<PAGE> 1
As filed with the Securities and Exchange Commission on April 25, 1997
1940 Act File No. 811-4775
1933 Act File No. 333-23129
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 1
---------------
MFS SERIES TRUST II
(Exact Name of Registrant as Specified in Charter)
500 Boylston Street,
Boston, Massachusetts 02116
(Address of Registrant's Principal Executive Offices)
(617) 954-5000
(Registrant's Telephone Number, Including Area Code)
<TABLE>
<S> <C> <C>
STEPHEN E. CAVAN, ESQ. WITH A COPY TO: WITH A COPY TO:
Massachusetts Financial Services JEREMIAH J. BRESNAHAN, ESQ. DHIYA EL-SADEN, ESQ.
Company Bingham, Dana & Gould LLP Gibson, Dunn & Crutcher LLP
500 Boylston Street 150 Federal Street 333 South Grand Avenue
Boston, MA 02116 Boston, Massachusetts 02110 Los Angeles, California 90071
(Name and Address of Agent for
Service)
</TABLE>
It is proposed that this filing will become effective (check appropriate box)
[x] immediately upon filing pursuant to paragraph (b)
[ ] on March 30, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on [date] pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Pursuant to Rule 429, this Registration Statement relates to
shares previously registered on Form N-1A (File No. 33-7637)
===============================================================================
<PAGE> 2
MFS EMERGING GROWTH FUND
A SERIES OF
MFS SERIES TRUST II
CROSS-REFERENCE SHEET
ITEMS REQUIRED BY FORM N-14
<TABLE>
<CAPTION>
Part A Item Caption Prospectus Caption
------------ ------------------
Item No.
- --------
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1. Beginning of Registration Statement and Outside Cover Page of Registration Statement; Front
Front Cover Page of Prospectus Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Synopsis Information and Risk Factors Summary; Special Factors
4. Information about the Transaction Proposal to Approve Agreement and Plan of
Reorganization
5. Information about the Registrant Prospectus Cover Page; Summary; Business of the
MFS Trust; Available Information
6. Information about the Company being Acquired Prospectus Cover Page; Introduction; Summary;
Business of the New USA Growth Fund; Available
Information
7. Voting Information Prospectus Cover Page; Notice of Special
Meeting of Shareholders; Summary; Voting Rights
and Required Vote; Manner of Voting Proxies
8 Interest of Certain Persons and Expert None
9. Additional Information Required for Re-offering Not Applicable
by Persons Deemed to be Underwriters
Part B
Item No.
- --------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12 Additional Information about the Registrant Additional Information about the MFS Fund
13. Additional Information about the Company being Additional Information about the New USA Growth
Acquired Fund
14. Financial Statements New USA Growth Fund Annual Report
Part C
Item No.
- --------
15. Indemnification Indemnification
16. Exhibits Exhibits
17 Undertakings Undertakings
</TABLE>
<PAGE> 3
NEW USA GROWTH FUND
the sole series of
NEW USA MUTUAL FUNDS, INC.
c/o State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
April 25, 1997
MESSAGE FROM THE CHAIRMAN OF NEW USA MUTUAL FUNDS, INC.
Dear Shareholder:
On March 6, 1997, New USA Mutual Funds, Inc. ("New USA Mutual Funds"),
on behalf of the New USA Growth Fund, the sole series thereof, (the "New USA
Growth Fund"), reached a definitive agreement to combine the assets of the New
USA Growth Fund into the MFS Emerging Growth Fund, a series of the MFS Series
Trust II (the "MFS Trust"), subject to the approval by a majority of all
outstanding shares of the New USA Growth Fund as described in the attached proxy
statement and prospectus. Upon a successful conclusion of the transaction,
shareholders of the New USA Growth Fund would become Class A shareholders of the
MFS Emerging Growth Fund. Following the transaction, New USA Mutual Funds would
cease operations.
The MFS Emerging Growth Fund is sponsored by Massachusetts Financial
Services Company ("MFS"). The MFS organization has been in the mutual fund
business since 1924, and currently manages over 125 mutual funds with over $54
billion in assets.
After careful consideration, the Board of Directors of New USA Mutual
Funds has unanimously approved the proposed transaction. A description of the
factors considered by the Directors in deciding to approve the proposed
transaction may be found on page 22 of the attached proxy statement. The
transaction also requires approval of the shareholders of the New USA Growth
Fund by the affirmative vote of not less than a majority of the shares of the
New USA Growth Fund issued and outstanding and entitled to vote at a shareholder
meeting to be held on May 28, 1997.
MFS is an organization with an excellent reputation. The MFS Emerging
Growth Fund has been recognized as an excellent performer -- it carries an "A-"
rating from Investor's Business Daily. The manager of the MFS Emerging Growth
Fund, John Ballen, is the Chief Equity Officer of MFS and has over 12 years
experience with the MFS organization. There is a substantial similarity in
investment objectives and policies of the New USA Growth Fund and the MFS
Emerging Growth Fund.
As an MFS Emerging Growth Fund shareholder, you will enjoy exchange
privileges among many MFS mutual funds with a wide variety of investment
objectives. The expense ratio of the MFS Fund at 1.2% is significantly less
than that of New USA Growth Fund. Finally, this reorganization into the MFS
Emerging Growth Fund will be accomplished as a tax-free exchange to the
shareholders of the New USA Growth Fund.
