<PAGE>
MFS(R) INTERMEDIATE INCOME FUND
(A SERIES OF MFS SERIES TRUST II)
SUPPLEMENT TO BE AFFIXED TO THE CURRENT
PROSPECTUS FOR DISTRIBUTION IN IOWA
For Class B shares purchased after September 1, 1993, a contingent deferred
sales charge declining from 4% to 0% will be imposed if the investor redeems
within six years from the date of purchase. In addition, the Class is subject to
an annual distribution and service fee of 1% of its average daily net assets.
THE DATE OF THIS SUPPLEMENT IS APRIL 1, 1994.
MII-16IA-4/94/7M
<PAGE>
MFS(R) INTERMEDIATE INCOME FUND
(A SERIES OF MFS SERIES TRUST II)
SUPPLEMENT TO BE AFFIXED TO THE CURRENT
PROSPECTUS FOR DISTRIBUTION IN OHIO
Prospective Ohio investors should note the following:
The Fund may purchase the securities of any issuer such that, as to 50% of the
value of its assets, such purchase, at the time thereof, would cause more than
10% of the outstanding voting securities of such issuer to be held by the Fund.
THE DATE OF THIS SUPPLEMENT IS MARCH 28, 1994.
MII-16OH-3/94/7M
<PAGE>
<TABLE>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS(R) TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) GOVERNMENT MONEY MARKET FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) CASH RESERVE FUND
MFS(R) EMERGING GROWTH FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) INCOME & OPPORTUNITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD GROWTH FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) MONEY MARKET FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) RESEARCH FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) MUNICIPAL INCOME FUND
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
Effective immediately, the Funds have expanded their policies with respect to
exchanges effected by market timers to be as follows:
FSI may enter into an agreement with shareholders who intend to make
exchanges among certain classes of certain MFS Funds (as determined by FSI)
which follow a timing pattern, and with individuals or entities acting on
such shareholders' behalf (collectively, "market timers"), setting forth
the terms, procedures and restrictions with respect to such exchanges. In
the absence of such an agreement, it is the policy of the Fund and FSI to
reject or restrict purchases by market timers if (i) more than two exchange
purchases are effected in a timed account in the same calendar quarter or
(ii) a purchase would result in shares being held in timed accounts by
market timers representing more than (x) one percent of the Fund's net
assets or (y) specified dollar amounts in the case of certain MFS Funds
which may include the Fund and which may change from time to time. The Fund
and FSI each reserve the right to request market timers to redeem their
shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
THE DATE OF THIS SUPPLEMENT IS APRIL 1, 1994.
MFS-16F-4/94/500M
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) TOTAL RETURN FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) EMERGING GROWTH FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) WORLD GROWTH FUND MFS(R) MUNICIPAL INCOME FUND
MFS(R) OTC FUND MFS(R) RESEARCH FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) WORLD ASSET ALLOCATION FUND
MASSACHUSETTS INVESTORS TRUST
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from January 3, 1995 through April 28, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the funds'
principal underwriter), MFD will pay A. G. Edwards and Sons, Inc., ("A. G.
Edwards") 100% of the applicable sales charge on sales of Class A shares of each
of the funds listed above (the "Funds") sold for investment in Individual
Retirement Accounts ("IRAs") (excluding SEP-IRAs). In addition, MFD will pay A.
G. Edwards an additional commission equal to 0.50% of the net asset value of all
of the Class B shares of the Funds sold by A. G. Edwards during the Sales
Period.
THE DATE OF THIS SUPPLEMENT IS JANUARY 3, 1995.
MFS-16AG-1/95/3.5M
<PAGE>
<TABLE>
<S> <C>
MFS(R) MANAGED SECTORS FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) CASH RESERVE FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) WORLD ASSET ALLOCATION FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) EMERGING GROWTH FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) MONEY MARKET FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MONEY MARKET FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) MUNICIPAL BOND FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) OTC FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) TOTAL RETURN FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) RESEARCH FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) GROWTH OPPORTUNITIES FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) GOVERNMENT MORTGAGE FUND
MFS(R) WORLD GROWTH FUND MFS(R) GOVERNMENT SECURITIES FUND
MFS(R) BOND FUND MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS(R) LIMITED MATURITY FUND MFS(R) GOVERNMENT LIMITED MATURITY FUND
MASSACHUSETTS INVESTORS TRUST
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
Effective as of January 1, 1995, MFS Fund Distributors, Inc. ("MFD") has
replaced MFS Financial Services, Inc. ("FSI") as the Fund's distributor. Both
MFD and FSI are wholly-owned subsidiaries of Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser.
-----------------------------------------------
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) The sponsoring organization must demonstrate to the satisfaction of
MFD that either (a) the employer has at least 25 employees or (b) the
aggregate purchases by the retirement plan of Class A shares of the
Funds will be in an amount of at least $250,000 within a reasonable
period of time, as determined by MFD in its sole discretion; and
(ii) A contingent deferred sales charge of 1% will be imposed on such
purchases in the event of certain redemption transactions within 12
months following such purchases.
-----------------------------------------------
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale.
-----------------------------------------------
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an
administrative services agreement with MFD or one or more of its affiliates to
perform certain administrative services, subject to certain operational
requirements specified from time to time by MFD or one or more of its
affiliates.
-----------------------------------------------
(Over)
<PAGE>
Class A shares of the Fund (except of the MFS municipal bond funds
identified above) may be purchased at net asset value by retirement plans
qualified under Section 401(k) of the Code through certain broker-dealers and
other financial institutions which have entered into an agreement with MFD which
includes certain minimum size qualifications for such retirement plans and
provides that the broker-dealer or other financial institution will perform
certain administrative services with respect to the plan's account.
-----------------------------------------------
The CDSC on Class A and Class B shares will be waived upon redemption by a
retirement plan where the redemption proceeds are used to pay expenses of the
retirement plan or certain expenses of participants under the retirement plan
(e.g., participant account fees), provided that the retirement plan's sponsor
subscribes to the MFS Fundamental 401(k) Plan(sm) or another similar
recordkeeping system made available by MFS Service Center, Inc. (the
"Shareholder Servicing Agent").
-----------------------------------------------
The CDSC on Class A and B shares will be waived upon the transfer of
registration from shares held by a retirement plan through a single account
maintained by the Shareholder Servicing Agent to multiple Class A and B share
accounts, respectively, maintained by the Shareholder Servicing Agent on behalf
of individual participants in the retirement plan, provided that the retirement
plan's sponsor subscribes to the MFS Fundamental 401(k) Plan(sm) of another
similar recordkeeping system made available by the Shareholder Servicing Agent.
-----------------------------------------------
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
-----------------------------------------------
The current Prospectus discloses that "Class A shares of the Fund may also
be purchased at net asset value where the purchase is in an amount of $3 million
or more and where the dealer and FSI enter into an agreement in which the dealer
agrees to return any commission paid to it on the sale (or a pro rata portion
thereof) as described above if the shareholder redeems his or her shares within
one year of purchase. (Shareholders who purchase shares at NAV pursuant to these
conditions are called ("$3 Million Shareholders")." This policy is terminated
effective as of the date of this Supplement and the above-referenced language,
and all references to "$3 Million Shareholders," are deleted from the
Prospectus.
-----------------------------------------------
From time to time, MFD may pay dealers 100% of the applicable sales charge
on sales of Class A shares of certain specified Funds sold by such dealer during
a specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset value
of all of the Class B shares of certain specified Funds sold by such dealer
during a specified sales period.
-----------------------------------------------
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to reinvest all dividends
and other distributions reinvested in additional shares.
-----------------------------------------------
From time to time, MFS may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fees charged by the custodian of the Fund's assets).
THE DATE OF THIS SUPPLEMENT IS JANUARY 13, 1995.
MFS-16-1/95/605M
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS(R) WORLD TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) MUNICIPAL HIGH INCOME FUND
MFS(R) EMERGING GROWTH FUND MFS(R) MUNICIPAL INCOME FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) OTC FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) RESEARCH FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) TOTAL RETURN FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) MUNICIPAL LIMITED MATURITY FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WORLD ASSET ALLOCATION FUND
MFS(R) WORLD GROWTH FUND
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from February 1, 1995 through April 14, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the Funds'
distributor), MFD will pay Corelink Financial Inc. ("Corelink") an additional
commission equal to 0.10% of the gross commissonable sales for Class A shares
and Class B shares and the net asset value for Class C shares (if applicable) of
the Funds sold by Corelink during the Sales Period.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
MFS-16CL-2/95/5M
<PAGE>
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS CAPITAL GROWTH FUND
MFS EMERGING GROWTH FUND
MFS GOLD & NATURAL RESOURCES FUND
MFS GROWTH OPPORTUNITIES FUND
MFS MANAGED SECTORS FUND
MFS OTC FUND
MFS RESEARCH FUND
MFS VALUE FUND
MFS TOTAL RETURN FUND
MFS UTILITIES FUND
MFS BOND FUND
MFS GOVERNMENT MORTGAGE FUND
MFS GOVERNMENT SECURITIES FUND
MFS HIGH INCOME FUND
MFS INTERMEDIATE INCOME FUND
MFS STRATEGIC INCOME FUND
MFS GOVERNMENT LIMITED MATURITY FUND
MFS LIMITED MATURITY FUND
MFS WORLD EQUITY FUND
MFS WORLD GOVERNMENTS FUND
MFS WORLD GROWTH FUND
MFS WORLD TOTAL RETURN FUND
MFS WORLD ASSET ALLOCATION FUND
MFS CASH RESERVE FUND
MFS GOVERNMENT MONEY MARKET FUND
MFS MONEY MARKET FUND
SUPPLEMENT TO THE CURRENT PROSPECTUS
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an agreement
with MFS Fund Distributors, Inc. ("MFD") or one or more of its affiliates to
perform certain administrative services, subject to certain operational
requirements specified from time to time by MFD or its affiliates.
In lieu of the sales commission and service fees normally paid by MFD
to broker-dealers of record as described in the Prospectus, MFD has agreed to
pay Bear, Stearns & Co. Inc. the following amounts with respect to Class A
shares of the Fund purchased through a special retirement plan program offered
by a third party administrator: (i) an amount equal to 0.05% per annum of the
average daily net assets invested in shares of the Fund pursuant to such
program, and (ii) an amount equal to 0.20% of the net asset value of all new
purchases of shares of the Fund made through such program, subject to a refund
in the event that such shares are redeemed within 36 months.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
<PAGE>
MFS(R) INTERMEDIATE PROSPECTUS
INCOME FUND April 1, 1994
(A member of the MFS Family of Funds(R)) Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
- --------------------------------------------------------------------------------
Page
----
1. The Fund ............................................................... 2
2. Expense Summary ........................................................ 2
3. Condensed Financial Information ........................................ 4
4. Investment Objective and Policies ...................................... 4
5. Investment Techniques .................................................. 7
6. Management of the Fund ................................................. 14
7. Information Concerning Shares of the Fund .............................. 15
Purchases ............................................................. 15
Exchanges ............................................................. 20
Redemptions and Repurchases ........................................... 20
Distribution Plans .................................................... 23
Distributions ......................................................... 24
Tax Status ............................................................ 24
Net Asset Value ....................................................... 25
Description of Shares Voting Rights and Liabilities ................... 25
Performance Information ............................................... 26
8. Shareholder Services ................................................... 26
Appendix A ............................................................ 29
Appendix B ............................................................ 30
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS INTERMEDIATE INCOME FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of MFS Intermediate Income Fund (the "Fund") is to
preserve capital and provide high current income. The Fund is a non-diversified
series of MFS Series Trust II (the "Trust"), an open-end management investment
company. BECAUSE OF THE POLICIES OF THE MFS INTERMEDIATE INCOME FUND OF
INVESTING TO A SIGNIFICANT EXTENT IN FOREIGN SECURITIES, INVESTMENTS IN THIS
FUND MAY BE SUBJECT TO A GREATER DEGREE OF RISK THAN INVESTMENTS IN OTHER
INVESTMENT COMPANIES WHICH INVEST ENTIRELY IN DOMESTIC SECURITIES (see
"Investment Objective and Policies"). The minimum initial investment generally
is $1,000 per account (see "Purchases"). The Fund's investment adviser and
distributor are Massachusetts Financial Services Company and MFS Financial
Services, Inc., respectively, both of which are located at 500 Boylston Street,
Boston, Massachusetts 02116.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
This Prospectus sets forth concisely the information concerning the Trust and
Fund that a prospective investor ought to know before investing. The Trust, on
behalf of the Fund, has filed with the Securities and Exchange Commission a
Statement of Additional Information, dated April 1, 1994, which contains more
detailed information about the Trust and the Fund and is incorporated into this
Prospectus by reference. See page 28 for a further description of the
information set forth in the Statement of Additional Information. A copy of the
Statement of Additional Information may be obtained without charge by contacting
the Shareholder Servicing Agent (see back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. THE FUND
MFS Intermediate Income Fund (the "Fund") is a non-diversified series of MFS
Series Trust II (the "Trust"), an open-end management investment company which
was organized as a business trust under the laws of The Commonwealth of
Massachusetts on July 30, 1986. The Trust presently consists of four series of
shares, each of which represents a portfolio with separate investment policies.
