1998; filed
herewith.

5 (a) Distribution Agreement, dated January 1, 1995. (4)

(b) Dealer Agreement between MFS Fund Distributors,
Inc., ("MFD") and a dealer and the Mutual Fund
Agreement between MFD and a bank or NASD
affiliate, as amended on April 11, 1997. (10)

6 Retirement Plan for Non-Interested Person
Trustees, dated January 1, 1991. (5)

7 (a) Custodian Agreement, dated January 28, 1988. (5)

(b) Amendment No. 1 to the Custodian Agreement, dated
February 29, 1988 and October 1, 1989,
respectively. (5)
<PAGE> 97
(c) Amendment No. 2 to the Custodian Agreement, dated
October 9, 1991. (5)

8 (a) Shareholder Servicing Agent Agreement, dated
September 10, 1986. (5)

(b) Amendment to Shareholder Servicing Agent Agreement
to amend fee schedule, dated January 1, 1998. (16)

(d) Loan Agreement by and among the Banks named
therein, the MFS Borrowers and The First National
Bank of Boston dated as of February 21, 1995. (2)

(e) Third Amendment dated February 14, 1997 to Loan
Agreement dated February 21, 1995 by and among the
Banks named therein and The First National Bank of
Boston. (12)

(f) Dividend Disbursing Agent Agreement dated
September 10, 1986. (5)

(g) Master Administrative Services Agreement dated
March 1, 1997, as amended. (9)

9 Consent and Opinion of Counsel, dated December 22,
1997. (14)

10 (a) Auditor's Consent Letter for Deloitte & Touche LLP
regarding MFS Managed Sectors Fund and MFS Cash
Reserve Fund. (14)

(b) Auditor's Consent Letter for Ernst & Young LLP
regarding MFS World Asset Allocation Fund. (14)

(c) Auditor's Consent Letter for Ernst & Young LLP
regarding MFS Equity Income Fund, MFS New
Discovery Fund and MFS Research International
Fund. (14)

(d) Auditor's Consent Letter for Ernst & Young LLP
regarding MFS Research Growth and Income Fund.
(14)

(e) Auditor's Consent Letter for Ernst & Young LLP
regarding MFS Strategic Growth Fund; filed
herewith.

<PAGE> 98
(f) Auditors Consent Letter for Ernst & Young LLP
regarding MFS Core Growth Fund, MFS Special
Opportunities Fund, MFS Convertible Securities
Fund, MFS Blue Chip Fund and MFS Science and
Technology Fund. (16)

11 Not Applicable.

12 Not Applicable.

13 Master Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 effective
January 1, 1997, as amended and restated May 27,
1998. (17)

14 Financial Data Schedules; filed herewith.

15 Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940, as amended and
restated May 27, 1998. (17)

Power of Attorney, dated August 19, 1994. (5)

Power of Attorney, dated February 19, 1998. (16)

(1) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR
on February 22, 1995.

(2) Incorporated by reference to Post-Effective Amendment No. 8 on Form N-2
for MFS Municipal Income Trust (File No. 811-4841) filed with the SEC via
EDGAR on February 28, 1995.

(3) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on
August 28, 1995.

(4) Incorporated by reference to the Registrant's Post-Effective Amendment No.
20 filed with the SEC via EDGAR on March 30, 1995.

(5) Incorporated by reference to the Registrant's Post-Effective Amendment No.
21 filed with the SEC via EDGAR on October 17, 1995.

(6) Incorporated by reference to Registrant's Post-Effective Amendment No. 23
filed with the SEC via EDGAR on March 29, 1996.

(7) Incorporated by reference to Registrant's Post-Effective Amendment No. 25
filed with the SEC via EDGAR on August 27, 1996.

(8) Incorporated by reference to Registrant's Post-Effective Amendment No. 26
filed with the SEC via EDGAR on October 15, 1996.

(9) Incorporated by reference to Massachusetts Investors Growth Stock Fund
(File Nos. 2-14677 and 811-859) Post-Effective Amendment No. 65 filed with
the SEC via EDGAR on March 11, 1998.

(10) Incorporated by reference to MFS Series Trust III (File Nos. 2-60491 and
811-2794) Post-Effective Amendment No. 24 filed with the SEC via EDGAR on
May 29, 1997.

(11) Incorporated by reference to MFS Government Limited Maturity Fund (File
Nos. 2-96738 and 811-4253) Post-Effective Amendment No. 18 filed with the
SEC via EDGAR on April 29, 1997.

(12) Incorporated by reference to the Registrant's Post-Effective Amendment No.
28 filed with the SEC on June 26, 1997.

(13) Incorporated by reference to Massachusetts Investors Growth Stock Fund
(File Nos. 2-14677 and 811-859) Post-Effective Amendment No. 64 filed with
the SEC on October 29, 1997.
<PAGE> 99
(14) Incorporated by reference to the Registrant's Post-Effective Amendment No.
29 filed with the SEC on December 24, 1997.