Your directors recommend that you vote FOR the proposed transaction by
signing and returning the enclosed proxy card in the enclosed, postage-paid,
return envelope. Your vote is important. Your are also cordially invited to
attend the May 28, 1997 shareholders' meeting. As the date of the meeting
approaches, if we have not received your proxy, you may receive a telephone call
from our proxy solicitor, D. F. King & Co., Inc., which has been retained to
assist shareholders in the voting process. If you have questions about the
transaction, you may call them at (800) 735-3591.
We sincerely appreciate the confidence you have placed in us over the
years. We wish you the best as shareholders of the MFS Emerging Growth Fund and
for continued success in your investing for the future.
Sincerely,
William J. O'Neil
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
NEW USA GROWTH FUND
the sole series of
NEW USA MUTUAL FUNDS, INC.
c/o State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON May 28, 1997
A Special Meeting of Shareholders (the "Meeting") of New USA Growth
Fund (the "New USA Growth Fund"), the sole series of New USA Mutual Funds,
Inc., a Maryland corporation ("New USA Mutual Funds"), will be held at the
Ritz-Carlton Hotel, 4375 Admiralty Way, Marina Del Rey, California 90292, on
May 28, 1997 at 11:00 a.m. (PDT) for the following purposes:
1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization (the "Agreement") between New USA Mutual
Funds, on behalf of the New USA Growth Fund, the sole series
thereof, and MFS Series Trust II, a Massachusetts business trust
(the "MFS Trust"), on behalf of MFS Emerging Growth Fund, a series
thereof (the "MFS Fund"), providing for the transfer of all of the
assets of the New USA Growth Fund to the MFS Fund in exchange
solely for the assumption by the MFS Fund of the stated
liabilities of the New USA Growth Fund and the issuance to the New
USA Growth Fund of shares of beneficial interest of the MFS Fund
designated as Class A Shares (the "MFS Fund Shares"), the
distribution of the MFS Fund Shares to the shareholders of the New
USA Growth Fund in liquidation of the New USA Growth Fund and the
termination of New USA Mutual Funds.
2. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF ITEM 1.
The Board of Directors has fixed the close of business on April 11,
1997 as the record date for the determination of shareholders of the New USA
Growth Fund entitled to notice of, and to vote at, the Meeting.
By order of the Board of Directors
Margaret R. Harries, Secretary
Los Angeles, California
April 25, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN
PERSON OR BY PROXY; IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE APPROPRIATE ENCLOSED PROXY OR PROXIES IN
THE ACCOMPANYING ENVELOPE PROVIDED FOR YOUR CONVENIENCE, WHICH REQUIRES NO
POSTAGE.
<PAGE> 5
MFS EMERGING GROWTH FUND
Proxy Statement and Prospectus dated April 25, 1997
500 Boylston Street
Boston, Massachusetts 02116
Telephone (617) 954-5000
SECURITIES OFFERED HEREBY
This Proxy Statement and Prospectus (the "Proxy Statement and
Prospectus") relates to shares of beneficial interest designated as Class A
Shares, no par value, of MFS Emerging Growth Fund (the "MFS Fund"), a series of
the MFS Series Trust II (the "MFS Trust"), to be issued in exchange for all of
the assets of New USA Growth Fund (the "New USA Growth Fund", and collectively
with the MFS Fund, the "Funds"), a series of New USA Mutual Funds, Inc. ("New
USA Mutual Funds"). The number of the MFS Fund's shares of beneficial interest
designated as Class A Shares (the "MFS Fund Shares") to be issued to New USA
Mutual Funds will be that number of MFS Fund Shares having an aggregate net
asset value equal to the aggregate value of the New USA Growth Fund's assets,
less liabilities assumed, transferred to the MFS Fund. Following receipt of
the MFS Fund Shares, the New USA Growth Fund will be liquidated, the MFS Fund
Shares will be distributed to the former shareholders of the New USA Growth
Fund, and New USA Mutual Funds will terminate. The terms and conditions of
this transaction are more fully described in this Proxy Statement and
Prospectus and in the Agreement and Plan of Reorganization, attached as Exhibit
A hereto.
The MFS Trust is an open-end, management investment company of the
series type. The MFS Trust currently has four separate series, one of which is
the MFS Fund, a diversified series of the MFS Trust. The investment objective
of the MFS Fund is to provide long-term growth of capital. The MFS Fund's
policy is to invest primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of companies that the MFS Fund believes are
early in their life cycle but which have the potential to become major
enterprises (emerging growth companies). Such companies generally would be
expected to show earnings growth over time that is well above the growth rate
of the overall economy and the rate of inflation, and would have the products,
technologies, management and market opportunities which are usually necessary
to become more widely recognized as growth companies. Emerging growth
companies can be of any size and the MFS Fund may invest in larger or more
established companies whose rates of earnings growth are expected to accelerate
because of special factors, such as rejuvenated management, new products,
changes in consumer demand, or basic changes in the economic environment. The
MFS Fund Shares may be redeemed at any time at net asset value.