Shares of the Fund are continuously sold to the public and the Fund then uses
the proceeds to buy securities for its portfolio. Two classes of shares of the
Fund currently are offered to the general public. Class A shares are offered at
net asset value plus an initial sales charge (or a contingent deferred sales
charge (a "CDSC") in the case of certain purchases of $1 million or more) and
are subject to a Distribution Plan, providing for a distribution fee and a
service fee. Class B shares are offered at net asset value without a sales
charge but subject to a CDSC and a Distribution Plan providing for a
distribution fee and a service fee which are greater than the Class A
distribution fee and service fee. Class B shares will convert to Class A shares
approximately eight years after purchase.
The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. Massachusetts Financial Services Company, a Delaware corporation ("MFS" or
the "Adviser"), is the Fund's investment adviser. Prior to September 1, 1993,
Lifetime Advisers, Inc. ("LAI"), a Delaware corporation and a wholly owned
subsidiary of MFS, was the investment adviser for the Fund. The Adviser is
responsible for the management of the Fund's assets and the officers of the
Trust are responsible for the Fund's operations. The Adviser manages the
portfolio from day to day in accordance with the Fund's investment objective and
policies. A majority of the Trustees are not affiliated with the Adviser. The
selection of investments and the way they are managed depend on the conditions
and trends in the economies of the various countries of the world, their
financial markets and the relationship of their currencies to the U.S. dollar.
The Trust also offers to buy back (redeem) shares of the Fund from Fund
shareholders at any time at net asset value, less any applicable CDSC.
2. EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B
------- -------
Maximum Initial Sales Charge Imposed on
Purchases of Fund Shares (as a percentage of
offering price) ................................. 4.75% 0.00%
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) ............. See Below(1) 4.00%(2)
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):(3)
Management Fees ................................. 0.74% 0.74%
Rule 12b-1 Fees (after applicable fee reduction) 0.00%(4) 1.00%(5)
Other Expenses .................................. 0.34%(6) 0.41%(7)
----- -----
Total Operating Expenses (after applicable fee
reduction)(3) .................................. 1.08% 2.15%
- -------------
(1) Purchases of $1 million or more are not subject to an initial sales charge;
however, a CDSC of 1% will be imposed on such purchases in the event of
certain redemption transactions within 12 months following such purchases
(see "Purchases" below).
(2) Shares purchased on or after January 1, 1993 but prior to September 1, 1993
will be subject to a CDSC of 5% in the event of a redemption within the
first year after purchase.
(3) For Class B shares, percentages are based on expenses incurred during the
fiscal year ended November 30, 1993. For Class A shares, which were
initially offered on September 7, 1993, percentages are based on Class B
expenses adjusted for Class A specific expenses.
(4) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
0.35% per annum of the average daily net assets attributable to the Class A
shares. After a substantial period of time, distribution expenses paid under
this Plan, together with the initial sales charge, may total more than the
maximum sales charge that would have been permissible if imposed entirely as
an initial sales charge. Rule 12b-1 fees will become payable by the Fund
when the Fund's net assets attributable to Class A shares first equal or
exceed $40,000,000, at which time the Fund's distributor intends to waive
payment of 0.10% payable under the Class A Distribution Plan (see
"Distribution Plans")
(5) The Fund has adopted a Distribution Plan for its Class B shares in
accordance with Rule 12b-1 under the 1940 Act, which provides that it will
pay distribution/service fees aggregating up to 1.00% per annum of the
average daily net assets attributable to the Class B shares (see
"Distribution Plans"). After a substantial period of time, distribution
expenses paid under this Plan, together with any CDSC, may total more than
the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
(6) Based on Class B expenses incurred during its last fiscal year except for
the shareholder servicing agent fees component which has been estimated for
Class A.
(7) Based on current shareholder servicing agent fees.
(8) Absent any reductions, "Total Operating Expenses" would have been 1.43% for
Class A shares.
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B
- ------ ------- -------
(1)
1 year .................... $ 58 $ 62 $ 22
3 years ................... 80 97 67
5 years ................... 104 135 115
10 years ................... 173 221(2) 221(2)
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections: (i) varying sales charges on
share purchases--"Purchases"; (ii) varying CDSCs--"Purchases"; (iii) management
fees--"Investment Adviser"; and (iv) Rule 12b-1 (i.e., distribution plan)
fees--"Distribution Plans".
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which is
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche, independent certified public
accountants, as experts in accounting and auditing.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Class A and Class B Shares
YEAR ENDED NOVEMBER 30
----------------------------------------------------------------------
CLASS A CLASS B
------- ----------------------------------------------------------
1993<F5> 1993 1992 1991 1990 1989 1988<F4>
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value--beginning ot period $ 9.11 $ 8.88 $ 9.31 $ 9.23 $ 9.50 $ 9.77 $ 9.47
------ ------ ------ ------ ------ ------ ------
Income from investment operations--
Net investment income<F3> $ 0.11 $ 0.47 $ 0.62 $ 0.58 $ 0.59 $ 0.68 $ 0.35
Net realized and unrealized gain (loss) on
investments (0.17) 0.26 (0.26) 0.32 (0.02) (0.08) 0.10
------ ------ ------ ------ ------ ------ ------
Total from investment operations $(0.06) $ 0.73 $ 0.36 $ 0.90 $ 0.57 $ 0.60 $ 0.45
------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders--
From net Investment income $(0.09) $(0.45) $(0.57) $(0.56) $(0.45) $(0.85) $(0.12)
From paid-in capital -- (0.07) (0.07) (0.12) (0.39) -- --
From net realized gain on investments (0.02) (0.16) (0.15) (0.14) -- (0.02) (0.03)
------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.11) $(0.68) $(0.79) $(0.82) $(0.84) $(0.87) $(0.15)
------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period $ 8.94 $ 8.93 $ 8.88 $ 9.31 $ 9.23 $ 9.50 $ 9.77
====== ====== ====== ====== ====== ====== ======
TOTAL RETURN<F6> (0.66)%<F2> 8.42% 3.93% 10.30% 6.59% 6.60% 14.21%<F1>
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses 1.22%<F1> 2.15% 2.20% 2.24% 2.33% 2.47% 2.79%<F1>
Net investment income 6.43%<F1> 5.19% 6.70% 6.65% 6.80% 7.13% 17.14%<F1>
PORTFOLIO TURNOVER 376% 376% 372% 603% 579% 433% 120%
NET ASSETS -- END OF PERIOD (000 OMITTED) $258 $466,955 $347,588 $196,753 $126,245 $75,039 $30,858
<FN>
- -----------
<F1> Annualized.
<F2> Not annualized.
<F3> Based on average shares outstanding on Class B shares for the year ended
November 30, 1993.
<F4> For the period from the commencement of investment operations, August 1,
1988 to November 30, 1988.
<F5> For the period from the commencement of offering of Class A shares,
September 7, 1993 to November 30, 1993.
<F6> The total return does not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
</TABLE>
4. INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to preserve capital and provide high current income.
The Fund seeks to achieve its objectives by investing in securities that are
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities ("U.S. Government Securities") and in
obligations issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities ("Foreign Government
Securities"). The Fund will maintain an average weighted portfolio maturity of
approximately seven years or less and will invest substantially all of its
assets in securities with remaining maturities less than or equal to 10 years.
Under normal market conditions, the Fund's average weighted portfolio maturity
will not be less than three years. The Adviser believes that this strategy will
enable the Fund to preserve capital while seeking high current income.
Shorter-term U.S. and Foreign Government Securities generally are more stable
and less susceptible to principal loss than longer-term securities. While
shorter-term securities in most cases offer lower yields than securities with
longer maturities, the Fund will seek to enhance income by writing options on
U.S. and Foreign Government Securities. Option writing can result in the loss of
principal under certain market conditions.
The U.S. Government Securities in which the Fund intends to invest include (i)
U.S. Treasury obligations, which differ only in their interest rates, maturities
and times of issuance: U.S. Treasury bills (maturities of one year or less);
U.S. Treasury notes (maturities of one to 10 years); and U.S. Treasury bonds
(generally original maturities of greater than 10 years), all of which are
backed by the full faith and credit of the United States; and (ii) obligations
issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities, 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 (the "GNMA"); some of which are supported by the right of
the issuer to borrow from the U.S. Government, e.g., obligations of Federal Home
Loan Banks; and some of which are backed only by the credit of the issuer
itself, e.g., obligations of the Student Loan Marketing Association. For a
description of obligations issued by U.S. Government agencies, authorities or
instrumentalities, see Appendix A to this Prospectus.
For purposes of the foregoing investment policy, securities having a certain
maturity will be deemed to include securities with an equivalent "duration" of
such securities. "Duration" is a commonly used measure of the longevity of a
debt instrument that takes into account the full stream of payments received on
a debt instrument, including both interest and principal payments, based on
their present values. A debt instrument's duration is derived by discounting
principal and interest payments to their present value using the instrument's
current yield to maturity and taking the dollar-weighted average time until
those payments will be received. Contractual rights to dispose of a security,
call options and prepayment assumptions may be considered in calculating
duration and average maturity because such rights limit the period during which
the Fund bears a market risk with respect to the security.
U.S. Government Securities do not generally involve the credit risks associated
with other types of interest bearing securities, although, as a result, the
yields available from U.S. Government Securities are generally lower than the
yields available from other interest bearing securities. Like other interest
bearing securities, however, the values of U.S. Government Securities change as
interest rates fluctuate.
The Fund may invest up to 50% of its total assets in Foreign Government
Securities of issuers considered stable by the Adviser. Although the Fund may
invest in any country where the Adviser believes there to be the potential to
achieve the Fund's investment objective, the Fund presently intends to invest
primarily in securities of government issuers in Western European countries,
Canada, Japan, Australia and New Zealand. The Adviser does not believe that the
credit risk inherent in the obligations of such stable foreign governments is
significantly greater than that of U.S. Government Securities. The percentage of
the Fund's assets invested in Foreign Government Securities will vary depending
on the relative yields of such securities, the economies of the countries in
which the investments are made and such countries' financial markets, the
interest rate climate of such countries and the relationship of such countries'
currencies to the U.S. dollar. Investments in Foreign Government Securities and
currency will be evaluated on the basis of fundamental economic criteria (e.g.,
relative inflation levels and trends, growth rate forecasts, balance of payments
status and economic policies) as well as technical and political data. In
addition to the foregoing, interest rates are evaluated on the basis of
differentials or anomalies that may exist between different countries. The
Fund's portfolio, under normal conditions, will include securities of a number
of foreign countries. The Foreign Government Securities in which the Fund
intends to invest will generally consist of obligations supported by national,
state or provincial governments or similar political subdivisions. The Fund may
hold foreign currency for hedging purposes to protect against declines in the
U.S. dollar value of Foreign Government Securities held by the Fund and against
increases in the U.S. dollar value of the Foreign Government Securities which
the Fund might purchase. The Fund may also hold foreign currency for other
purposes. (See "Additional Risk Factors" below).
Under normal circumstances, at least 65% of the assets of the Fund will be
invested in income producing securities.