(15) Incorporated by reference to MFS Series Trust VIII (File Nos. 33-37972 and
811-5262) Post-Effective Amendment No. 14 filed with the SEC via EDGAR on
February 26, 1998.

(16) Incorporated by reference to the Registrant's Post-Effective Amendment No.
30 filed with the SEC via EDGAR on March 11, 1998.

(17) Incorporated by reference to MFS Series Trust II (File Nos. 33-7637 and
811-4775) Post-Effective Amendment No. 27 filed with the SEC via EDGAR on
May 29, 1998.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not applicable.

ITEM 25. INDEMNIFICATION

Reference is hereby made to (a) Article V of the Trust's Declaration
of Trust, incorporated by reference to the Registrant's Post-Effective Amendment
No. 20 filed with the SEC via EDGAR on March 30, 1995 and (b) Section 8 of the
Shareholder Servicing Agent Agreement, incorporated by reference to Registrant's
Post-Effective Amendment No. 21 filed with the SEC via EDGAR on October 17,
1995.

The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser and principal underwriter are insured under an
errors and omissions liability insurance policy. The Registrant and its officers
are also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940, as amended.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds (except the Vertex Funds mentioned below):
Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund, MFS
Growth Opportunities Fund, MFS Government Securities Fund, MFS Government
Limited Maturity Fund, MFS Series Trust I (which has thirteen series: MFS
Managed Sectors Fund, MFS Cash Reserve Fund, MFS Global Asset Allocation Fund,
MFS Strategic Growth Fund, MFS Research Growth and Income Fund, MFS Core Growth
Fund, MFS Equity Income Fund, MFS Special Opportunities Fund, MFS Convertible
Securities Fund, MFS Blue Chip Fund, MFS New Discovery Fund, MFS Science and
Technology Fund and MFS Research International Fund), MFS Series Trust II (which
has four series: MFS Emerging Growth Fund, MFS Large Cap Growth Fund, MFS
Intermediate Income Fund and MFS Charter Income Fund), MFS Series Trust III
(which has three series: MFS High Income Fund, MFS Municipal High Income Fund
and MFS High Yield Opportunities Fund), MFS Series Trust IV (which has four
series: MFS Money Market Fund, MFS Government Money Market Fund, MFS Municipal
Bond Fund and MFS Mid Cap Growth Fund), MFS Series Trust V (which has five
series: MFS Total Return Fund, MFS Research Fund, MFS International
Opportunities Fund, MFS International Strategic Growth Fund and MFS
International Value Fund), MFS Series

<PAGE> 100

Trust VI (which has three series: MFS Global Total Return Fund, MFS Utilities
Fund and MFS Global Equity Fund), MFS Series Trust VII (which has two series:
MFS Global Governments Fund and MFS Capital Opportunities Fund), MFS Series
Trust VIII (which has two series: MFS Strategic Income Fund and MFS GlobalWorld
Growth Fund), MFS Series Trust IX (which has fivethree series: MFS Bond Fund,
MFS Limited Maturity Fund, MFS Municipal Limited Maturity Fund, MFS Research
Bond Fund and MFS Intermediate Investment Grade Bond Fund), MFS Series Trust X
(which has seven series: MFS Government Mortgage Fund, MFS/Foreign & Colonial
Emerging Markets Equity Fund, MFS International Growth Fund, MFS International
Growth and Income Fund, MFS Strategic Value Fund, MFS Small Cap Value Fund and
MFS Emerging Markets Debt Fund), MFS Series Trust XI (which has four series: MFS
Union Standard Equity Fund, Vertex All Cap Fund, Vertex U.S. All Cap Fund and
Vertex Contrarian Fund), and MFS Municipal Series Trust (which has 16 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Maryland Municipal Bond Fund, MFS Massachusetts
Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS New York Municipal
Bond Fund, MFS North Carolina Municipal Bond Fund, MFS Pennsylvania Municipal
Bond Fund, MFS South Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond
Fund, MFS Virginia Municipal Bond Fund, MFS West Virginia Municipal Bond Fund
and MFS Municipal Income Fund) (the "MFS Funds"). The principal business address
of each of the MFS Funds is 500 Boylston Street, Boston, Massachusetts 02116.

MFS also serves as investment adviser of the following open-end
Funds: MFS Institutional Trust ("MFSIT") (which has ten series) and MFS Variable
Insurance Trust ("MVI") (which has thirteen series). The principal business
address of each of the aforementioned funds is 500 Boylston Street, Boston,
Massachusetts 02116.

In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.

Lastly, MFS serves as investment adviser to MFS/Sun Life Series
Trust ("MFS/SL") (which has 26 series), Money Market Variable Account, High
Yield Variable Account, Capital Appreciation Variable Account, Government
Securities Variable Account, World Governments Variable Account, Total Return
Variable Account and Managed Sectors Variable Account (collectively, the
"Accounts"). The principal business address of MFS/SL is 500 Boylston Street,
Boston, Massachusetts 02116. The principal business address of each of the
aforementioned Accounts is One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181.