This Joint Proxy Statement/Prospectus, which should be retained for
future reference, sets forth concisely the information that a shareholder of New
USA Growth Fund should know before investing. A Prospectus and Statement of
Additional Information ("SAI"), each dated April 1, 1997, as supplemented,
relating to the MFS Fund, including historical financial statements, are on file
with the Securities and Exchange Commission (the "Commission"). The Prospectus
and SAI for the New USA Growth Fund, dated May 17, 1996, as supplemented, (the
"New USA Growth Fund Prospectus and SAI"), are on file with the Commission. The
New USA Growth Fund Annual Report for the fiscal year ended January 31, 1997
(the "New USA Growth Fund Annual Report") and the MFS Fund Annual Report for the
fiscal year ended November 30, 1996 are also on file with the Commission. The
MFS Fund Prospectus and the MFS Fund Annual Report are enclosed with this Proxy
Statement and Prospectus. The other documents identified above are available,
upon oral or written request, and at no charge, from New USA Mutual Funds
Distributor at 12655 Beatrice Street, Los Angeles, California 90066, telephone
number (800) 222-2872. The MFS Fund SAI is incorporated by reference into this
Proxy Statement and Prospectus. The New USA Growth Fund Prospectus and SAI, the
financial statements from the New USA Growth Fund Annual Report and the MFS Fund
Prospectus and SAI and the financial statements from the MFS Fund Annual Report
are also incorporated by reference into this Proxy Statement and Prospectus.
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 COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PROPOSAL NO. 1 TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . . . . . . 19
DESCRIPTION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
COMPARATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
BUSINESS OF THE MFS FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
BUSINESS OF THE NEW USA GROWTH FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
NO APPRAISAL RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE MFS FUND
AND THE NEW USA GROWTH FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
VOTING RIGHTS AND REQUIRED VOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
MANNER OF VOTING PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SUBMISSION OF CERTAIN PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
ENCLOSURES: MFS FUND PROSPECTUS AND MFS FUND ANNUAL REPORT
</TABLE>
<PAGE> 7
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus is furnished in connection with the
solicitation by and on behalf of the Board of Directors (the "Board") of New USA
Mutual Funds, Inc. ("New USA Mutual Funds") of proxies to be voted at a Special
Meeting of Shareholders of the New USA Growth Fund (the "New USA Growth Fund")
to be held at the Ritz-Carlton Hotel, 4375 Admiralty Way, Marina Del Rey,
California 90292, on May 28, 1997 at 11:00 a.m. (PDT) and at any postponements
or adjournments thereof (the "Meeting"), for the purposes set forth in the
accompanying Notice of Special Meeting of Shareholders. This Proxy Statement
and Prospectus sets forth concisely the information that a shareholder of the
New USA Growth Fund should know before voting on the proposed transaction
described above. It should be read and retained for future reference.
The cost of preparing, printing, mailing and soliciting the proxies
will be paid by New USA Research & Management Co. ("NURM"), the investment
adviser to New USA Mutual Funds. In addition, certain officers and directors of
the New USA Mutual Funds (none of whom will receive additional compensation
therefor) may solicit proxies in person or by telephone, telegraph or mail.
NURM has retained, on behalf of New USA Mutual Funds, and will pay for the
services of D. F. King & Co., Inc. and Tritech Services to solicit proxies.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are marked,
shares represented by the proxies will be voted "FOR" all the proposals. All
shares in New USA Growth Fund-sponsored IRA accounts not voted by the account
owner will be voted by the IRA trustee in the same proportion (for, against and
abstain) as all other votes cast whether in person or by proxy. For purposes
of determining the presence of a quorum for transacting business at the
Meeting, abstentions will be counted as present and broker "non-votes" (that
is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares on a particular matter with respect to which the brokers or
nominees do not have discretionary power) will be treated as shares that are
not present. Any proxy may be revoked at any time prior to the exercise
thereof by submitting another proxy bearing a later date or by giving written
notice to the Secretary of New USA Mutual Funds or by voting in person at the
Meeting. The affirmative vote of not less than a majority of the shares of the
New USA Growth Fund issued and outstanding and entitled to vote at the Meeting,
is necessary to approve the proposed transaction.
The Board of New USA Mutual Funds knows of no business other than that
specifically mentioned in the Notice of Meeting which will be presented for
consideration at the Meeting. If any other matters are properly presented, it
is the intention of the persons named in the enclosed proxy to vote in
accordance with their best judgment.
The Board of New USA Mutual Funds has fixed the close of business on
April 11, 1997 as the record date (the "Record Date") for the determination of
shareholders of the New USA Growth Fund entitled to notice of and to vote at the
Meeting or any adjournment thereof. Shareholders of the New USA Growth Fund on
that date will be entitled to one vote on each matter on which they are entitled
to vote for each share held and a fractional vote with respect to fractional
shares. Shareholders will not have cumulative voting rights. At the close of
business on the Record Date, New USA Mutual Funds has outstanding 14,305,272.62
New USA Growth Fund Shares, which comprises the only authorized shares of New
USA Mutual Funds.
The information concerning the New USA Growth Fund in this Proxy
Statement and Prospectus has been supplied by the New USA Growth Fund, and the
information concerning the MFS Fund in this Proxy Statement and Prospectus has
been supplied by the MFS Fund.
The principal executive offices of New USA Mutual Funds are located at
c/o State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts 02171. The enclosed Proxy and this Proxy Statement are first
being sent to the New USA Growth Fund's shareholders on or about April 25,
1997.
1
<PAGE> 8
PROPOSAL NO. 1
TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement and Prospectus and is qualified by reference to the
more complete information contained herein and in the attached Exhibit A as
well as in the New USA Growth Fund Prospectus and the enclosed MFS Fund
Prospectus. Shareholders should read this entire Proxy Statement and
Prospectus carefully.
OVERVIEW OF PROPOSED REORGANIZATION
The Board of New USA Mutual Funds has reviewed various alternatives
and determined that it is in the best interest of the New USA Growth Fund and
its shareholders that New USA Growth Fund shareholders become shareholders of
the MFS Fund. The MFS Fund invests to provide long-term growth of capital.