The Fund may also purchase interests in trusts or other entities representing
interests in U.S. Government Securities or Foreign Government Securities or
holding U.S. Government Securities or Foreign Government Securities in amounts
sufficient to cover all payments due from such entities. The Fund may enter into
mortgage "dollar roll" transactions (see "Investment Techniques--Mortgage Dollar
Roll Transactions" below). The securities in which the Fund may invest also
include zero coupon bonds. The Fund may also invest in collateralized mortgage
obligations, multiclass pass-through securities and stripped mortgage-backed
securities. (See "Investment Techniques--Zero Coupon Bonds, Deferred Interest
Bonds and PIK Bonds", "--Collateralized Mortgage Obligations and Multiclass
Pass-Through Securities" and "--Stripped Mortgage-Backed Securities" below). The
Fund may purchase portfolio securities on a "when-issued" or on a forward
delivery" basis (see "Investment Techniques--When-Issued Securities" below). In
addition, the Fund may write covered call and put options and purchase call and
put options on U.S. Government Securities as well as write covered call and put
"yield curve" options and purchase call and put "yield curve" options on the
"spread" between two U.S. Government Securities in an effort to increase current
income and for hedging purposes (see "Investment Techniques--Options" below).
The Fund may also purchase and sell interest rate futures contracts on U.S.
Government Securities or indexes of such securities and may write and purchase
options on such futures contracts for hedging purposes and for non-hedging
purposes, subject to applicable law (see "Investment Techniques--Futures
Contracts and Options on Futures Contracts" below).
For hedging purposes, the Fund may also enter into forward foreign currency
exchange contracts, futures contracts on foreign currencies, options on such
futures contracts and options on foreign currencies (see "Investment
Techniques--Futures Contracts and Options on Futures Contracts", "--Forward
Contracts on Foreign Currency and Precious Metals and Other Natural Resources"
and "--Options on Foreign Currencies" below). In addition, the Fund may enter
into such transactions (except for options on foreign currencies) for other than
hedging purposes, including transactions entered into for the purpose of
profiting from anticipated changes in foreign currency exchange rates.
ADDITIONAL INFORMATION AS TO INVESTMENT OBJECTIVE AND POLICIES
FIXED INCOME SECURITIES -- When and if available, the Fund may purchase fixed
income securities at a discount from face value. However, the Fund does not
intend to hold such securities to maturity for the purpose of achieving
potential capital gains, unless current yields on these securities remain
attractive.
ADDITIONAL RISK FACTORS -- The net asset value of the shares of an open-end
investment company which may invest in fixed income securities changes as the
general levels of interest rates fluctuate. When interest rates decline, the
value of a fixed income portfolio can be expected to rise. Conversely, when
interest rates rise, the value of a fixed income portfolio can be expected to
decline.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of shares of the Fund, such changes will not
affect the income received by the Fund from such securities. However, the
dividends paid by the Fund, if any, will increase or decrease in relation to the
income received by the Fund from its investments, which would in any case be
reduced by the Fund's expenses before it is distributed to shareholders. The
Fund seeks to maintain a relatively high, stable dividend. At times, a portion
of the Fund's dividend may constitute a return of capital.
In addition, the use of options, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies (see "Investment
Techniques" below) may result in the loss of principal, particularly where such
instruments are traded for other than hedging purposes (e.g., to enhance current
yield).
The Fund intends to maintain a portfolio with a significant investment in
securities of non-U.S. issuers. Investing in foreign securities or on foreign
exchanges may present a greater degree of risk than investing in domestic
issuers. These risks include changes in currency rates, exchange control
regulations, governmental administration, economic or monetary policy (in this
country or abroad), war or expropriation. In particular, the dollar value of
portfolio securities of non-U.S. issuers fluctuates with changes in market and
economic conditions abroad and with changes in relative currency values (when
the value of the dollar increases as compared to a foreign currency, the dollar
value of a foreign-denominated security decreases, and vice versa). Costs may be
incurred in connection with conversions between various currencies. Special
considerations may also include more limited information about foreign issuers,
higher brokerage costs, different accounting standards and thinner trading
markets. Foreign securities markets may also be less liquid, more volatile and
less subject to government supervision than in the United States. Investments in
foreign countries could be affected by other factors including confiscatory
taxation and potential difficulties in enforcing contractual obligations and
could be subject to extended settlement periods. Therefore, an investment in
shares of the Fund may be subject to a greater degree of risk than investments
in other investment companies which invest exclusively in domestic securities.
As a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of such
securities, in the foreign currencies in which such securities are denominated.
In that event, the Fund may promptly convert such currencies into dollars at the
then current exchange rate. Under certain circumstances, however, such as where
the Adviser believes that the applicable exchange rate is unfavorable at the
time the currencies are received or the Adviser anticipates, for any other
reason, that the exchange rate will improve, the Fund may hold such currencies
for an indefinite period of time.
In addition, the Fund may be required to receive delivery of the foreign
currencies underlying options on foreign currencies it has entered into, and the
Fund may be required to receive delivery of the foreign currency underlying
forward foreign currency contracts it has entered into. This could occur, for
example, if an option written by the Fund is exercised or the Fund is unable to
close out a forward contract it has entered into. The Fund may also hold foreign
currency in anticipation of purchasing foreign securities. The Fund may also
elect to take delivery of the currencies underlying options or forward contracts
if, in the judgment of the Adviser, it is in the best interest of the Fund to do
so. In such instances as well, the Fund may promptly convert the foreign
currencies to dollars at the then current exchange rate, or may hold such
currencies for an indefinite period of time.
While the holding of currencies will permit the Fund to take advantage of
favorable movements in the applicable exchange rate, it also exposes the Fund to
risk of loss if such rates move in a direction adverse to the Fund's position.
Such losses could reduce any profits or increase any losses sustained by the
Fund from the sale or redemption of securities, and could reduce the dollar
value of interest of securities, and could reduce the dollar value of interest
or dividend payments received. In addition, the holding of currencies could
adversely affect the Fund's profit or loss on currency options or forward
contracts, as well as its hedging strategies.
See the Statement of Additional Information for further discussion of foreign
securities and the holding of foreign currency as well as the associated risks.
The Fund has registered as a "non-diversified" investment company. As a result,
the Fund is limited as to the percentage of its assets that may be invested in
the securities of any one issuer only by its own investment restrictions and the
diversification requirements of the Internal Revenue Code of 1986, as amended.
U.S. Government Securities are not subject to any investment limitation. Since
the Fund may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the Fund may be more susceptible to
any single economic, political or regulatory occurrence.
Given the above average investment risk inherent in the Fund, investment in
shares of the Fund should not be considered a complete investment program and
may not be appropriate for all investors.
SHORT-TERM INVESTMENTS FOR DEFENSIVE PURPOSES -- During periods of unusual
market conditions when the Adviser believes that investing for defensive
purposes is appropriate, or in order to meet anticipated redemption requests, a
large portion or all of the assets of the Fund may be invested in cash or cash
equivalents including, but not limited to, obligations of banks (including
certificates of deposit, bankers' acceptances and repurchase agreements) with
assets of $1 billion or more, commercial paper, short-term notes, obligations
issued or guaranteed by the U.S. Government or any of its agencies, authorities
or instrumentalities and related repurchase agreements. See Appendix B to this
Prospectus for a description of certain short term investments.
5. INVESTMENT TECHNIQUES
LENDING OF SECURITIES: The Fund may make loans of its portfolio securities. Such
loans will usually be made only to member banks of the Federal Reserve System
and member firms (and subsidiaries thereof) of the New York Stock Exchange and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government Securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. The Fund
would continue to collect the equivalent of the interest on the securities
loaned and would also receive either interest (through investment of cash
collateral) or a fee (if the collateral is U.S. Government Securities).
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn additional income on available cash or as a temporary defensive measure.
Under a repurchase agreement, the Fund acquires securities subject to the
seller's agreement to repurchase at a specified time and price. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Fund's right to liquidate the securities
may be restricted (during which time the value of the securities could decline).
As discussed in the Statement of Additional Information, the Fund has adopted
certain procedures which are intended to minimize any such risk.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended (the "1933 Act")
("restricted securities"), including those that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a continuing
review of the trading markets for the specific Rule 144A security, whether such
security is illiquid and thus subject to a Fund's limitation on investing not
more than 15% of its net assets in illiquid investments, or liquid and thus not
subject to such limitation. The Board of Trustees has adopted guidelines and
delegated to the Adviser the daily function of determining and monitoring the
liquidity of Rule 144A securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. The Board will
carefully monitor a Fund's investments in Rule 144A securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of liquidity in a Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing Rule 144A securities held in the
Fund's portfolio. Subject to the Fund's 15% limitation on investments in
illiquid investments, the Fund may also invest in restricted securities that may
not be sold under Rule 144A, which presents certain risks. As a result, the Fund
might not be able to sell these securities when the Adviser wishes to do so, or
might have to sell them at less than fair value. In addition, market quotations
are less readily available. Therefore, judgment may at times play a greater role
in valuing these securities than in the case of unrestricted securities.
MORTGAGE DOLLAR ROLL TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities for delivery in the future (generally
within 30 days) and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specified future date. The Fund
will only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction.
WHEN-ISSUED SECURITIES: in order to help ensure the availability of suitable
securities for its portfolio, the Fund may purchase securities on a
"when-issued" or on a "forward delivery" basis, which means that the obligations
will be delivered to the Fund at a future date usually beyond customary
settlement time. It is expected that, under normal circumstances, the Fund will
take delivery of such securities. In general, the Fund does not pay for the
securities until received and does not start earning interest on the obligations
until the contractual settlement date. While awaiting delivery of the
obligations purchased on such bases, the Fund will establish a segregated
account consisting of cash, short-term money market instruments or high quality
debt securities equal to the amount of the commitments to purchase "when-issued"
securities. See the Statement of Additional Information.
ZERO COUPON BONDS: The Fund may invest in zero coupon bonds. Zero coupon bonds
are debt obligations which are issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity. Zero coupon bonds
do not require the periodic payment of interest. Such investments benefit the
issuer by mitigating its need for cash to meet debt service, but also require a
higher rate of return to attract investors who are willing to defer receipt of
such cash. Such investments may experience greater volatility in market value
due to changes in interest rates than debt obligations which make regular
payments of interest. The Fund will accrue income on such investments for tax
and accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: The
Fund may invest in Collateralized Mortgage Obligations ("CMOs"), which are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by certificates issued by the
GNMA, the Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation but also may be collateralized by whole loans or private
mortgage pass-through securities (such as collateral collectively hereinafter
referred to as "Mortgage Assets"). The Fund may also invest a portion of its
assets in multiclass pass-through securities which are interests in a trust
composed of Mortgage Assets. The Mortgage Assets must be issued or guaranteed by
the U.S. Government, its agencies, authorities or instrumentalities. Payments of
principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. In a CMO, a series of
bonds or certificates is usually issued in multiple classes with different
maturities. Each class of CMOs, often referred to as a "tranche", is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of CMOs on a monthly,
quarterly or semiannual basis. The principal of and interest on the Mortgage
Assets may be allocated among the several classes of a series of a CMO in
innumerable ways. In a common structure, payments of principal, including any
principal prepayments, on Mortgage Assets are applied to the classes of the
series 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" in the Statement
of Additional Information for a discussion of the risks of investing in these
stripped securities and of investing in classes consisting primarily 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. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with the
required principal payment on such securities having the highest priority after
interest has been paid to all classes. For a further description of CMOs,
parallel pay CMOs and PAC Bonds and the risks related to transactions therein,
see the Statement of Additional Information.
STRIPPED MORTGAGE-BACKED SECURITIES: The Fund may invest a portion of its assets
in stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities usually structured with two classes that receive different
proportions of interest and principal distributions from an underlying pool of
mortgage assets. For a further description of SMBS and the risks related to
transactions therein, see the Statement of Additional Information.
SWAPS AND RELATED TRANSACTIONS -- As one way of managing its exposure to
different types of investments, the Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors. Swaps involve the exchange by the Fund with another party of
cash payments based upon different interest rate indexes, currencies, and other
prices or rates, such as the value of mortgage prepayment rates. For example, in
the typical interest rate swap, the Fund might exchange a sequence of cash
payments based on a floating rate index for cash payments based on a fixed rate.
Payments made by both parties to a swap transaction are based on a principal
amount determined by the parties.
The Fund may also purchase and sell caps, floors and collars. In a typical cap
or floor agreement, one party agrees to make payments onto under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
counterparty selling such interest rate cap. The sale of an interest rate floor
obligates the seller to make payments to the extent that a specified interest
rate falls below an agreed-upon level. A collar arrangement combines elements of
buying a cap and selling a floor.
Swap agreements will tend to shift a Fund investment exposure from one type of
investment to another. For example, if a Fund agreed to exchange payments in
dollars for payments in foreign currency, in each case based on a fixed rate,
the swap agreement would tend to decrease a Fund's exposure to U.S. interest
rates and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall volatility
of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which involve
certain risks. See the Statement of Additional Information for further
discussion on, and the risks involved, in, these activities.