Vertex Investment Management, Inc., a Delaware corporation and a
wholly owned subsidiary of MFS, whose principal business address is 500 Boylston
Street, Boston, Massachusetts 02116 ("Vertex"), serves as investment adviser to
Vertex

<PAGE> 101

All Cap Fund, Vertex U.S. All Cap Fund and Vertex Contrarian Fund, each a
series of MFS Series Trust XI. The principal business address of the
aforementioned Funds is 500 Boylston Street, Boston, Massachusetts 02116.

MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of Bermuda and a subsidiary of MFS, whose principal
business address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves
as investment adviser to and distributor for MFS American Funds known as the MFS
Funds after January 1999 (which will have 11 portfolios as of January 1999):
U.S. Equity Fund, U.S. Emerging Growth Fund, U.S. High Yield Bond Fund, U.S.
Dollar Reserve Fund, Charter Income Fund, U.S. Research Fund, U.S. Strategic
Growth Fund, Global Equity Fund, European Equity Fund and European Corporate
Bond Fund) (the "MIL Funds"). The MIL Funds are organized in Luxembourg and
qualify as an undertaking for collective investments in transferable securities
(UCITS). The principal business address of the MIL Funds is 47, Boulevard Royal,
L-2449 Luxembourg.

MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Governments Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
Global Growth Fund, MFS Meridian Money Market Fund, MFS Meridian Global Balanced
Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund, MFS Meridian
U.S. High Yield Fund, MFS Meridian Emerging Markets Debt Fund, MFS Meridian
Strategic Growth Fund and MFS Meridian Global Asset Allocation Fund and the MFS
Meridian Research International Fund (collectively the "MFS Meridian Funds").
Each of the MFS Meridian Funds is organized as an exempt company under the laws
of the Cayman Islands. The principal business address of each of the MFS
Meridian Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West
Indies.

MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.

MFS Institutional Advisors (Australia) Ltd. ("MFSI-Australia"), a
private limited company organized under the Corporations Law of New South Wales,
Australia whose current address is Level 37, Governor Phillip Tower, One Farrer
Place, Sydney, N5W2000, Australia, is involved primarily in investment
management and distribution of Australian superannuation unit trusts and acts as
an investment adviser to institutional accounts.

MFS Holdings Australia Pty Ltd. ("MFS Holdings Australia"), a
private limited company organized pursuant to the Corporations Law of New South
Wales, Australia whose current address is Level 37, Governor Phillip Tower, One
Farrer Place, Sydney, NSW2000 Australia, and whose function is to serve
primarily as a holding company.

<PAGE> 102

MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of
MFS, serves as distributor for the MFS Funds, MVI and MFSIT.

MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT and MVI.

MFS Institutional Advisors, Inc. ("MFSI"), a wholly owned subsidiary
of MFS, provides investment advice to substantial private clients.

MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of
MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.

Massachusetts Investment Management Co., Ltd. (MIMCO), a wholly
owned subsidiary of MFS, is a corporation incorporated in Japan. MIMCO, whose
address is Kamiyacho-Mori Building, 3-20, Tranomon 4-chome, Minato-ku, Tokyo,
Japan, is involved in investment management activities.

MIMCO

Jeffrey L. Shames, Arnold D. Scott and Mamoru Ogata are Directors,
Shaun Moran is the Representative Director, Joseph W. Dello Russo is the
Statutory Auditor, Robert DiBella is the President and Thomas B. Hastings is the
Assistant Statutory Auditor.

MFS

The Directors of MFS are Jeffrey L. Shames, Arnold D. Scott, John W.
Ballen, Kevin R. Parke, Thomas J. Cashman, Jr., Joseph W. Dello Russo, William
W. Scott, Donald A. Stewart and John D. McNeil. Mr. Shames is the Chairman and
Chief Executive Officer, Mr. Ballen is President and Chief Investment Officer,
Mr. Arnold Scott is a Senior Executive Vice President and Secretary, Mr. William
Scott, Mr. Cashman, Mr. Dello Russo and Mr. Parke are Executive Vice Presidents
(Mr. Parke is also Chief Equity Officer), Stephen E. Cavan is a Senior Vice
President, General Counsel and an Assistant Secretary, Robert T. Burns is a
Senior Vice President, Associate General Counsel and an Assistant Secretary of
MFS, and Thomas B. Hastings is a Vice President and Treasurer of MFS.

<PAGE> 103

MASSACHUSETTS INVESTORS TRUST

MASSACHUSETTS INVESTORS GROWTH STOCK FUND

MFS GROWTH OPPORTUNITIES FUND

MFS GOVERNMENT SECURITIES FUND

MFS SERIES TRUST I

MFS SERIES TRUST V

MFS SERIES TRUST VI

MFS SERIES TRUST X

MFS GOVERNMENT LIMITED MATURITY FUND

Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley, Vice Presidents
of MFS, are the Assistant Treasurers, James R. Bordewick, Jr., Senior Vice
President and Associate General Counsel of MFS, is the Assistant Secretary.