The New USA Growth Fund similarly invests to provide growth of capital. The
investment adviser of the New USA Growth Fund is NURM. The investment adviser
of the MFS Fund is Massachusetts Financial Services Company ("MFS"), a
subsidiary of Sun Life Assurance Company of Canada (U.S.), which in turn is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada. The
investment adviser of each Fund is sometimes referred to herein as that Fund's
"Adviser."
If the proposed transaction is consummated, shareholders of the New
USA Growth Fund will become holders of shares of beneficial interest designated
as Class A shares of the MFS Fund (the "MFS Fund Shares"). The Class A shares
of the MFS Fund are generally subject to an initial sales charge (however, this
sales charge will not apply to the MFS Fund Shares acquired by New USA Growth
Fund shareholders in this transaction).
The Class A shares of the MFS Fund are subject to a 0.10% annual
distribution fee and a 0.25% annual service fee payable pursuant to a
distribution plan (a "Distribution Plan") adopted pursuant to Section 12(b) of
the Investment Company Act of 1940, as amended (the "1940 Act") and Rule 12b-1
thereunder. Shares of the New USA Growth Fund are currently subject to a
maximum 0.75% annual distribution fee and a 0.25% annual service fee payable
under a Distribution Plan with respect to such shares.
The Board of New USA Mutual Funds and the Board of Trustees of the MFS
Trust have each approved the acquisition of the assets of the New USA Growth
Fund by the MFS Fund, and New USA Mutual Funds and the MFS Trust have entered
into an Agreement and Plan of Reorganization on behalf of the New USA Growth
Fund and the MFS Fund, respectively. See Exhibit A hereto. The consummation
of the proposed transaction, however, is subject to the approval of the New USA
Growth Fund shareholders and certain other conditions. See "Description of
Agreement" below.
As noted below, the transaction provides for the transfer of all the
assets of the New USA Growth Fund in exchange for MFS Fund Shares and the
assumption by the MFS Fund of the New USA Growth Fund's stated liabilities, as
set forth on a schedule of assets and liabilities delivered by the New USA
Growth Fund to the MFS Trust on the date the transaction is consummated. The
MFS Fund Shares will then be distributed to the New USA Growth Fund
shareholders (the "Reorganization"). Each New USA Growth Fund shareholder will
receive MFS Fund Shares that will have an aggregate net asset value equal to
the aggregate net asset value of his or her shares of the New USA Growth Fund
on the date the Reorganization occurs. The Reorganization is being structured
as a tax-free reorganization, and the consummation of the Reorganization is
subject to the receipt of an opinion from legal counsel to this effect.
Class A shares of the MFS Fund may be exchanged for Class A shares of
certain other funds advised by MFS (if available for sale) or may be redeemed
at net asset value (subject to any contingent deferred sales charge on
purchases of $1 million or more or purchases by certain retirement plans).
There are currently approximately 50 funds advised by MFS which are available
for exchange privileges with the MFS Fund. New
2
<PAGE> 9
USA Growth Fund shareholders may also redeem their shares at any time prior to
the consummation of the transaction. Any redemption or exchange from the MFS
Fund or the New USA Growth Fund would be a taxable event on which a shareholder
may recognize a gain or loss under applicable income tax provisions.
Concurrently with the consummation of the Reorganization (as defined
below under "Description of Agreement -- Conditions Precedent to Closing"), MFS
will acquire NURM for consideration payable to O'Neil Data Systems, Inc.
("ODS"), the parent of NURM, consisting of an amount to be determined based on
the net asset value of the New USA Growth Fund as of the closing of the
Reorganization plus an amount to be determined on the day one year from the
closing of the Reorganization based on the retention of former shareholders of
the New USA Growth Fund by the MFS family of funds. This amount is expected to
be in the range of $1.5 million to $4 million.
The Board of New USA Mutual Funds believes that the proposed
Reorganization will be advantageous to the shareholders of the New USA Growth
Fund in several respects which they considered in approving the Reorganization.
The Reorganization will permit the shareholders of the New USA Growth Fund to
become shareholders of a fund with a similar investment objective and similar
investment policies that has generally achieved a substantially similar total
return performance to that of the New USA Growth Fund. See "Comparative
Performance Information" below. Also, because the MFS Fund has a substantially
larger asset base than the New USA Growth Fund, its investment portfolio can be
spread over a greater number of securities. Greater diversification is
beneficial to shareholders because it reduces the negative effect which the
adverse performance of any one portfolio security may have on the performance of
the entire portfolio. Furthermore, there are greater economies of scale that
may be achieved for shareholders of the New USA Growth Fund as investors in a
substantially larger portfolio. Finally, as shareholders of the MFS Fund,
shareholders will enjoy exchange privileges with certain other retail funds
advised by MFS (currently there are approximately 50 such funds).
BUSINESS OF THE NEW USA GROWTH FUND
New USA Mutual Funds is an open-end, management investment company
organized as a Maryland corporation. The investment objective of the New USA
Growth Fund is to seek capital growth by investing primarily in equities of
entrepreneurially managed companies which, in its Adviser's judgment, have
superior earnings growth potential. The New USA Growth Fund commenced
investment operations on April 29, 1992.
As of January 31, 1997, the New USA Growth Fund's net assets were approximately
$214 million.