TRANSACTIONS IN OPTIONS, FUTURES AND FORWARD CONTRACTS: The Fund may enter into
transactions in options, futures and forward contracts on a variety of
instruments and indices, in order to protect against declines in the value of
portfolio securities or increases in the cost of securities or other assets to
be acquired and, subject to applicable law, to increase the Fund's gross income.
The types of instruments to be purchased and sold by the Fund are described in
the Statement of Additional Information, which should be read in conjunction
with the following section. In addition, the Statement of Additional Information
contains a further discussion of the nature of the transactions which may be
entered into and the risks associated therewith.
OPTIONS
OPTIONS ON SECURITIES -- The Fund may write (sell) covered call and put options
and purchase call and put options on securities. The Fund will write options on
securities for the purpose of increasing its return on such securities and/or to
protect the value of its portfolio. In particular, where the Fund writes an
option which expires unexercised or is closed out by the Fund at a profit, it
will retain the premium paid for the option which will increase its gross income
and will offset in part the reduced value of the portfolio security underlying
the option, or the increased cost of portfolio securities to be acquired. In
contrast, however, if the price of the underlying security moves adversely to
the Fund's position, the option may be exercised and the Fund will be required
to purchase or sell the underlying security at a disadvantageous price, which
may only be partially offset by the amount of the premium. The Fund may also
write combinations of put and call options on the same security, known as
"straddles." Such transactions can generate additional premium income but also
present increased risk.
By writing a call option on a security, the Fund limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Fund
retains the risk of depreciation in value of securities on which it has written
call options.
The Fund may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that the Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, the Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option, and, unless the price of the underlying
security changes sufficiently, the option may expire without value to the Fund.
In certain instances, the Fund may enter into options on Treasury securities
which may be referred to as "reset" options or "adjustable strike" options.
These options provide for periodic adjustment of the strike price and may also
provide for the periodic adjustment of the premium during the term of the
option.
YIELD CURVE OPTIONS -- The Fund may also enter into options on the yield
"spread", or yield differential, between two U.S. Government 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 or indices of securities, rather than the price 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 or indices. 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 when the yield of one
of the underlying securities or indices remains constant, if the yield 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 written by
the Fund is covered if the Fund holds another call (or put) option on the yield
spread between the same two securities or indices and maintains in a segregated
account with its custodian cash or cash equivalents sufficient to cover the
Fund's net liability under the two options. Therefore, the Fund's maximum
liability for such a covered option is 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 counter party 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS -- The Fund may enter into interest rate and foreign currency
futures contracts. The Fund may also enter into futures contracts based on
financial indices, including any index of U.S. or Foreign Government Securities.
(Unless otherwise specified, futures contracts on interest rates, financial
indices, and foreign currency futures contracts are collectively referred to as
"Futures Contracts.") The Fund will utilize Futures Contracts for hedging and
non-hedging purposes, subject to applicable law. The Fund will incur brokerage
fees when it purchases and sells Futures Contracts, and it will be required to
make and maintain margin deposits.
OPTIONS ON FUTURES CONTRACTS -- The Fund may purchase and write options on
interest rate and foreign currency futures contracts. The Fund may also enter
into options on futures contracts based on financial indices, including any
index of U.S. or Foreign Government Securities. (Unless otherwise specified,
options on financial indices futures contracts, interest rate futures contracts
and options on foreign currency futures contracts are collectively referred to
as "Options on Futures Contracts.") Such investment strategies will be used for
hedging and non-hedging purposes, subject to applicable law. Put and call
Options on Futures Contracts may be traded by the Fund in order to protect
against declines in the values of portfolio securities or against increases in
the cost of securities to be acquired. Purchases of Options on Futures Contracts
may present less risk in hedging the portfolios of the Fund than the purchase or
sale of the underlying Futures Contracts since the potential loss is limited to
the amount of the premium plus related transaction costs. The writing of such
options, however, does not present less risk than the trading of Futures
Contracts and will constitute only a partial hedge, up to the amount of the
premium received. In addition, if an option is exercised, the Fund may suffer a
loss on the transaction.
FORWARD CONTRACTS ON FOREIGN CURRENCY -- The Fund may enter into contracts for
the purchase or sale of a specific currency at a future date at a price set at
the time of the contract (a "Forward Contract"). The Fund will enter into
Forward Contracts for hedging and non-hedging purposes including transactions
entered into for the purpose of profiting from anticipated changes in foreign
currency exchange rates. Transactions in Forward Contracts entered into for
hedging purposes may include forward purchases or sales of foreign currencies
for the purpose of protecting the dollar value of securities denominated in a
foreign currency or protecting the dollar equivalent of interest or dividends to
be paid on such securities. The Fund may also enter into Forward Contracts for
across hedging" purposes, e.g., the purchase or sale of a Forward Contract on
one type of currency as a hedge against adverse fluctuations in the value of a
second type of currency. By entering into such transactions, however, the Fund
may be required to forgo the benefits of advantageous changes in exchange rates.
The Fund may also enter into transactions in Forward Contracts for other than
hedging purposes. For example, if the Adviser believes that the value of a
particular foreign currency will increase or decrease relative to the value of
the U.S. dollar, the Fund may purchase or sell such currency, respectively,
through a Forward Contract. If the expected changes in the value of the currency
occur, the Fund will realize profits which will increase its gross income. Such
transactions, however, may be considered speculative and could involve
significant risk of loss, as set forth below. The Fund has established
procedures consistent with statements of the Securities and Exchange Commission
(the "SEC") and its staff regarding the use of Forward Contracts by registered
investment companies, which requires use of segregated assets or "cover" in
connection with the purchase and sale of such contracts.
Forward Contracts are traded over-the-counter, and not on organized commodities
or securities exchanges. As a result, such contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in the Futures and Options contracts
described above.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of portfolio securities, and against increases in the dollar
cost of securities to be acquired. As in the case of other types of options,
however, the writing of an option on foreign currency will constitute only a
partial hedge, up to the amount of the premium received, and the Fund could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements adverse to the Fund's position, it may
forfeit the entire amount of the premium plus related transaction costs. As in
the case of Forward Contracts, certain options on foreign currencies are traded
over-the-counter and involve risks which may not be present in the case of
exchange-traded instruments.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS:
Although the Fund will enter into certain transactions in Futures Contracts,
Options on Futures Contracts, Forward Contracts and options for hedging
purposes, such transactions do involve certain risks. For example, a lack of
correlation between the index or instrument underlying an option, Futures
Contract of Forward Contract and the assets being hedged, or unexpected adverse
price movements, could render the Fund's hedging strategy unsuccessful and could
result in losses. "Cross hedging" transactions may involve greater correlation
risks. In addition, there can be no assurance that a liquid secondary market
will exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expirations which could result in losses.
As noted, the Fund may also enter into transactions in such instruments (except
for options on foreign currencies) for other than hedging purposes (subject to
applicable law), including speculative transactions, which involve greater risk.
In particular, in entering into such transactions, the Fund may experience
losses which are not offset by gains on other portfolio positions, thereby
reducing its gross income. In addition, the markets for such instruments may be
extremely volatile from time to time, as discussed in the Statement of
Additional Information, which could increase the risks incurred by the Fund in
entering into such transactions.
Transactions in options may be entered into on U.S. exchanges regulated by the
SEC, in the over-the-counter market and on foreign exchanges, while Forward
Contracts may be entered into only in the over-the-counter market. Futures
Contracts and Options on Futures Contracts may be entered into on U.S. exchanges
regulated by the Commodity Futures Trading Commission (the "CFTC") and on
foreign exchanges. The securities underlying options and Futures Contracts
traded by the Fund may include domestic as well as foreign securities. Investors
should recognize that transactions involving foreign securities or foreign
currencies, and transactions entered into in foreign countries, may involve
considerations and risks not typically associated with investing in U.S.
markets.
Transactions in options, Futures Contracts, Options on Futures Contracts and
Forward Contracts entered into for non-hedging purposes involve greater risk and
could result in losses which are not offset by gains on other portfolio assets.
For example, the Fund may sell Futures Contracts on an index of securities in
order to profit from any anticipated decline in the value of the securities
comprising the underlying index. In such instances, any losses on the Futures
transaction will not be offset by gains on any portfolio securities comprising
such index, as might occur in connection with a hedging transaction. The risks
related to transactions in options, Futures Contracts, Options on Futures
Contracts and Forward Contracts entered into by the Fund are set forth in
greater detail in the Statement of Additional Information, which should be
reviewed in conjunction with the foregoing discussion.
AGENCY AND U.S. GOVERNMENT-RELATED SECURITIES: Agency Securities include
obligations issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities, some of which are supported by the right of the issuer to
borrow from the U.S. Government, e.g., obligations of Federal Home Loan Banks;
some of which are backed only by the credit of the issuer itself, e.g.,
obligations of the Student Loan Marketing Association; and some of which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations, e.g., obligations of the Federal National Mortgage
Association. No assurance can be given that the U.S. Government will provide
financial support to these entities because it is not obligated by law, in
certain instances, to do so. The primary types of Agency Securities in which the
Fund invests are listed in Appendix A.
U.S. Government-related Securities and Agency-related Securities (collectively,
"Government-related Securities") include, but are not limited to, CMOs, SMBS and
government backed trust certificates ("GBTs") (see "Investment Techniques--
Collateralized Mortgage Obligations and Multi-Class Pass-Through Securities" and
"--Stripped Mortgage-Backed Securities"). GBTs and certain CMOs, SMBS and other
U.S. Government-related Securities are issued by private entities, and are not
directly guaranteed by the U.S. Government or any U.S. Government agency. They
are secured by the underlying collateral (U.S. Government Securities or Agency
Securities, in the case of the Fund) held by the private issuer. Furthermore, no
assurance can be given that the U.S. Government will provide financial support
to CMOs and SMBS issued by U.S. Government agencies because it is not obligated
by law, in certain instances, to do so.
PORTFOLIO TRADING: The Fund intends to manage its portfolio by buying and
selling securities to help attain its investment objective. This may result in
increases or decreases in the Fund's current income available for distribution
to the Fund's shareholders and in the holding by the Fund of debt securities
which sell at moderate to substantial premiums or discounts from face value. The
Fund will engage in portfolio trading if it believes a transaction, net of costs
(including custodian charges), will help in attaining its investment objective.
(See "Portfolio Transactions and Brokerage Commissions" in the Statement of
Additional Information.)
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD")
and such other policies as the Trustees of the Fund may determine, the Adviser
may consider sales of shares of the Fund and of other investment company clients
of MFS Financial Services, Inc. ("FSI"), the Fund's distributor, as a factor in
the selection of broker-dealers to execute the Fund's portfolio transactions.
For a further discussion of portfolio trading, see the Statement of Additional
Information.
--------------------------
The policies described above are not fundamental and may be changed without
shareholder approval, as may the Fund's investment objective. A change in the
Fund's investment objective may result in the Fund having an investment
objective different from the objective which the shareholder considered
appropriate at the time of investment in the Fund.
The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Fund's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may not be changed without
shareholder approval (see "Investment Restrictions" in the Statement of
Additional Information). The Fund's investment limitations, policies and rating
standards are adhered to at the time of purchase or utilization of assets; a
subsequent change in circumstances will not be considered to result in a
violation of policy.
6. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- MFS manages the Fund pursuant to an Investment Advisory
Agreement dated September 1, 1993 (the "Advisory Agreement"). The Adviser
provides the Fund with overall investment advisory and administrative services,
as well as general office facilities Richard O. Hawkins, a Senior Vice President
of the Adviser, and Stephen E. Nothern, a Senior Vice President of the Adviser,
have been the Fund's portfolio managers since 1992. Mr. Hawkins has been
employed by the Adviser since 1988. Mr. Nothern has been employed by the Adviser
since 1986. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. For its services and facilities, the
Adviser receives a management fee, computed and paid monthly, in an amount equal
to 0.32% of the Fund's average daily net assets plus 5.65% of its daily gross
income for its then-current fiscal year.
For the Fund's fiscal year ended November 30, 1993, the Fund's current
investment adviser, MFS, together with the Fund's former investment adviser, LAI
(a wholly owned subsidiary of MFS) received management fees under the Fund's
Advisory Agreements of $3,389,211 (of which $1,477,611 was based on average
daily net assets and $1,911,600 on gross income).