MFS SERIES TRUST II

Leslie J. Nanberg, Senior Vice President of MFS, is a Vice
President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant
Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.

MFS GOVERNMENT MARKETS INCOME TRUST

MFS INTERMEDIATE INCOME TRUST

MFS SERIES TRUST III

James T. Swanson, Robert J. Manning and Joan S. Batchelder, Senior
Vice Presidents of MFS, and Bernard Scozzafava, Vice President of MFS, are Vice
Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.

MFS SERIES TRUST IV

MFS SERIES TRUST IX

Robert A. Dennis and Geoffrey L. Kurinsky, Senior Vice Presidents of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.

<PAGE> 104

MFS SERIES TRUST VII

Leslie J. Nanberg and Stephen C. Bryant, Senior Vice Presidents of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.

MFS SERIES TRUST VIII

Jeffrey L. Shames, Leslie J. Nanberg and James T. Swanson and John
D. Laupheimer, Jr., a Senior Vice President of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.

MFS MUNICIPAL SERIES TRUST

Robert A. Dennis is Vice President, Geoffrey L. Schechter, Vice
President of MFS, is Vice President, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is the
Assistant Secretary.

MFS VARIABLE INSURANCE TRUST

MFS SERIES TRUST XI

MFS INSTITUTIONAL TRUST

Jeffrey L. Shames is the President and Chairman, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.

MFS MUNICIPAL INCOME TRUST

Robert J. Manning is Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is
the Assistant Secretary.

MFS MULTIMARKET INCOME TRUST

MFS CHARTER INCOME TRUST

Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.

<PAGE> 105

MFS SPECIAL VALUE TRUST

MFS/SUN LIFE SERIES TRUST

John D. McNeil, Chairman and Director of Sun Life Assurance Company
of Canada, is the Chairman, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.

MONEY MARKET VARIABLE ACCOUNT

HIGH YIELD VARIABLE ACCOUNT

CAPITAL APPRECIATION VARIABLE ACCOUNT

GOVERNMENT SECURITIES VARIABLE ACCOUNT

TOTAL RETURN VARIABLE ACCOUNT

WORLD GOVERNMENTS VARIABLE ACCOUNT

MANAGED SECTORS VARIABLE ACCOUNT

John D. McNeil is the Chairman, Stephen E. Cavan is the Secretary,
and James R. Bordewick, Jr. is the Assistant Secretary.

MIL FUNDS

Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold D.
Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.

MFS MERIDIAN FUNDS

Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold D.
Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James R. Bordewick, Jr. is
the Assistant Secretary and James O. Yost, Ellen M. Moynihan and Mark E. Bradley
are the Assistant Treasurers.

VERTEX

Jeffrey L. Shames and Arnold D. Scott are the Directors, Jeffrey L.
Shames is the President, Kevin R. Parke and John W. Ballen are Executive Vice
Presidents, John F. Brennan, Jr., and John D. Laupheimer are Senior Vice
Presidents, Brian E. Stack is a Vice President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the

<PAGE> 106

Assistant Treasurer, Stephen E. Cavan is the Secretary and Robert T. Burns is
the Assistant Secretary.

MIL

Peter D. Laird is President and a Director, Arnold D. Scott, Jeffrey
L. Shames and Thomas J. Cashman, Jr. are Directors, Stephen E. Cavan is a
Director, Senior Vice President and the Clerk, Robert T. Burns is an Assistant
Clerk, Joseph W. Dello Russo, Executive Vice President and Chief Financial
Officer of MFS, is the Treasurer and Thomas B. Hastings is the Assistant
Treasurer.

MIL-UK

Peter D. Laird is President and a Director, Thomas J. Cashman,
Arnold D. Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is a
Director and the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B.
Hastings is the Assistant Treasurer and Robert T. Burns is the Assistant
Secretary.

MFSI - AUSTRALIA

Thomas J. Cashman, Jr. is President and a Director, Graham E.
Lenzer, John A. Gee and David Adiseshan are Directors, Stephen E. Cavan is the
Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.

MFS HOLDINGS - AUSTRALIA

Jeffrey L. Shames is the President and a Director, Arnold D. Scott,
Thomas J. Cashman, Jr., and Graham E. Lenzer are Directors, Stephen E. Cavan is
the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.

MFD

Arnold D. Scott and Jeffrey L. Shames are Directors, William W.
Scott, Jr., an Executive Vice President of MFS, is the President, Stephen E.
Cavan is the Secretary, Robert T. Burns is the Assistant Secretary, Joseph W.
Dello Russo is the Treasurer, and Thomas B. Hastings is the Assistant Treasurer.