BUSINESS OF THE MFS FUND
The MFS Trust is an open-end, management investment company organized
as a Massachusetts business trust under a Declaration of Trust dated July 30,
1986, as amended and restated. The MFS Fund is a diversified series of the MFS
Trust. The investment objective of the MFS Fund is to provide long-term growth
of capital. The MFS Fund commenced investment operations on December 29, 1986.
Class A shares of the MFS Fund were first offered to the public on September
13, 1993.
As of November 30, 1996, the MFS Fund's net assets were approximately
$6.3 billion.
COMPARISON OF THE NEW USA GROWTH FUND AND THE MFS FUND
The investment objectives of the New USA Growth Fund and the MFS Fund
are substantially similar.
The policy of each of the New USA Growth Fund and the MFS Fund is to
invest primarily in common stock of exchange-listed and over-the- counter
companies. The New USA Growth Fund has a policy of investing the majority of
its assets primarily in common stock of companies which, in the judgment of the
Fund's Adviser, exhibit accelerating earnings growth and are expected to
continue achieving superior growth in earnings and/or revenues. Established
companies with entrepreneurial type managements which have introduced unique
new products, servicing or marketing concepts are the types of companies on
which the Adviser to the New USA
3
<PAGE> 10
Growth Fund focuses. The New USA Growth Fund invests principally in companies
with market capitalization of $100 million to $20 billion, and does not invest
more than 10% of the New USA Growth Fund's net assets, with no more than 5% in
any one issuer, in companies that do not have a record, together with their
predecessors, of at least three years of continuous operations. The MFS Fund's
policy is to invest primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of companies that MFS believes are early in
their life cycle, but which have the potential to become major enterprises
(emerging growth companies). Such companies generally would be expected to
show earnings growth over time that is well above the growth rate of the
overall economy and the rate of inflation, and would have the products,
technologies, management, market and other opportunities which are necessary to
become more widely recognized as growth companies. Emerging growth companies
can be of any size, and the MFS Fund may invest in larger or more established
companies whose rates of earnings growth are expected to accelerate because of
special factors, such as rejuvenated management, new products, changes in
consumer demand, or basic changes in the economic environment.
Both the New USA Growth Fund and the MFS Fund may, with certain
limitations, enter into repurchase agreements, make loans of its portfolio
securities and invest in certain restricted securities. Both Funds may also
invest in options on securities, stock indexes, stock index futures contracts,
ADRs, foreign securities, forward contracts on foreign currency, and, for
defensive purposes, short-term investments, and may purchase securities on a
"when issued" basis. The MFS Fund may purchase combinations of options known
as "straddles," future contracts for non-hedging purposes and options on
foreign currencies. The MFS Fund may also invest in emerging market
securities, corporate asset-backed securities, loans and other direct
indebtedness and lower rated fixed income securities. The New USA Growth Fund
may enter into short sales and invest in Primes and Scores, investment company
securities, over-the counter options on stock indexes and foreign currency
futures contracts. The New USA Growth Fund may also employ leverage to
purchase securities.
See "Special Factors -- Investment Objectives, Policies and
Restrictions" below.
FORM OF ORGANIZATION
New USA Mutual Funds is a Maryland corporation and the MFS Trust is a
business trust organized under the laws of The Commonwealth of Massachusetts.
The New USA Growth Fund commenced operations in 1992 and the MFS Fund commenced
operations in 1986. The MFS Fund is permitted to issue an unlimited number of
shares of beneficial interest and each share represents an equal proportionate
beneficial interest in the MFS Fund. The New USA Growth Fund is permitted to
issue 200,000,000 shares of beneficial interest and each share represents an
equal proportionate beneficial interest in the New USA Growth Fund.
SHARES OF THE NEW USA GROWTH FUND
The New USA Growth Fund has only one class of shares, which is offered
at net asset value with a maximum 5.0% sales charge, as described in the New
USA Growth Fund Prospectus, and subject to a Distribution Plan providing for a
combined maximum 1.00% annual distribution fee and service fee.
CLASSES OF SHARES OF THE MFS FUND
The MFS Fund currently offers four classes of shares, three of which
are offered to the general public, and may in the future offer additional
classes of shares. Class A shares are offered at net asset value plus an
initial sales charge as described below under "Other Significant Fees" (or a
contingent deferred sales charge (a "CDSC") in the case of certain purchases of
$1 million or more and certain purchases by retirement plans) and subject to a
distribution fee of up to 0.10% per annum and a service fee of up to 0.25% per
annum, of the average daily net assets attributable to the class. Class B
shares are offered at net asset value without an initial sales charge, but
subject to a CDSC upon redemption (declining from 4.00% during the first year to
0% after six years), and a distribution and service fee of up to 1.00% per
annum. Class B shares convert to Class A shares approximately eight years after
purchase. No sales charge is applicable upon conversion of the Class B shares
to Class A
4
<PAGE> 11
shares. Class C shares are offered at net asset value without an initial sales
charge but are subject to a CDSC upon redemption of 1.00% during the first
year, and a distribution fee and service fee of up to 1.00% per annum. Class C
shares do not convert to any other class of shares of the MFS Fund.
In addition, the MFS Fund offers an additional class of shares, Class
I shares, exclusively to certain institutional investors eligible to purchase
Class I shares. Class I shares are offered at net asset value without an
initial sales charge or CDSC upon redemption and without an annual distribution
and service fee.
New USA Growth Fund shareholders will be issued Class A shares (i.e.,
MFS Fund Shares) in the Reorganization which will not be subject to an initial
sales charge. As noted above, the MFS Fund Shares will also be subject to a
0.10% annual distribution fee and a 0.25% annual service fee.