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(r) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS
Institutional Trust, MFS Union Standard Trust, MFS/Sun Life Series Trust, Sun
Growth Variable Annuity Fund, Inc. and seven variable accounts, each of which is
a registered investment company established by Sun Life Assurance Company of
Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the sale of
Compass-2 and Compass-3 combination fixed/variable annuity contracts. The MFS
Asset Management Group, a division of the Adviser, provides investment advice to
substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately 34.9 billion on behalf of approximately 1.4 million investor
accounts as of February 28, 1994. As of such date, the MFS organization managed
approximately 9.9 billion of assets invested in equity securities and
approximately 21.5 billion of assets invested in fixed income securities.
Approximately $4.3 billion of the assets managed by MFS are invested in
securities of foreign issuers and non-U.S. dollar denominated securities of U.S.
issuers. MFS is a subsidiary of Sun Life of Canada (U.S.), which in turn is a
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Directors
of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D. McNeil
and John R. Gardner. Mr. Brodkin is the Chairman, Mr. Shames is the President
and Mr. Scott is the Secretary and a Senior Executive Vice President of MFS.
Messrs. McNeil and Gardner are the Chairman and President, respectively, of Sun
Life. Sun Life, a mutual life insurance company, is one of the largest
international life insurance companies and has been operating in the United
States since 1895, establishing a headquarters office here in 1973. The
executive officers of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman of MFS, is the Chairman and President of the
Trust. W. Thomas London, Stephen E. Cavan, James R. Bordewick, Jr., Leslie J.
Nanberg, Linda J. Hoard and James O. Yost, all of whom are officers of MFS, are
officers of the Trust.
DISTRIBUTOR -- FSI, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
7. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having selling
agreements with FSI. Non-securities dealer financial institutions will receive
transaction fees that are the same as commission fees to dealers. Securities
dealers and other financial institutions may also charge their customers service
fees relating to investments in the Fund.
The Fund offers two classes of shares which bear sales charges and distribution
fees in different forms and amounts:
CLASS A SHARES. Class A shares are offered at net asset value plus an initial
sales charge (or CDSC in the case of certain purchases of $1 million or more) as
follows:
SALES CHARGE* AS
PERCENTAGE OF:
--------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
Less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 4.00 4.17 3.20
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than
$1,000,000 2.20 2.25 1.70
$1,000,000 or more None** None** See Below**
- --------------
* Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
** A CDSC may apply in certain circumstances. FSI will pay a commission on
purchases of $1 million or more.
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% on the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares.
In determining whether a CDSC on such Class A shares is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to the CDSC are the
first redeemed followed by other shares held for the longest period of time. All
investments made during a calendar month, regardless of when during the month
the investment occurred, will age one month on the last day of the month and
each subsequent month. Except as noted below, the CDSC on Class A shares will be
waived in the case of: (i) exchanges (except that if the shares acquired by
exchange were then redeemed within 12 months of the initial purchase (other than
in connection with subsequent exchanges to other MFS Funds), the charge would
not be waived); (ii) distributions to participants from a retirement plan
qualified under sections 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") (a "Retirement Plan"), due to: (a) a loan from the plan (repayments
of loans, however, will constitute new sales for purposes of assessing the
CDSC); (b) "financial hardship" of the participant in the plan, as that term is
defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time
to time; or (c) the death of a participant in such a plan; (iii) distributions
from a 403(b) plan or an Individual Retirement Account ("IRA"), due to death,
disability, or attainment of age 59 1/2; (iv) tax-free returns of excess
contributions to an IRA; (v) distributions by other employee benefit plans to
pay benefits; and (vi) certain involuntary redemptions and redemptions in
connection with certain automatic withdrawals from a qualified Retirement Plan.
The CDSC on Class A shares will not be waived, however, if the retirement plan
withdraws from the Fund except if that Retirement Plan has invested its assets
in Class A shares of one or more of the MFS Funds for more than 10 years from
the later to occur of (i) January 1, 1993 or (ii) the date such Retirement Plan
first invests its assets in Class A shares of one or more of the MFS Funds, the
CDSC on Class A shares will be waived in the case of a redemption of all of the
Retirement Plan's shares (including shares of any other class) in all MFS Funds
(i.e., all the assets of the Retirement Plan invested in the MFS Funds are
withdrawn), unless, immediately prior to the redemption, the aggregate amount
invested by the Retirement Plan in Class A shares of the MFS Funds (excluding
the reinvestment of distributions) during the prior four year period equals 50%
or more of the total value of the Retirement Plan's assets in the MFS Funds, in
which case the CDSC will not be waived. Any applicable CDSC will be deferred
upon an exchange of Class A shares of the Fund for units of participation of the
MFS Fixed Fund (a bank collective investment fund) (the "Units"), and the CDSC
will be deducted from the redemption proceeds when such Units are subsequently
redeemed (assuming the CDSC is then payable). No CDSC will be assessed upon an
exchange of Units for Class A shares of the Fund. For purposes of calculating
the CDSC payable upon redemption of Class A shares of the Fund or Units acquired
pursuant to one or more exchanges, the period during which the Units are held
will be aggregated with the period during which the Class A shares are held. The
applicability of the CDSC will be unaffected by transfers of registration. FSI
shall receive all CDSCs which it intends to apply for the benefit of the Fund.
FSI allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 4% and FSI retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain MFS Funds and other funds
owned or being purchased, the existence of an agreement to purchase additional
shares during a 13-month period (or 36-month period for purchases of $1 million
or more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchases privileges by which the sales
charge may be reduced is set forth in the Statement of Additional Information.
In addition, FSI will pay a commission to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales up to
$5 million, plus 0.25% on the amount in excess of $5 million. Purchases of $1
million or more for each shareholder account will be aggregated over a 12-month
period (commencing from the date of the first such purchase) for purposes of
determining the level of commissions to be paid during that period with respect
to such account.
Class A shares of the Fund may be sold at net asset value through the automatic
reinvestment of Class A and Class B periodic distributions which constitute
required withdrawals from qualified retirement plans. Class A shares of the Fund
may also be purchased at net asset value where the purchase is in an amount of
$3 million or more and where the dealer and FSI enter into an agreement in which
the dealer agrees to return any commission paid to it on the sale (or on a pro
rata portion thereof) as described above if the shareholder redeems his or her
shares within a year of purchase. (Shareholders who purchase shares at NAV
pursuant to these conditions are called "$3 million shareholders".) Class A
shares of the Fund may be sold at their net asset value to the officers of the
Trust, to any of the subsidiary companies of Sun Life, to eligible Directors,
officers, employees (including retired employees) and agents of MFS, Sun Life or
any of their subsidiary companies, to any trust, pension, profit-sharing or any
other benefit plan for such persons, to any trustees and retired trustees of any
investment company for which FSI serves as distributor or principal underwriter,
and to certain family members of such individuals and their spouses, provided
the shares will not be resold except to the Fund. Class A shares of the Fund may
be sold at net asset value to any employee, partner, officer or trustee of any
sub-adviser to any MFS Fund and to certain family members of such individuals
and their spouses, or to any trust, pensions, profit-sharing or other retirement
plan for the sole benefit of such employee or representative, provided such
shares will not be resold except to the Fund. Class A shares of the Fund may be
sold at net asset value to any employee, partner, officer or trustee of any
sub-adviser to any MFS Fund and to certain family members of such individuals
and their spouses, or to any trust, pensions, profit-sharing or other retirement
plan for the sole benefit of such employee or representative, provided such
shares will not be resold expect to the Fund. Class A shares of the Fund may
also be sold at their net asset value to any employee or registered
representative of any dealer or other financial institution which has a sales
agreement with FSI or its affiliates, to certain family members of such
employees or representatives and their spouses, or to any trust, pension,
profit-sharing or other retirement plan for the sole benefit of such employee or
representative, as well as to clients of the MFS Asset Management Group. Class A
shares of the Fund also may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by FSI or its affiliates, if such redemption has occurred
no more than 60 days prior to the purchase of Class A shares of the Fund and the
shareholder either (i) paid an initial sales charge or (ii) was at some time
subject to, but did not actually pay, a deferred sales charge with respect to
the redemption proceeds. Class A shares of the Fund may also be sold at net
asset value where the amount invested represents redemption proceeds from the
MFS Fixed Fund. In addition, Class A shares may be sold at their net asset value
in connection with the acquisition or liquidation of the assets of other
investment companies or personal holding companies.
Insurance company separate accounts may purchase Class A shares of the Fund at
their net asset value. Class A shares of the Fund may also be purchased at their
net asset value by retirement plans where third party administrators of such
plans have entered into certain arrangements with FSI or its affiliates provided
that no commission is paid to dealers. Class A shares of the Fund may be
purchased at net asset value through certain broker-dealers and other financial
institutions which have entered into an agreement with FSI, which includes a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account" or a similar program under which such clients pay a fee to such
broker-dealer or other financial institution.
Class A shares of the Fund may be purchased at net asset value by retirement
plans qualified under section 401(a) or 403(b) of the Code which are subject to
the Employee Retirement Income Security Act of 1974, as amended, as follows:
(i) the retirement plan and/or the sponsoring organization must subscribe to
the MFS FUNDamental 401(k) Plan(sm) or another similar Section 401(a) or
403(b) recordkeeping program made available by MFS Service Center, Inc.;
(ii) either (a) the sponsoring organization must have at least 25 employees
or (b) the aggregate purchases by the retirement plan of Class A shares of
the MFS Funds must be in an amount of at least $250,000 within a reasonable
period of time, as determined by FSI in its sole discretion; and
(iii) a CDSC of 1% will be imposed on such purchases in the event of certain
redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of the
Fund in this manner will be paid a commission by FSI, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that FSI may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at FSl's
invitation, enter into an agreement with FSI in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion thereof)
if the shareholder redeems his or her shares within a period of time after
purchase as specified by FSI. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing from
the date of the first such purchase) for purposes of determining the level of
commissions to be paid during that period with respect to such account.
Furthermore, Class A shares of the Fund may be sold at net asset value through
the automatic reinvestment of distributions of dividends and capital gains of
other MFS Funds pursuant to the Distribution Investment Program (see
"Shareholder Services" in the Statement of Additional Information).
CLASS B SHARES: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- -------------
First 4%*
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
- ----------------
* Class B shares purchased during the period January 1, 1993 up to September 1,
1993, will be subject to a CDSC of 5% in the event of a redemption within the
first year after purchase.
For Class B shares purchased prior to January 1, 1993, the Fund imposes a CDSC
as a percentage of redemption proceeds as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- -------------
First 6%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
No CDSC is paid upon an exchange of shares. For purposes of calculating the CDSC
upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares. See "Redemptions and Repurchases --
Contingent Deferred Sales Charge" for further discussion of the CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the account
is registered (i) in the case of a deceased individual, solely in the deceased
individual's name, (ii) in the case of a disabled individual, solely or jointly
in the disabled individual's name or (iii) in the name of a living trust for the
benefit of the deceased or disabled individual. The CDSC on Class B shares will
also be waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other retirement
plan qualified under section 401(a), 401(k) or 403(b) of the Code, due to death
or disability, or in the case of required minimum distributions from any such
retirement plan due to attainment of age 70 1/2. Effective September 7, 1993,
the CDSC on Class B shares will be waived in the case of distributions from a
retirement plan qualified under Sections 401(a) and 401(k) of the Code due to
(i) returns of excess contribution to the plan, (ii) retirement of a participant
in the plan, (iii) a loan from the plan (repayments of loans, however, will
constitute new sales for purposes of assessing the CDSC), (iv) "financial
hardship" of the participant in the plan, as that term is defined in Treasury
Regulation Section 1.401(k)-1(d)(2), as amended from time to time, and (v)
termination of employment of the participant in the plan (excluding, however, a
partial or other termination of the plan). Effective September 7, 1993, the CDSC
on Class B shares will be waived in the case of distributions from a SAR-SEP due
to (i) returns of excess contribution to the plan, (ii) retirement of a
participant in the plan and (iii) termination of employment of the participant
in the plan (excluding, however, a partial or other termination of the plan).