MFSC

Arnold D. Scott and Jeffrey L. Shames are Directors, Joseph A.
Recomendes, a Senior Vice President and Chief Information Officer of MFS, is
Vice Chairman and a Director, Janet A. Clifford is the President, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer,
Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant
Secretary.

<PAGE> 107

MFSI

Thomas J. Cashman, Jr., Jeffrey L. Shames, and Arnold D. Scott are
Directors, Joseph J. Trainor is the President and a Director, Leslie J. Nanberg
is a Senior Vice President, a Managing Director and a Director, Kevin R. Parke
is the Executive Vice President and a Managing Director, George F. Bennett, Jr.,
John A. Gee, Brianne Grady, Joseph A. Kosciuszek and Joseph J. Trainor are
Senior Vice Presidents and Managing Directors, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer and Robert T. Burns is
the Secretary.

RSI

Arnold D. Scott is the Chairman and a Director, Martin E. Beaulieu
is the President, William W. Scott, Jr. is a Director, Joseph W. Dello Russo is
the Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan
is the Secretary and Robert T. Burns is the Assistant Secretary.

In addition, the following persons, Directors or officers of MFS,
have the affiliations indicated:

Donald A. Stewart President and a Director, Sun Life Assurance
Company of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada
(Mr. Stewart is also an officer and/or
Director of various subsidiaries and
affiliates of Sun Life)

John D. McNeil Chairman, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street
West, Toronto, Ontario, Canada (Mr. McNeil
is also an officer and/or Director of
various subsidiaries and affiliates of Sun
Life)

Joseph W. Dello Russo Director of Mutual Fund Operations, The
Boston Company, Exchange Place, Boston,
Massachusetts (until August, 1994)

ITEM 27. DISTRIBUTORS

(a) Reference is hereby made to Item 27 above.

(b) Reference is hereby made to Item 27 above; the principal
business address of each of these persons is 500 Boylston
Street, Boston, Massachusetts 02116.

<PAGE> 108
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

The accounts and records of the Registrant are located, in whole or
in part, at the office of the Registrant and the following locations:

NAME ADDRESS

Massachusetts Financial Services 500 Boylston Street
Company (investment adviser) Boston, MA 02116

MFS Fund Distributors, Inc. 500 Boylston Street
(distributor) Boston, MA 02116

State Street Bank and Trust Company State Street South
(custodian) 5-West
North Quincy, MA 02171
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116

ITEM 29. MANAGEMENT SERVICES

Not applicable.

ITEM 30. UNDERTAKINGS

Not applicable.
<PAGE> 109
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 16th day of November, 1998.

MFS SERIES TRUST I

By: JAMES R. BORDEWICK, JR.
------------------------
Name: James R. Bordewick, Jr.
Title: Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on November 16, 1998.

SIGNATURE TITLE

STEPHEN E. CAVAN(*) Principal Executive Officer
- ------------------------
Stephen E. Cavan

W. THOMAS LONDON(*) Treasurer (Principal Financial Officer
- ------------------------ and Principal Accounting Officer)
W. Thomas London

RICHARD B. BAILEY(*) Trustee
- ------------------------
Richard B. Bailey

MARSHALL N. COHAN(*) Trustee
- ------------------------
Marshall N. Cohan

LAWRENCE H. COHN, M.D.(*) Trustee
- ------------------------
Lawrence H. Cohn, M.D.
<PAGE> 110
SIR J. DAVID GIBBONS(*) Trustee
- ------------------------
Sir J. David Gibbons

ABBY M. O'NEILL(*) Trustee
- ------------------------
Abby M. O'Neill

WALTER E. ROBB, III(*) Trustee
- ------------------------
Walter E. Robb, III

ARNOLD D. SCOTT(*) Trustee
- ------------------------
Arnold D. Scott

JEFFREY L. SHAMES(*) Trustee
- ------------------------
Jeffrey L. Shames

J. DALE SHERRATT(*) Trustee
- ------------------------
J. Dale Sherratt

WARD SMITH(*) Trustee
- ------------------------
Ward Smith

(*)By: JAMES R. BORDEWICK, JR.
------------------------
Name: James R. Bordewick, Jr.
as Attorney-in-fact

Executed by James R. Bordewick, Jr.
on behalf of those indicated pursuant
to (i) a Power of Attorney dated
August 11, 1994, incorporated by
reference to Registrant's
Post-Effective Amendment No. 21 filed
with the SEC via EDGAR on October 17,
1995 and (ii) a Power of Attorney
dated February 19, 1998, incorporated
by reference to the Registrant's
Post-Effective Amendment No. 30 filed
with the Securities and Exchange
Commission via EDGAR on March 11,
1998.
<PAGE> 111
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
<S> <C> <C>
1 (i) Amendment to Declaration of Trust, dated August 24, 1998
to redesignate MFS World Asset Allocation Fund as MFS
Global Asset Allocation Fund.

(j) Amendment to Declaration of Trust, dated October
30, 1998 to terminate MFS Real Estate Investment Fund.