Each share of the MFS Fund, regardless of class, shares pro rata in
the assets and income of the MFS Fund and shares pro rata in the MFS Fund
expenses, except for differences resulting from different class Distribution
Plan expenses and certain other class specific expenses. Shares of all classes
of the MFS Fund vote together on all matters affecting the MFS Fund, except for
certain matters, such as approval of a Distribution Plan, affecting only a
particular class or classes. See "Business of the MFS Fund -- MFS Fund Shares
and Purchase of MFS Fund Shares" below.
ADVISER AND ADVISORY FEES
The MFS Fund employs MFS as its investment adviser. The New USA
Growth Fund employs NURM as its investment adviser.
The MFS Fund pays MFS an annual management fee, computed and paid
monthly, in an amount equal to the sum of 0.75% of the first $2.5 billion of
the MFS Fund's average daily net assets and 0.70% of the amount of average
daily net assets in excess of $2.5 billion, in each case on an annualized basis
for its then current fiscal year. For the fiscal year ended November 30, 1996,
MFS received management fees under the Advisory Agreement of $34,371,549
equivalent on an annualized basis to 0.73% of the MFS Fund's average daily net
assets.
The New USA Growth Fund pays NURM a monthly management fee (accrued
daily) based upon the average daily net assets of the New USA Growth Fund at
the following annual rates: 1.00% on the first $500 million of net assets and
0.75% on net assets exceeding $500 million. For the fiscal year ended January
31, 1997, the New USA Growth Fund paid NURM approximately $2,084,000
(representing 1.00% of the New USA Growth Fund's average net assets, based on
average net assets of approximately $208 million).
DISTRIBUTION PLAN FEES
The Distribution Plan of the MFS Fund provides that the MFS Fund will
pay MFS Fund Distributors, Inc. ("MFD") (as the MFS Fund distributor) a daily
distribution/service fee payable monthly and equal to, on an annual basis,
0.35% of the MFS Fund's average daily net assets attributable to Class A shares
(0.10% of which constitutes the distribution fee and 0.25% of which constitutes
the service fee). MFD may also advance to dealers the first year service fee
at a rate of up to 0.25% of the purchase price of such shares and, as
compensation therefor, MFD may retain the service fee paid by the MFS Fund with
respect to such shares for the first year after purchase.
The Distribution Plan of the New USA Growth Fund provides that the New
USA Growth Fund will pay William O'Neil + Co. Incorporated ("WON + Co.") (as
the New USA Growth Fund distributor) a daily
5
<PAGE> 12
distribution service fee payable monthly equal to, on an annual basis, a
maximum of 1.00% of the New USA Growth Fund average daily net assets (up to
0.75% of which constitutes the distribution fee and up to 0.25% of which
constitutes the service fee). WON + Co. makes quarterly payments to qualified
brokers and dealers at the annual rate of 0.25% of the average net asset value
of shares of the New USA Growth Fund attributable to shareholders for whom
brokers or dealers are designated as the brokers or dealers of record. In its
discretion, WON + Co. may pay additional fees to certain brokers and dealers
for special services relating to the distribution of the New USA Growth Fund's
shares and the servicing of shareholder accounts as detailed in the New USA
Growth Fund Prospectus. WON + Co. may also pay referral fees to brokers for
referring institutional investors.
Distribution and service fees paid by each Fund under its respective
Distribution Plan are charged to, and therefore reduce, income.
OTHER SIGNIFICANT FEES
Both the MFS Fund and the New USA Growth Fund pay additional fees in
connection with their operations, including legal, accounting, shareholder
servicing agent and custodial fees, except to the extent such fees are borne by
either Fund's Adviser, as described below.
Effective March 1, 1997, the MFS Fund pays MFS an administrative fee
of up to 0.015% per annum on the first $3 billion of the MFS Fund's average
daily net assets for certain financial, legal, compliance, shareholder
communications and other administrative services.
The MFS Fund ratio of net expenses to average net assets for Class A
shares was 1.20% for the fiscal year ended November 30, 1996.
The New USA Growth Fund ratio of net expenses to average net assets
was 2.11% for the fiscal year ended January 31, 1997.
The MFS Fund offers Class A shares at net asset value plus an initial
sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge* as
Percentage of:
Dealer Allowance
Net Amount as a Percentage of
Amount of Purchase Offering Price Invested Offering Price
- ------------------ -------------- -------- ------------------
<S> <C> <C> <C>
Less than $50,000 . . . . . . . . . . . . . . . 5.75% 6.10% 5.00%
$50,000 but less than $100,000 . . . . . . . . 4.75 4.99 4.00
$100,000 but less than $250,000 . . . . . . . . 4.00 4.17 3.20
$250,000 but less than $500,000 . . . . . . . . 2.95 3.05 2.25
$500,000 but less than $1,000,000 . . . . . . . 2.20 2.25 1.70
$1,000,000 or more . . . . . . . . . . . . . . None** None** See Below**
- ---------------
</TABLE>
* Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages above.
** A CDSC will apply to such purchases, as discussed herein and in the MFS
Fund Prospectus.
6
<PAGE> 13
The MFS Fund does not impose a CDSC upon redemption of Class A shares
except with respect to purchases of $1 million or more of Class A shares or
purchases by certain retirement plans of Class A shares.
The New USA Growth Fund does not impose a CDSC as a percentage of
redemption proceeds except for certain categories of investors, including
corporate 401(k) plans, on which the New USA Growth Fund will impose a 1.00%
CDSC on the original purchase price if those investors redeem their investment
within 12 months.