The CDSC on Class B shares will also be waived upon redemption by (i) officers
of the Fund, (ii) any of the subsidiary companies of Sun Life, (iii) eligible
Directors, officers, employees (including retired and former employees) and
agents of MFS, Sun Life or any of their subsidiary companies, (iv) any trust,
pension, profit-sharing or any other benefit plan for such persons, (v) any
trustees and retired trustees of any investment company for which FSI serves as
distributor or principal underwriter, and (vi) certain family members of such
individuals and their spouses, provided in each case that the shares will not be
resold except to the Fund. The CDSC on Class B shares will also be waived in the
case of redemptions by any employee or registered representative of any dealer
or other financial institution which has a sales agreement with FSI, by certain
family members of any such employee or representative and their spouses, by any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representative and by clients of the MFS Asset Management
Group. A retirement plan qualified under section 401(a) of the Code (a
"Retirement Plan") that has invested its assets in Class B shares of one or more
of the MFS Funds for more than 10 years from the later to occur of (i) January
1, 1993 or (ii) the date the Retirement Plan first invests its assets in Class B
shares of one or more of the MFS Funds will have the CDSC on Class B shares
waived in the case of a redemption of all the Retirement Plan's shares
(including any Class A shares) in all MFS Funds (i.e., all the assets of the
Retirement Plan invested in the MFS Funds are withdrawn), except that if,
immediately prior to the redemption, the aggregate amount invested by the
Retirement Plan in Class B shares of the MFS Funds (excluding the reinvestment
of distributions) during the prior four year period equals 50% or more of the
total value of the Retirement Plan's assets in the MFS Funds, then the CDSC will
not be waived. The CDSC on Class B shares may also be waived in connection with
the acquisition or liquidation of the assets of other investment companies or
personal holding companies.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain outstanding
for approximately eight years will convert to Class A shares of the Fund. Shares
purchased through the reinvestment of distributions paid in respect of Class B
shares will be treated as Class B shares for purposes of the payment of the
distribution and service fees under the Distribution Plan applicable to Class B
shares. However, for purposes of conversion to Class A shares, all shares in a
shareholder's account that were purchased through the reinvestment of dividends
and distributions paid in respect of Class B shares (and which have not
converted to Class A shares as provided in the following sentence) will be held
in a separate sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A shares, a
portion of the Class B shares then in the sub-account will also convert to Class
A shares. The portion will be determined by the ratio that the shareholder's
Class B shares not acquired through reinvestment of dividends and distributions
that are converting to Class A shares bear to the shareholder's total Class B
shares not acquired through such reinvestment. The conversion of Class B shares
to Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that such conversion will not
constitute a taxable event for Federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
GENERAL: Except as described below, the minimum initial investment is $1,000 per
account and the minimum additional investment is $50 per account. Accounts being
established for monthly automatic investments and under payroll savings programs
and tax-deferred retirement programs (other than IRAs) involving the submission
of investments by means of group remittal statements are subject to a $50
minimum on initial and additional investments per account. The minimum initial
investment for IRAs is $250 per account and the minimum additional investment is
$50 per account. Accounts being established for participation in the Automatic
Exchange Plan are subject to a $50 minimum on initial and additional investments
per account. There are also other limited exceptions to these minimums for
certain tax-deferred retirement programs. Any minimums may be changed at any
time at the discretion of FSI. The Fund reserves the right to cease offering its
shares for sale at any time.
For shareholders who elect to participate in certain investment programs (e.g.,
the automatic investment plan) or other shareholder services FSI or its
affiliates may either (i) give a gift of nominal value, such as a hand-held
calculator, or (ii) make a nominal charitable contribution on their behalf.
A shareholder whose shares are held in the name of, or controlled by, an
investment dealer, might not receive many of the privileges and services from
the Fund (such as Right of Accumulation, Letter of Intent and certain
recordkeeping services) that the Fund ordinarily provides.
The Fund and FSI each reserve the right to reject any specific purchase order or
to restrict purchases by a particular purchaser (or group of related
purchasers). The Fund or FSI may reject or restrict purchases of the Fund's
shares by a particular purchaser or group, for example, when a pattern of
frequent purchases and sales of shares of the Fund is evident, or if the
purchase and sale orders are, or a subsequent abrupt redemption might be, of a
size that would disrupt management of the Fund. The Fund and FSI intend
specifically to exercise this right in order to reject or restrict purchases by
market timers (including asset allocators) and the shareholder(s) whose accounts
are exchanged periodically based on an arrangement with or advice from such
persons or whose transactions seem to follow a timing pattern. In particular,
action may be taken if: (i) more than two exchange purchases are effected in a
timed account in the same calendar quarter; or (ii) a purchase would result in
shares being held in timed accounts by an individual or firm representing more
than (x) one percent of the Fund's net assets or (y) specified dollar amounts in
the case of certain funds in the MFS Funds, which may include the Fund and which
may change from time to time. The Fund and FSI each reserve the right to request
holders of timed accounts to redeem their shares at net asset value, less any
CDSC otherwise applicable, if either of these restrictions is violated.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A and Class B shares.
The Glass-Steagall Act prohibits national banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of the
prohibition has not been clearly defined, FSI believes that such Act should not
preclude banks from entering into agency agreements with FSI (as described
above). If, however, a bank were prohibited from so acting, the Trustees would
consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. It is not expected that
shareholders would suffer any adverse financial consequence as a result of these
occurrences. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed herein, and banks and financial
institutions may be required to register as broker-dealers pursuant to state
law.
EXCHANGES
Subject to the restrictions set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds (if available for sale) at net asset value. Shares of one class
may not be exchanged for shares of any other class. Exchanges will be made only
after instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Shareholder Servicing Agent in proper
form (i.e., if in writing -- signed by the record owner(s) exactly as the shares
are registered; if by telephone -- proper account identification is given by the
dealer or shareholder of record); and each exchange must involve either shares
having an aggregate value of at least $1,000 ($50 in the case of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by MFS
Service Center, Inc.) or all the shares in the account. If the Exchange Request
is received by the Shareholder Servicing Agent in writing or by telephone on any
business day prior to the close of regular trading on the New York Stock
Exchange (the "Exchange"), the exchange usually will occur on that day if all
the requirements set forth above have been complied with at that time. No more
than five exchanges may be made in any one Exchange Request by telephone.
Additional information concerning this exchange privilege and prospectuses for
any of the other MFS Funds may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder should read the prospectus of the
other MFS Fund and consider the differences in objectives and policies before
making any exchange. For federal and (generally) state income tax purposes, an
exchange is treated as a sale of the shares exchanged and, therefore, an
exchange could result in a gain or loss to the shareholder making the exchange.
Exchanges by telephone are automatically available to most non-retirement plan
accounts and certain retirement plan accounts. For further information regarding
exchanges by telephone see "Redemptions By Telephone." The exchange privilege
(or any aspect of it) may be changed or discontinued and is subject to certain
limitations, including certain restrictions on purchases by market timer
accounts (see "Purchases").
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their net
asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since the net asset value of shares of the account fluctuate,
redemptions or repurchases, which are taxable transactions, are likely to result
in gains or losses to the shareholder. When a shareholder withdraws an amount
from his account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased, or received in
exchange for shares purchased, by check (including certified checks or cashier's
checks); payment of redemption proceeds may be delayed for 15 days from the
purchase date in an effort to assure that such check has cleared. Payment of
redemption proceeds may be delayed for up to seven days if the Fund determines
that such a delay would be in the best interest of all its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder has the right to redeem all or any
portion of the shares in his account by mailing or delivering to the Shareholder
Servicing Agent (see back cover for address) a stock power with a written
request for redemption or a letter of instruction, together with his share
certificates (if any were issued), all in "good order" for transfer. "Good
order" generally means that the stock power, written request for redemption,
letter of instruction or share certificate must be endorsed by the record
owner(s) exactly as the shares are registered and the signature(s) must be
guaranteed in the manner set forth below under the caption "Signature
Guarantee." In addition, in some cases "good order" may require the furnishing
of additional documents. The Shareholder Servicing Agent may make certain de
minimis exceptions to the above requirements for redemption. Within seven days
after receipt of a redemption request by the Shareholder Servicing Agent in
"good order," the Fund will make payment in cash, of the net asset value of the
shares next determined after such redemption request was received, reduced by
the amount of any applicable CDSC described above and the amount of any income
tax required to be withheld, except during any period in which the right of
redemption is suspended or date of payment is postponed because the Exchange is
closed or trading on the Exchange is restricted or to the extent otherwise
permitted by the Investment Company Act of 1940 (the "1940 Act"), if an
emergency exists (see "Tax Status").
B. REDEMPTION BY TELEPHONE -- Each shareholder may redeem an amount from his
account by telephoning toll-free at (800) 225-2606. Shareholders wishing to
avail themselves of this telephone redemption privilege must so elect on their
Account Application, designate thereon a commercial bank and account number to
receive the proceeds of such redemption, and sign the Account Application Form
with the signature(s) guaranteed in the manner set forth below under the caption
"Signature Guarantee". The proceeds of such a redemption, reduced by the amount
of any applicable CDSC described above and the amount of any income tax required
to be withheld, are mailed by check to the designated account, without charge.
As a special service, investors may arrange to have proceeds in excess of $1,000
wired in federal funds to the designated account. If a telephone redemption
request is received by the Shareholder Servicing Agent by the close of regular
trading on the Exchange on any business day, shares will be redeemed at the
closing net asset value of the Fund on that day. Subject to the conditions
described in this section, proceeds of a redemption are normally mailed or wired
on the next business day following the date of receipt of the order for
redemption. The Shareholder Servicing Agent will not be responsible for any
losses resulting from unauthorized telephone transactions if it follows
reasonable procedures designed to verify the identity of the caller. The
Shareholder Servicing Agent will request personal or other information from the
caller, and will normally also record calls. Shareholders should verify the
accuracy of confirmation statements immediately after their receipt.
C. REPURCHASE THROUGH A DEALER -- if a shareholder desires to sell his shares at
net asset value through his securities dealer (a repurchase), the shareholder
can place a repurchase order with his dealer, who may charge the shareholder a
fee. IF THE DEALER RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF
REGULAR TRADING ON THE EXCHANGE AND COMMUNICATES IT TO FSI ON THE SAME DAY
BEFORE FSI CLOSES FOR BUSINESS, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE
CALCULATED ON THAT DAY.
D. REDEMPTION BY CHECK - Class A shares may be redeemed by check. A shareholder
(except a $3 Million Shareholder) owning Class A shares of the Fund may elect to
have a special account with State Street Bank and Trust Company (the "Bank") for
the purpose of redeeming Class A shares from his or her account by check. The
Bank will provide each Class A shareholder, upon request, with forms of checks
drawn on the Bank. Only shareholders having accounts in which no share
certificates have been issued will be permitted to redeem shares by check.
Checks may be made payable in any amount not less than $500. Shareholders
wishing to avail themselves of this redemption by check privilege should so
request on their Account Application, must execute signature cards (for
additional information, see the Account Application) with signature guaranteed
in the manner set forth under the caption "Signature Guarantee", and must return
any Class A share certificates issued to them. Additional documentation will be
required from corporations, partnerships, fiduciaries or other such
institutional investors. All checks must be signed by the shareholder(s) of
record exactly as the account is registered before the Bank will honor them. The
shareholders of joint accounts may authorize each shareholder to redeem by
check. The check may not draw on monthly dividends which have been declared but
not distributed. SHAREHOLDERS WHO PURCHASE CLASS A SHARES BY CHECK (INCLUDING
CERTIFIED CHECKS OR CASHIER'S CHECKS) MAY WRITE CHECKS AGAINST THOSE SHARES ONLY
AFTER THEY HAVE BEEN ON THE FUND'S BOOKS FOR 15 DAYS. WHEN SUCH A CHECK IS
PRESENTED TO THE BANK FOR PAYMENT, A SUFFICIENT NUMBER OF FULL AND FRACTIONAL
SHARES WILL BE REDEEMED TO COVER THE AMOUNT OF THE CHECK. IF THE AMOUNT OF THE
CHECK IS GREATER THAN THE VALUE OF THE CLASS A SHARES HELD IN THE SHAREHOLDER'S
ACCOUNT, THE CHECK WILL BE RETURNED UNPAID, AND THE SHAREHOLDER MAY BE SUBJECT
TO EXTRA CHARGES. SHAREHOLDERS ARE ADVISED AGAINST REDEEMING ALL OR MOST OF
THEIR ACCOUNT BY CHECK BECAUSE WHEN THE CHECK IS WRITTEN, THE SHAREHOLDER WILL
NOT KNOW THE EXACT TOTAL VALUE OF THE ACCOUNT ON THE DAY THE CHECK CLEARS. There
is presently no charge to the shareholder for the maintenance of this special
account or for the clearance of any checks, but the Fund reserves the right to
impose such charges or to modify or terminate the redemption by check privilege
at any time. It a shareholder's Class A shares are subject to a CDSC (due to a
purchase of $1 million or more), the shareholder should ensure that there are
sufficient funds in the account to cover the check and the CDSC.