4 (o) Amendment to Investment Advisory Agreement for MFS Equity
Income Fund, dated July 1, 1998.

10 (e) Auditor's Consent Letter for Ernst & Young LLP regarding
MFS Strategic Growth Fund.

14 Financial Data Schedules.
</TABLE>

<PAGE> 1
EXHIBIT NO. 99.1(i)

MFS SERIES TRUST I

CERTIFICATION OF AMENDMENT
TO DECLARATION OF TRUST

REDESIGNATION OF SERIES

Pursuant to Section 6.9 of the Amended and Restated Declaration of Trust
dated January 6, 1995 (the "Declaration"), of MFS Series Trust I (the "Trust"),
the Trustees of the Trust hereby redesignate an existing series of Shares (as
defined in the Declaration) as follows:

The series designated as MFS World Asset Allocation Fund shall be
redesignated as MFS Global Asset Allocation Fund.

Pursuant to Section 6.9(i) of the Declaration, this redesignation of
series of Shares shall be effective upon the execution of a majority of the
Trustees of the Trust.
<PAGE> 2
IN WITNESS WHEREOF, a majority of the Trustees of the Trust have executed
this amendment, in one or more counterparts, all constituting a single
instrument, as an instrument under seal in The Commonwealth of Massachusetts, as
of this 24th day of August, 1998 and further certify, as provided by the
provisions of Section 9.3(d) of the Declaration, that this amendment was duly
adopted by the undersigned in accordance with the second sentence of Section
9.3(a) of the Declaration.

RICHARD B. BAILEY WALTER E. ROBB, III
- ------------------------------ ------------------------------
Richard B. Bailey Walter E. Robb, III
63 Atlantic Avenue 35 Farm Road
Boston, MA 02110 Sherborn, MA 01770

MARSHALL N. COHAN ARNOLD D. SCOTT
- ------------------------------ ------------------------------
Marshall N. Cohan Arnold D. Scott
2524 Bedford Mews Drive 20 Rowes Wharf
Wellington, FL 33414 Boston, MA 02110

LAWRENCE H. COHN JEFFREY L. SHAMES
- ------------------------------ ------------------------------
Lawrence H. Cohn Jeffrey L. Shames
45 Singletree Road 38 Lake Avenue
Chestnut Hill, MA 02167 Newton, MA 02159

SIR J. DAVID GIBBONS J. DALE SHERRATT
- ------------------------------ ------------------------------
Sir J. David Gibbons J. Dale Sherratt
"Leeward" 86 Farm Road
5 Leeside Drive Sherborn, MA 01770
"Point Shares"
Pembroke, Bermuda HM 05

ABBY M. O'NEILL
- ------------------------------ ------------------------------
Abby M. O'Neill Ward Smith
200 Sunset Road 36080 Shaker Blvd
Oyster Bay, NY 11771 Hunting Valley, OH 44022

<PAGE> 1
EXHIBIT NO. 99.1(j)

MFS SERIES TRUST I

MFS REAL ESTATE INVESTMENT FUND

Pursuant to Section 9.2(b) of the Amended and Restated Declaration of
Trust, dated January 6, 1995, as amended, (the "Declaration"), of MFS Series
Trust I (the "Trust"), the undersigned, constituting a majority of the Trustees
of the Trust, do hereby certify that MFS Real Estate Investment Fund, a series
of the Trust, has been terminated.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this certificate this
30th day of October, 1998.

RICHARD B. BAILEY WALTER E. ROBB, III
- ---------------------------- ----------------------------
Richard B. Bailey Walter E. Robb, III
63 Atlantic Avenue 35 Farm Road
Boston, MA 02110 Sherborn, MA 01770

MARSHALL N. COHAN ARNOLD D. SCOTT
- ---------------------------- ----------------------------
Marshall N. Cohan Arnold D. Scott
2524 Bedford Mews Drive 20 Rowes Wharf
Wellington, FL 33414 Boston, MA 02110

LAWRENCE H. COHN JEFFREY L. SHAMES
- ---------------------------- ----------------------------
Lawrence H. Cohn Jeffrey L. Shames
45 Singletree Road 38 Lake Avenue
Chestnut Hill, MA 02167 Newton, MA 02159

SIR J. DAVID GIBBONS J. DALE SHERRATT
- ---------------------------- ----------------------------
Sir J. David Gibbons J. Dale Sherratt
"Leeward" 86 Farm Road
5 Leeside Drive Sherborn, MA 01770
"Point Shares"
Pembroke, Bermuda HM 05

ABBY M. O'NEILL WARD SMITH
- ---------------------------- ----------------------------
Abby M. O'Neill Ward Smith
200 Sunset Road 36080 Shaker Blvd
Oyster Bay, NY 11771 Hunting Valley, OH 44022

<PAGE> 1
EXHIBIT NO. 99.4(o)

AMENDMENT TO INVESTMENT
ADVISORY AGREEMENT

AMENDMENT dated as of July 1, 1998 to the Investment Advisory Agreement dated
January 2, 1996 by and between MFS Series Trust I (the "Trust") on behalf of the
MFS Equity Income Fund (the "Fund"), a series of the Trust, and Massachusetts
Financial Services Company, a Delaware corporation (the "Adviser") (the
"Agreement").