With respect to both Class A shares of the MFS Fund and shares of the
New USA Growth Fund, no CDSC is imposed on shares acquired through reinvestment
of dividends and distributions or amounts derived from increases in either
Fund's net asset value per share. In determining whether a CDSC will be
payable and, if so, the percentage charge applicable, shares acquired through
reinvestment and then shares held the longest are considered the first to be
redeemed by both the MFS Fund and the New USA Growth Fund, thus resulting in
the lowest possible CDSC. For purposes of calculating the appropriate CDSC,
Class A Shares of the MFS Fund are aggregated on a calendar month basis,
meaning that 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, while shares of the New USA Growth Fund age one year from the
date of purchase in each subsequent year.
No new sales charges will apply to the MFS Fund Shares acquired by the
New USA Growth Fund shareholders in the Reorganization.
The MFS Fund does not anticipate that, following the Reorganization,
its portfolio turnover rate (and the expenses related thereto) will be
significantly higher than its current portfolio turnover rate (and the expenses
related thereto).
COMPARISON OF THE EXPENSES OF THE MFS FUND AND NEW USA GROWTH FUND
<TABLE>
<CAPTION>
PRO FORMA
NEW USA CLASS A
MFS FUND GROWTH FUND OF MFS FUND
CLASS A (1) (2) (3)
----------- ----------- -------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price or redemption
proceeds, as applicable) . . . . . . . . . . . . . . 5.75% 5.00% 5.75%
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Advisory Fees . . . . . . . . . . . . . . . . . . . . . 0.73% 1.00% 0.73%
Rule 12b-1 Fees . . . . . . . . . . . . . . . . . . . . 0.25%(4) 0.42%(5) 0.25%
Other Expenses:
Interest Expense . . . . . . . . . . . . . . . . . . 0.00% 0.22% 0.00%
Other Expenses . . . . . . . . . . . . . . . . . . . 0.25%(6) 0.47% 0.25%(6)
Total Other Expenses . . . . . . . . . . . . . . . . . 0.25%(6) 0.69% 0.25%(6)
Total Operating Expenses . . . . . . . . . . . . . . . 1.23% 2.11% 1.23%
</TABLE>
(1) For the year ended November 30, 1996.
(2) For the year ended January 31, 1997.
(3) For the year ended November 30, 1996, assuming the Reorganization occurred
on December 1, 1995.
(4) The MFS Fund has adopted a Distribution Plan for its shares in accordance
with Rule 12b-1 under the 1940 Act, which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
7
<PAGE> 14
0.35% per annum of the average daily net assets attributable to the Class A
shares. Payment of the 0.10% per annum Class A distribution fee will
commence on such date as the Trustees of the MFS Fund may determine. Assets
attributable to Class A shares sold prior to March 1, 1991 are subject to a
service fee of 0.15% per annum. Distribution expenses paid under this plan,
together with the initial sales charge, may cause long-term shareholders to
pay more than the maximum sales charge that would have been permissible if
imposed entirely as an initial sales charge.
(5) The Rule 12b-1 expenses are for permissible marketing and distribution
expenses, the majority of which will be reimbursed to New USA Mutual
Funds' distributor, having been incurred on the New USA Mutual Funds'
behalf by its distributor. New USA Mutual Funds may reimburse its
distributor for such expenses up to 0.75% of average net assets, plus an
additional 0.25% for service fees, subject to state expense limitations.
(6) Includes a .02% increase in transfer agent fees effective January 1, 1997
and a .01% increase in administrative fees effective March 1, 1997.
PURCHASES AND EXCHANGES
Class A shares of the MFS Fund and shares of the New USA Growth Fund
are available through certain authorized dealers at the effective public
offering price, which is based on the effective net asset value per share. The
minimum initial investment per account for Class A shares of the MFS Fund and
for shares of the New USA Growth Fund is $1,000, and the minimum additional
investment for Class A shares of the MFS Fund Shares and the New USA Growth
Fund shares is $50, except in certain instances as described in each Fund's
Prospectus. Shareholders of the MFS Fund may exchange their shares for shares
of the same class of certain other retail funds advised by MFS (currently, 50
funds advised by MFS are available for exchange privileges with the MFS Fund)
provided the exchange involves shares with an aggregate net asset value of
$1,000 or more or all the shares in the account. Each exchange and redemption
represents a sale of shares, which may produce a gain or loss for tax purposes.
DISTRIBUTION OPTIONS
The shareholders of both the MFS Fund and the New USA Growth Fund have
available the following distribution options: (i) dividends and capital gain
distributions reinvested in additional shares (this option will be assigned if
no other option is specified); (ii) dividends and capital gain distributions
paid in cash; and (iii) dividends in cash and capital gain distributions
reinvested in additional shares. Shareholders of the New USA Growth Fund may
also have capital gains paid in cash and dividends reinvested. Reinvestments
(net of any tax withholding) of dividends will be made in additional full and
fractional shares and capital gain distributions will be made in cash at the net
asset value in effect at the close of business on the Record Date.
REDEMPTION PROCEDURES
Class A shares of the MFS Fund are redeemable on any date on which the
MFS Fund is open for business at a price equal to the net asset value of the
shares next determined after receipt by its shareholder servicing agent, MFS
Service Center, Inc. ("MFSC"), of a written or telephonic redemption request in
good order reduced by the amount of any applicable CDSC and the amount of any
income tax required to be withheld. Shares of the New USA Growth Fund are
redeemable on any date on which the New USA Growth Fund is open for business at
a price equal to the net asset value of the shares next determined after
receipt by its transfer agent, State Street Bank and Trust Company, of a
written or telephonic redemption request in good order reduced by the amount of
any applicable CDSC and the amount of any income tax required to be withheld.