SIGNATURE GUARANTEE: in order to protect shareholders against fraud to the
greatest extent possible, the Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must be guaranteed by an eligible bank, broker, dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association. Signature guarantees shall be accepted
in accordance with policies established by the Shareholder Servicing Agent.
Shareholders of the Fund who have redeemed their shares have a one-time right to
reinvest the redemption proceeds in the same class of shares of any of the MFS
Funds (if shares of such Fund are available for sale) at net asset value (with a
credit for any CDSC paid) within 90 days of the redemption pursuant to the
Reinstatement Privilege. If the shares credited for any CDSC paid are then
redeemed within six years of the initial purchase in the case of Class B shares
or within 12 months of the initial purchase for certain Class A share purchases,
a CDSC will be imposed upon redemption. Such purchases under the Reinstatement
Privilege are subject to all limitations in the Statement of Additional
Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or transaction charges in converting the
securities to cash.
Due to the relatively high cost of maintaining small accounts, the Fund reserves
the right to redeem shares in any account for their then-current value (which
will be promptly paid to the shareholder) if at any time the total investment in
such account drops below $500 because of redemptions, except in the case of
accounts established for monthly automatic investments and certain payroll
savings programs, Automatic Exchange Plan accounts and tax-deferred retirement
plans, for which there is a lower minimum investment requirement. See
"Purchases". Shareholders will be notified that the value of their account is
less than the minimum investment requirement and allowed 60 days to make an
additional investment before the redemption is processed. No CDSC will be
imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE -- Investments ("Direct Purchases") will be
subject to a CDSC for a period of 12 months (in the case of purchases of $1
million or more of Class A shares) or six years (in the case of purchases of
Class B shares). Purchases of Class A shares made during a calendar month,
regardless of when during the month the investment occurred, will age one month
on the last day of the month and each subsequent month. Class B shares purchased
on or after January 1, 1993 will be aggregated on a calendar month basis - all
transactions made during a calendar month, regardless of when during the month
they have occurred, will age one year at the close of business on the last day
of such month in the following calendar year and each subsequent year. For Class
B shares of the Fund purchased prior to January 1, 1993, transactions will be
aggregated on a calendar year basis - all transactions made during a calendar
year, regardless of when during the year they have occurred, will age one year
at the close of business on December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class represented by Direct Purchases exceeds the sum
of the six calendar year aggregations (12 months in the case of purchases of $1
million or more of Class A shares) of Direct Purchases may be redeemed without
charge ("Free Amount"). Moreover, no CDSC is ever assessed on additional shares
acquired through the automatic reinvestment of dividends or capital gain
distributions ("Reinvested Shares").
Therefore, at the time of redemption of shares of a particular class, (i) any
Free Amount is not subject to the CDSC, and (ii) the amount of redemption equal
to the then-current value of Reinvested Shares is not subject to the CDSC, but
(iii) any amount of the redemption in excess of the aggregate of the
then-current value of Reinvested Shares and the Free Amount is subject to a
CDSC. The CDSC will first be applied against the amount of Direct Purchases
which will result in any such charge being imposed at the lowest possible rate.
The CDSC to be imposed upon redemptions will be calculated as set forth in
"Purchases" above.
The applicability of the CDSC will be unaffected by exchanges or transfers of
registration.
DISTRIBUTION PLANS
The Trustees have adopted separate distribution plans for Class A and Class B
pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule"), after having concluded that there is a reasonable likelihood that the
plans would benefit the Fund and its shareholders.
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the
Fund will pay FSI a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% of the average daily net assets attributable to Class
A shares annually in order that FSI may pay expenses on behalf of the Fund
related to the distribution and servicing of Class A shares. The expenses to be
paid by FSI on behalf of the Fund include a service fee to securities dealers
which enter into a sales agreement with FSI of up to 0.25% of the Fund's average
daily net assets attributable to Class A shares that are owned by investors for
whom such securities dealer is the holder or dealer of record. This fee is
intended to be partial consideration for all personal services and/or account
maintenance services rendered by the dealer with respect to Class A shares. FSI
may from time to time reduce the amount of the service fee paid for shares sold
prior to a certain date. FSI will also retain a distribution fee of 0.10% of the
Fund's average daily net assets attributable to Class A shares as partial
consideration for services performed and expenses incurred in the performance of
FSI's obligations under its distribution agreement with the Fund. In addition,
to the extent that the aggregate of the foregoing fees does not exceed 0.35% per
annum of the average daily net assets of the Fund attributable to Class A
shares, the Fund is permitted to pay other distribution-related expenses,
including commissions to dealers and payments to wholesalers employed by FSI for
sales at or above a certain dollar level. Payments under the Class A
Distribution Plan will commence on the date on which the value of the Fund's net
assets attributable to Class A shares first equals or exceeds $40,000,000, at
which time FSI intends to waive the 0.10% distribution fee to which it is
entitled under the plan until such time as the payment of this fee is approved
by the Trust's Board of Trustees. Fees payable under the Class A Distribution
Plan are charged to, and therefore reduce, income allocated to Class A shares.
Service fees may be reduced for a securities dealer that is the holder or dealer
of record for an investor who owns shares of the Fund having a net asset value
at or above a certain dollar level. Dealers may from time to time be required to
meet certain criteria in order to receive service fees. FSI or its affiliates
are entitled to retain all service fees payable under the Class A Rule
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by FSI or its affiliates
to shareholder accounts. Certain banks and other financial institutions that
have agency agreements with FSI will receive service fees that are the same as
service fees to dealers.
CLASS B DISTRIBUTION PLAN. The Class B Distribution Plan provides that the
Fund will pay FSI a daily distribution fee equal on an annual basis to 0.75% of
the Fund's average daily net assets attributable to Class B shares and will pay
FSI a service fee of up to 0.25% of the Fund's average daily net assets
attributable to Class B shares (which FSI will in turn pay to securities dealers
which enter into a sales agreement with FSI at a rate of up to 0.25% of the
Fund's average daily net assets attributable to Class B shares owned by
investors for whom that securities dealer is the holder or dealer of record).
This service fee is intended to be additional consideration for all personal
services and/or account maintenance services rendered by the dealer with respect
to Class B shares. Fees payable under the Class B Distribution Plan are charged
to, and therefore reduce, income allocated to Class B shares. The Class B
Distribution Plan also provides that FSI will receive all CDSCs attributable to
Class B shares (see "Redemptions and Repurchases of Shares" above), which do not
reduce the distribution fee. FSI will pay commissions to dealers of 3.75% of the
purchase price of shares purchased through dealers. FSI will also advance to
dealers the first year service fee at a rate equal to 0.25% of the purchase
price of such shares and, as compensation therefor, FSI may retain the service
fee paid by the Fund with respect to such shares for the first year after
purchase. Therefore, the total amount paid to a dealer upon the sale of shares
is 4.00% of the purchase price of the shares (commission rate of 3.75% plus
service fee equal to 0.25% of the purchase price). Dealers will become eligible
for additional service fees with respect to such shares commencing in the
thirteenth month following the purchase. Dealers may from time to time be
required to meet certain criteria in order to receive service fees. FSI or its
affiliates are entitled to retain all service fees payable under the Class B
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by FSI or its affiliates
to shareholder accounts. The purpose of the distribution payments to FSI under
the Class B Distribution Plan is to compensate FSI for its distribution services
to the Fund. Since FSl's compensation is not directly tied to its expenses, the
amount of compensation received by FSI during any year may be more or less than
its actual expenses. For this reason, this type of distribution fee arrangement
is characterized by the staff of the SEC as being of the "compensation" variety.
However, the Fund is not liable for any expenses incurred by FSI in excess of
the amount of compensation it receives. The expenses incurred by FSI, including
commissions to dealers, are likely to be greater than the distribution fees for
the next several years, but thereafter such expenses may be less than the amount
of the distribution fees. Certain banks and other financial institutions that
have agency agreements with FSI will receive agency transaction and service fees
that are the same as commissions and service fees to dealers.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income for any
calendar year to its shareholders as dividends on a monthly basis. In
determining the net investment income available for distributions, the Fund may
rely on projections of its anticipated net investment income, including
short-term capital gains from the sales of securities or other assets and
premiums from options written, over a longer term, rather than its actual net
investment income for the period. Distributions from short-term capital gains,
if any, from the sale of securities or other assets, and of all or a portion of
premiums received from options (including premiums received on options written
and expected to be earned over the near term), are expected to be made monthly.
In addition, the Fund will make one or more distributions during the calendar
year to its shareholders from any long-term capital gains. If the Fund earns
less than projected, or otherwise distributes more than its earnings for the
year, a portion of the distribution may constitute a return of capital.
Shareholders may elect to receive dividends and capital gain distributions in
either cash or additional shares of the same class in respect of which the
distribution is paid. See "Tax Status" and "Shareholder Services -- Distribution
Options" below. Distributions paid by the Fund with respect to Class A shares
will generally be greater than those paid with respect to Class B shares because
expenses attributable to Class B shares will generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust for
federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund has elected and intends to qualify each
year as a "regulated investment company" under Subchapter M of the Code, and to
make distributions to its shareholders in accordance with the timing
requirements imposed by the Code. It is not expected that the Fund will be
required to pay any federal income or excise taxes, although foreign source
income earned by the Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state and local taxes, on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or in additional shares.
The Fund expects that none of its dividends and distributions will be eligible
for the dividends-received deduction for corporations. Distributions of the Fund
which are derived from interest on obligations of the U.S. Government and
certain of its agencies and instrumentalities (but generally not from capital
gains realized upon the disposition of such obligations) may be exempt from
state and local taxes in certain states. In other states, arguments can be made
on the basis of a U.S. Supreme Court decision to the effect that such
distributions should be exempt from state and local taxes. The Fund intends to
advise its shareholders of the proportion of its dividends which consist of such
interest. Shareholders should consult their tax advisers regarding the possible
exclusion of such portion of their dividends for state and local tax purposes.
Shortly after the end of each calendar year, each shareholder will receive
information for tax purposes on their dividends and capital gain distributions
for that calendar year, including the portion taxable as ordinary income, the
portion taxable as long term capital gains, the portion, if any, representing a
return of capital (which is generally free of current taxes but results in a
basis reduction), and the amount, if any, of federal income tax withheld.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and certain other payments that are subject to such withholding and
are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable treaty.
The Fund is also required in certain circumstances to apply backup withholding
of 31% of taxable dividends 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. However, backup withholding will not
be applied to payments which have been subject to 30% withholding. Prospective
investors should read the Fund's Account Application for additional information
regarding backup withholding of federal income tax and should consult their own
tax advisers as to the tax consequences of an investment in the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
each day as of the close of regular trading on the Exchange by deducting the
amount of the liabilities attributable to the class from the value of the assets
attributable to that class and dividing the difference by the number of shares
of the class outstanding. Assets in the Fund's portfolio are valued on the basis
of their current values or otherwise at their fair values, as described in the
Statement of Additional Information. All investments and assets are expressed in
U.S. dollars based upon current currency exchange rates. The net asset value per
share of each class of shares is effective for orders received by the dealer
prior to its calculation and received by FSI prior to the close of that business
day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of four series of the Trust, has two classes of shares, entitled
Class A and Class B Shares of Beneficial Interest (without par value). The Trust
has reserved the right to create and issue additional classes and series of
shares, in which case each class of shares of a series would participate equally
in the earnings, dividends and assets attributable to that class of that
particular series. Shareholders are entitled to one vote for each share held and
shares of each series would be entitled to vote separately to approve investment
advisory agreements or changes in investment restrictions, but shares of all
series would vote together in the election of Trustees and selection of
accountants. Additionally, each class of shares of a series will vote separately
on any material increases in the fees under its Distribution Plan or on any
other matter that affects solely that class of shares, but will otherwise vote
together with all other classes of shares of the series on all other matters.