WITNESSETH

WHEREAS, the Trust on behalf of the Fund has entered into the Agreement with the
Adviser; and

WHEREAS, the Adviser has agreed to amend the Agreement as provided below;

NOW THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereto as herein set forth, the parties covenant and agree as follows:

1. Amendment of the Agreement: Article 3 of the Agreement is deleted and
replaced in its entirety as follows:

ARTICLE 3. COMPENSATION OF THE ADVISER. For the services to be
rendered and the facilities provided, the Fund shall pay to the
Adviser an investment advisory fee computed and paid monthly at an
annual rate equal to 0.60% of the Fund's average daily net assets
for its then-current fiscal year. If the Adviser shall serve for
less than the whole of any period specified in this Article 3, the
compensation to the Adviser will be prorated.

2. Miscellaneous: Except as set forth in this Amendment, the Agreement
shall remain in full force and effect, without amendment or modification.

3. Limitation of Liability of the Trustees and Shareholders: A copy of the
Trust's Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts. The parties hereto acknowledge that the
obligations of or arising out of this instrument are not binding upon any of the
Trust's trustees, officers, employees, agents or shareholders individually, but
are binding solely upon the assets and property of the Trust in accordance with
its proportionate interest hereunder. If this instrument is executed by the
Trust on behalf of one or more series of the Trust, the parties hereto
acknowledge that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this
<PAGE> 2
instrument. If the Trust has executed this instrument on behalf of more than one
series of the Trust, the parties hereto also agree that the obligations of each
series hereunder shall be several and not joint, in accordance with its
proportionate interest hereunder, and the parties hereto agree not to proceed
against any series for the obligations of another series.

IN WITNESS WHEREOF, the parties have caused this Amendment to the Agreement to
be executed and delivered in the names and on their behalf by the undersigned,
therewith duly authorized, all as of the day and year first above written.

MFS SERIES TRUST I
on behalf of MFS Equity Income Fund

By: JAMES R. BORDEWICK, JR.
------------------------------------
James R. Bordewick, Jr.
Assistant Secretary

MASSACHUSETTS FINANCIAL SERVICES COMPANY

By: ARNOLD D. SCOTT
------------------------------------
Arnold D. Scott, Senior
Executive Vice President

-2-

<PAGE> 1
EXHIBIT NO. 99.10(e)

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference made to our firm under the captions "Condensed
Financial Information" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information and to the incorporation
by reference in this Post-Effective Amendment No. 32 to Registration Statement
No. 33-7638 on Form N-1A of our report dated October 7, 1998, on the financial
statements and financial highlights of MFS Strategic Growth Fund, a series of
MFS Series Trust I, included in the 1998 Annual Report to Shareholders.