The Trust does not intend to hold annual shareholder meetings. The Declaration
of Trust provides that a Trustee may be removed from office in certain instances
(see "Description of Shares, Voting Rights and Liabilities" in the Statement of
Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in
the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as set
forth above in "Purchases --Conversion of Class B shares"). Shares are fully
paid and non-assessable. Should the Fund be liquidated, shareholders of each
class are entitled to share pro rata in the net assets allocable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges and assignments and in certain other limited
circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance (e.g., fidelity bonding and omissions insurance) existed and the Trust
itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote fund
rankings in the relevant fund category from various sources, such as the Lipper
Analytical Services, Inc. and Wiesenberger Investment Companies Service. Yield
quotations are based on the annualized net investment income per share allocated
to each class of the Fund over a 30-day period stated as a percent of the
maximum public offering price of that class on the last day of that period.
Yield calculations for Class B shares assume no CDSC is paid. The current
distribution rate for each class is generally based upon the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past twelve months and is computed by dividing the amount of such dividends by
the maximum public offering price of that class at the end of such period.
Current distribution rate calculations for Class B shares assume no CDSC is
paid. The current distribution rate differs from the yield calculation because
it may include distributions to shareholders from sources other than dividends
and interests such as premium income from option writing, short-term capital
gains, and return of invested capital, and is calculated over a different period
of time. Total rate of return quotations will reflect the average annual
percentage change over stated periods in the value of an investment in each
class of shares of the Fund made at the maximum public offering price of the
shares of that class with all distributions reinvested and which, if quoted for
periods of six years or less, will give effect to the imposition of the CDSC
assessed upon redemptions of the Fund's Class B shares. Such total rate of
return quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge or the
deduction of a CDSC, and which will thus be higher. All performance quotations
are based on historical performance and are not intended to indicate future
performance. Yield reflects only net portfolio income as of a stated time and
current distribution rate reflects only the rate of distributions paid by the
Fund over a stated period of time while total rate of return reflects all
components of investment return over a stated period of time. The Fund's
quotations may from time to time be used in advertisements, shareholder reports
or other communications to shareholders. For a discussion of the manner in which
the Fund will calculate its yield, current distribution rate, and total rate of
return, see the Statement of Additional Information. In addition to information
provided in shareholder reports, the Fund may, in its discretion, from time to
time, make a list of all or a portion of it holdings available to investors upon
request.
8. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund should contact the Shareholder Servicing
Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account.
Cancelled checks, if any, will be sent to shareholders monthly. At the end of
each calendar year, each shareholder will receive income tax information
regarding reportable dividends and capital gain distributions for that year (see
"Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional shares.
This option will be assigned if no other option is specified;
-- Dividends (including short-term capital gains) in cash; long-term capital
gain distributions reinvested in additional shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Checks for dividends and capital
gains distributions in amounts less than $10 will automatically be reinvested in
additional Shares of the Fund. Any request to change a distribution option must
be received by the Shareholder Servicing Agent by the record date for a dividend
or distribution in order to be effective for that dividend or distribution. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as described
in the Statement of Additional Information) anticipates purchasing $100,000 or
more of Class A shares of the Fund alone or in combination with all classes of
shares of other MFS Funds or, MFS Fixed Fund (a bank collective investment fund)
within a 13-month period (or 36-month period for purchases of $1 million or
more), the shareholder may obtain such shares at the same reduced sales charge
as though the total quantity were invested in one lump sum, subject to escrow
agreements and the appointment of an attorney for redemptions from the escrow
amount if the intended purchases are not completed, by completing the Letter of
Intent section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of all shares of that
shareholder in the MFS Funds or, MFS Fixed Fund (a bank collective investment
fund) reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund may
be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value in shares of the same class of another
MFS Fund, if shares of such Fund are available for sale (and without any
applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN: A shareholder (except a $3 Million Shareholder)
may direct the Shareholder Servicing Agent to send him (or anyone he designates)
regular periodic payments, as designated on the Account Application and based
upon the value of his account. Each payment under a Systematic Withdrawal Plan
("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B shares in any year pursuant to a SWP will not
be subject to a CDSC and are generally limited to 10% of the value of the
account at the time of the establishment of the SWP. The CDSC will not be waived
in the case of SWP redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS--
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund or may exchange their shares for the same class of shares
of the other MFS Funds under the Automatic Exchange Plan, a dollar cost
averaging program. The Automatic Exchange Plan provides for automatic monthly or
quarterly transfers of funds from the shareholder's account in an MFS Fund for
investment in the same class of shares of other MFS Funds selected by the
shareholder. Under the Automatic Exchange Plan, transfers of at least $50 each
may be made to up to four different funds. A shareholder should consider the
objectives and policies of a fund and review its prospectus before electing to
transfer money into such fund through the Automatic Exchange Plan. No
transaction fee is imposed in connection with transfer transactions under the
Automatic Exchange Plan. However, transfers of shares of MFS Money Market Fund,
MFS Government Money Market Fund or Class A shares of MFS Cash Reserve Fund will
be subject to any applicable sales charge. For federal and (generally) state
income tax purposes, a transfer is treated as a sale of the shares transferred
and, therefore, could result in a capital gain or loss to the shareholder making
the transfer. See the Statement of Additional Information for further
information concerning the Automatic Exchange Plan. Investors should consult
their tax advisers for information regarding the potential capital gain and loss
consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class B
shares.
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans, including IRAs, SEP-IRA plans, 401(k)
plans, 403(b) plans and other corporate pension and profit-sharing plans.
Investors should consult with their tax adviser before establishing any of the
tax-deferred retirement plans described above.
-----------------------------
The Fund's Statement of Additional Information, dated April 1, 1994, contains
more detailed information about the Trust and the Fund, including information
related to (i) investment policies and restrictions, including the purchase and
sale of options, Futures Contracts, Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies, (ii) the Trustees, officers and
investment adviser, (iii) portfolio trading, (iv) the Fund's shares, including
rights and liabilities of shareholders, (v) tax status of dividends and
distributions, (vi) the Distribution Plans, (vii) the method used to calculate
total rate of return quotations and (viii) various services and privileges
provided by the Fund for the benefit of its shareholders, including additional
information with respect to the exchange privilege.
<PAGE>
APPENDIX A
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES, AUTHORITIES OR INSTRUMENTALITIES
U.S. GOVERNMENT OBLIGATIONS -- are issued by the Treasury and include bills,
certificates of indebtedness, notes and bonds. Agencies and instrumentalities of
the U.S. Government are established under the authority of an act of Congress
and include, but are not limited to, the Tennessee Valley Authority, the Bank
for Cooperatives, the Farmers Home Administration, Federal Home Loan Banks,
Federal Intermediate Credit Banks and Federal Land Banks, as well as those
listed below.
FEDERAL FARM CREDIT CONSOLIDATED SYSTEMWIDE NOTES AND BONDS -- are bonds issued
by a cooperatively owned nationwide system of banks and associations supervised
by the Farm Credit Administration. These bonds are not guaranteed by the U.S.
Government.
MARITIME ADMINISTRATION BONDS -- are bonds issued by the Department of
Transportation of the U.S. Government.
FHA DEBENTURES -- are debentures issued by the Federal Housing Administration of
the U.S. Government and are fully and unconditionally guaranteed by the U.S.
Government.
GNMA CERTIFICATES -- are mortgage-backed securities, with timely payment
guaranteed by the full faith and credit of the U.S. Government, which represent
a partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is also insured or guaranteed by the Federal
Housing Administration, the Veterans Administration or the Farmers Home
Administration.
FEDERAL HOME LOAN MORTGAGE CORPORATION BONDS -- are bonds issued and guaranteed
by the Federal Home Loan Mortgage Corporation and are not guaranteed by the U.S.
Government.
FEDERAL HOME LOAN BANK BONDS -- are bonds issued by the Federal Home Loan Bank
System and are not guaranteed by the U.S. Government.
FINANCING CORPORATION BONDS AND NOTES -- are bonds and notes issued and
guaranteed by the Financing Corporation.
FEDERAL NATIONAL MORTGAGE ASSOCIATION BONDS -- are bonds issued and guaranteed
by the Federal National Mortgage Association and are not guaranteed by the U.S.
Government.
RESOLUTION FUNDING CORPORATION BONDS AND NOTES -- are bonds and notes issued and
guaranteed by the Resolution Funding Corporation.
STUDENT LOAN MARKETING ASSOCIATION DEBENTURES -- are debentures backed by the
Student Loan Marketing Association and are not guaranteed by the U.S.
Government.
TENNESSEE VALLEY AUTHORITY BONDS AND NOTES -- are bonds and notes issued and
guaranteed by the Tennessee Valley Authority.
Some of the foregoing obligations, such as Treasury bills and GNMA pass-through
certificates, are supported by the full faith and credit of the U.S. Government;
others, such as securities of FNMA, by the right of the issuer to borrow from
the U.S. Treasury; still others, such as bonds issued by SLMA, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government will provide financial support to instrumentalities sponsored by
the U.S. Government as it is not obligated by law, in certain instances, to do
so.
Although this list includes a description of the primary types of U.S.
Government agency, authorities or instrumentality obligations in which the Fund
intends to invest, the Fund may invest in obligations of U.S. Government
agencies or instrumentalities other than those listed above.
<PAGE>
APPENDIX B
DESCRIPTION OF SHORT-TERM INVESTMENTS OTHER THAN
U.S. GOVERNMENT OBLIGATIONS
CERTITICATES OF DEPOSIT -- are certificates issued against funds deposited in a
bank (including eligible foreign branches of U.S. banks), are for a definite
period of time, earn a specified rate of return and are normally negotiable.
BANKERS' ACCEPTANCES -- are marketable short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
COMMERCIAL PAPER -- refers to promissory notes issued by corporations in order
to finance their short-term credit needs.
CORPORATE OBLIGATIONS -- include bonds and notes issued by corporations in order
to finance long-term credit needs.
A-1 AND P-1 COMMERCIAL PAPER RATINGS
Description of S&P and Moody's highest commercial paper ratings:
The rating "A" is the highest commercial paper rating assigned by S&P, and
issues so rated are regarded as having the greatest capacity for timely payment.
Issues in the "A" category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety. The A-1 designation indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those A-1 issues determined to possess overwhelming safety characteristics will
be denoted with a plus (+) sign designation.
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated P-1 have a superior ability for repayment. P-1 repayment capacity
will normally be evidenced by the following characteristics: (1 ) leading market
positions in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structure with moderate reliance on
debt and ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well established
access to a range of financial markets and assured sources of alternate
liquidity.
<PAGE>
THE MFS FAMILY OF FUNDS(R) -- AMERICA'S OLDEST MUTUAL FUND GROUP
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully before investing or sending money.
<TABLE>
<CAPTION>
<S> <C>
STOCK FUNDS BOND FUNDS
Massachusetts Investors Trust MFS(R) Bond Fund
Massachusetts Investors Growth Stock Fund MFS(R) Government Limited Maturity Fund
MFS(R) Capital Growth Fund MFS(R) Government Mortgage Fund
MFS(R) Emerging Growth Fund<F1> MFS(R) Government Securities Fund
MFS(R) Gold & Natural Resources Fund MFS(R) High Income Fund
MFS(R) Growth Opportunities Fund MFS(R) Income & Opportunity Fund
MFS(R) Managed Sectors Fund MFS(R) Intermediate Income Fund
MFS(R) OTC Fund MFS(R) Limited Maturity Fund
MFS(R) Research Fund MFS(R) World Governments Fund
MFS(R) Value Fund
MFS(R) World Equity Fund TAX-FREE BOND FUNDS
MFS(R) World Growth Fund MFS(R) Municipal Bond Fund
STOCK AND BOND FUNDS MFS(R) Municipal High Income Fund<F2>
MFS(R) Total Return Fund MFS(R) Municipal Income Fund
MFS(R) Utilities Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) World Total Return Fund MFS(R) Municipal Series Trust (AL, AR, CA, FL,
GA, LA, MD, MA, MS, NY, NC, PA, SC, TN, TX,
VA, WA, WV)
MONEY MARKET FUNDS
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
<FN>
<F1>Closed to new investors, commencing January 14, 1994.
<F2>Closed to new investors.
</TABLE>
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Financial Services, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll-free: (800) 225-2606
MAILING ADDRESS
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT ACCOUNTANTS
Deloitte & Touche
125 Summer Street, Boston, MA 02110
MFS(R) INTERMEDIATE
INCOME FUND
500 Boylston Street, Boston, MA 02116
MII-1-4/94/89M 5/205
MFS(R)
INTERMEDIATE
INCOME
FUND
PROSPECTUS
APRIL 1, 1994