ERNST & YOUNG LLP
Ernst & Young LLP

Boston, Massachusetts
November 12, 1998

<ARTICLE> 6
<CIK> 0000798244
<NAME> MFS SERIES TRUST I
<SERIES>
<NUMBER> 071
<NAME> MFS STRATEGIC GROWTH FUND CLASS A
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-30-1998
<INVESTMENTS-AT-COST> 497511495
<INVESTMENTS-AT-VALUE> 454583768
<RECEIVABLES> 7095228
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 45448
<TOTAL-ASSETS> 461725334
<PAYABLE-FOR-SECURITIES> 21437934
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4228074
<TOTAL-LIABILITIES> 25666008
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 462725397
<SHARES-COMMON-STOCK> 8971192
<SHARES-COMMON-PRIOR> 1292286
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (23310)
<ACCUMULATED-NET-GAINS> 16268210
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (42910971)
<NET-ASSETS> 436059326
<DIVIDEND-INCOME> 1193678
<INTEREST-INCOME> 607732
<OTHER-INCOME> (25762)
<EXPENSES-NET> (4339208)
<NET-INVESTMENT-INCOME> (2562560)
<REALIZED-GAINS-CURRENT> 18965380
<APPREC-INCREASE-CURRENT> (49616495)
<NET-CHANGE-FROM-OPS> (33213675)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (507750)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10667794
<NUMBER-OF-SHARES-REDEEMED> (3015275)
<SHARES-REINVESTED> 26387
<NET-CHANGE-IN-ASSETS> 379115752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1208652
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1898993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4412818
<AVERAGE-NET-ASSETS> 253199114
<PER-SHARE-NAV-BEGIN> 16.79
<PER-SHARE-NII> (0.14)
<PER-SHARE-GAIN-APPREC> 2.32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.79
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000798244
<NAME> MFS SERIES TRUST I
<SERIES>
<NUMBER> 072
<NAME> MFS STRATEGIC GROWTH FUND CLASS B
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-30-1998
<INVESTMENTS-AT-COST> 497511495
<INVESTMENTS-AT-VALUE> 454583768
<RECEIVABLES> 7095228
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 45448
<TOTAL-ASSETS> 461725334
<PAYABLE-FOR-SECURITIES> 21437934
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4228074
<TOTAL-LIABILITIES> 25666008
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 462725397
<SHARES-COMMON-STOCK> 10570541
<SHARES-COMMON-PRIOR> 939339
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (23310)
<ACCUMULATED-NET-GAINS> 16268210
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (42910971)
<NET-ASSETS> 436059326
<DIVIDEND-INCOME> 1193678
<INTEREST-INCOME> 607732
<OTHER-INCOME> (25762)
<EXPENSES-NET> (4339208)
<NET-INVESTMENT-INCOME> (2562560)
<REALIZED-GAINS-CURRENT> 18965380
<APPREC-INCREASE-CURRENT> (49616495)
<NET-CHANGE-FROM-OPS> (33213675)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (480547)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11268558
<NUMBER-OF-SHARES-REDEEMED> (1662490)
<SHARES-REINVESTED> 25134
<NET-CHANGE-IN-ASSETS> 379115752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1208652
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1898993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4412818
<AVERAGE-NET-ASSETS> 253199114
<PER-SHARE-NAV-BEGIN> 16.75
<PER-SHARE-NII> (0.28)
<PER-SHARE-GAIN-APPREC> 2.30
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.59
<EXPENSE-RATIO> 2.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000798244
<NAME> MFS SERIES TRUST I
<SERIES>
<NUMBER> 073
<NAME> MFS STRATEGIC GROWTH FUND CLASS C
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-30-1998
<INVESTMENTS-AT-COST> 497511495
<INVESTMENTS-AT-VALUE> 454583768
<RECEIVABLES> 7095228
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 45448
<TOTAL-ASSETS> 461725334
<PAYABLE-FOR-SECURITIES> 21437934
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4228074
<TOTAL-LIABILITIES> 25666008
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 462725397
<SHARES-COMMON-STOCK> 2827799
<SHARES-COMMON-PRIOR> 360580
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (23310)
<ACCUMULATED-NET-GAINS> 16268210
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (42910971)
<NET-ASSETS> 436059326
<DIVIDEND-INCOME> 1193678
<INTEREST-INCOME> 607732
<OTHER-INCOME> (25762)
<EXPENSES-NET> (4339208)
<NET-INVESTMENT-INCOME> (2562560)
<REALIZED-GAINS-CURRENT> 18965380
<APPREC-INCREASE-CURRENT> (49616495)
<NET-CHANGE-FROM-OPS> (33213675)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (144468)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2790666
<NUMBER-OF-SHARES-REDEEMED> (331348)
<SHARES-REINVESTED> 7901
<NET-CHANGE-IN-ASSETS> 379115752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1208652
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 189993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4412818
<AVERAGE-NET-ASSETS> 253199114
<PER-SHARE-NAV-BEGIN> 16.77
<PER-SHARE-NII> (0.28)
<PER-SHARE-GAIN-APPREC> 2.31
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.63
<EXPENSE-RATIO> 2.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000798244
<NAME> MFS SERIES TRUST I
<SERIES>
<NUMBER> 074
<NAME> MFS STRATEGIC GROWTH FUND CLASS I
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-30-1998
<INVESTMENTS-AT-COST> 497511495
<INVESTMENTS-AT-VALUE> 454583768
<RECEIVABLES> 7095228
<ASSETS-OTHER> 890
<OTHER-ITEMS-ASSETS> 45448
<TOTAL-ASSETS> 461725334
<PAYABLE-FOR-SECURITIES> 21437934
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4228074
<TOTAL-LIABILITIES> 25666008
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 462725397
<SHARES-COMMON-STOCK> 972709
<SHARES-COMMON-PRIOR> 801168
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (23310)
<ACCUMULATED-NET-GAINS> 16268210
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (42910971)
<NET-ASSETS> 436059326
<DIVIDEND-INCOME> 1193678
<INTEREST-INCOME> 607732
<OTHER-INCOME> (25762)
<EXPENSES-NET> (4339208)
<NET-INVESTMENT-INCOME> (2562560)
<REALIZED-GAINS-CURRENT> 18965380
<APPREC-INCREASE-CURRENT> (49616495)
<NET-CHANGE-FROM-OPS> (33213675)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (153532)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 277623
<NUMBER-OF-SHARES-REDEEMED> (114869)
<SHARES-REINVESTED> 8787
<NET-CHANGE-IN-ASSETS> 379115752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1208652
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1898993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4412818
<AVERAGE-NET-ASSETS> 253199114
<PER-SHARE-NAV-BEGIN> 16.80
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 2.31
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.85
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>