Alternatively, Class A shareholders of the MFS Fund and shareholders of the New
USA Growth Fund may sell their shares through securities dealers, who may
charge a fee. No such fees will be incurred in the proposed Reorganization.
8
<PAGE> 15
REORGANIZATION
EFFECT OF THE REORGANIZATION
Pursuant to the terms of the Agreement, the proposed Reorganization
will consist of (i) the transfer of all of the assets of the New USA Growth
Fund to the MFS Fund in exchange solely for Class A shares of the MFS Fund
Shares and the assumption by the MFS Fund of the stated liabilities of the New
USA Growth Fund as set forth on a schedule of assets and liabilities delivered
by New USA Mutual Funds to the MFS Trust on the Closing Date, (ii) the
distribution of the MFS Fund Shares to the shareholders of the New USA Growth
Fund in liquidation of the New USA Growth Fund as provided in the Agreement and
(iii) the liquidation and termination of New USA Mutual Funds. These
transactions are referred to as the "Reorganization."
The Reorganization will become effective as soon as practicable after
the shareholder approval noted under "Conditions Precedent to Closing" is
obtained (see "Description of Agreement" below), but in no event later than
July 31, 1997 (the "Closing Date"). The assets of the New USA Growth Fund will
be valued on the last business day immediately preceding the Closing Date (the
"Valuation Date"). The Agreement provides that, except to the extent that
another party has agreed to bear certain expenses in connection with the
Reorganization which would otherwise be borne by the MFS Fund and the New USA
Growth Fund (see "Description of the Agreement" below), the MFS Fund and the
New USA Growth Fund will each be liable for its own expenses incurred in
connection with the Reorganization.
INCOME TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the receipt of
opinions of legal counsel, substantially to the effect that the Reorganization
will qualify as a tax-free reorganization for federal income tax purposes. See
"Certain Federal Income Tax Considerations."
VOTE REQUIRED FOR APPROVAL
The Reorganization was approved by the Board of New USA Mutual Funds
on March 4, 1997. Approval of the Reorganization by the New USA Growth Fund
shareholders requires the affirmative vote of not less than a majority of the
shares of the New USA Growth Fund issued and outstanding and entitled to vote
at the Meeting.
RECOMMENDATION OF THE BOARD OF NEW USA MUTUAL FUNDS
THE BOARD OF DIRECTORS OF NEW USA MUTUAL FUNDS UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE IN FAVOR OF THE REORGANIZATION AS SET FORTH IN ITEM 1.
9
<PAGE> 16
SPECIAL FACTORS
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives and Policies. The New USA Growth Fund seeks to
provide capital growth by investing primarily in equities of entrepreneurially
managed companies which, in its Adviser's judgment, have superior earnings
growth potential. The MFS Fund seeks to provide long-term growth of capital by
investing primarily (i.e., at least 80% of its assets under normal
circumstances) in the common stock of companies that MFS believes are early in
their life cycle, but which have the potential to become major enterprises
(emerging growth companies). Emerging growth companies can be of any size and
the MFS Fund may invest in larger or more established companies whose rates of
earnings growth are expected to accelerate because of special factors, such as
rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment. Such companies generally would be
expected to show earnings growth over time that is well above the growth rate
of the overall economy and the rate of inflation, and would have the products,
technologies, management, market and other opportunities which are necessary to
become more widely recognized as growth companies.
The investment policies of both the New USA Growth Fund and the MFS
Fund are described above under "Summary" and certain of these policies are
described to a greater extent below. For more information on these policies,
including the risks associated therewith, see the New USA Growth Fund
Prospectus and the MFS Fund Prospectus.
When-Issued Securities. Each Fund may from time to time purchase
securities on a "when-issued" basis. It is anticipated for the New USA Growth
Fund that such securities will principally be equity securities. The price of
such securities is generally fixed on the date of commitment to purchase and
the value is thereafter reflected in each Fund's net asset value. At the time
of settlement, the market value of the security may be more or less than the
purchase price. Each Fund will establish a segregated account with its
custodian bank in which it will maintain liquid securities equal in value to
commitments for when-issued securities.
Forward Commitments. Each Fund may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if each Fund holds, and maintains until the settlement
date in a segregated account, liquid securities in an amount sufficient to meet
the purchase price, or if each Fund enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be
considered securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which risk
is in addition to the risk of decline in the value of the Fund's other assets.
The Fund may realize short-term profits or losses upon the sale of forward
commitments.
Lending of Securities. Each Fund may make secured loans of their
portfolio securities amounting to not more than 33 1/3% of the New USA Growth
Fund's total assets and 30% of the MFS Fund's total assets, thereby realizing
additional income. As a matter of policy, a Fund may make securities loans to
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan. The MFS Fund
usually makes such loans only to member banks of the Federal Reserve System and
to New York Stock Exchange member firms (and subsidiaries thereof).
Repurchase Agreements. Each Fund may enter into repurchase
agreements. A repurchase agreement is a contract under which a Fund acquires a
security for a relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and a Fund to resell such
security at a fixed time and price (representing a Fund's cost plus interest).
The New USA Growth Fund may enter into repurchase agreements for up to 33 1/3%
of its total assets, of which only 10% may be invested in repurchase
agreements which have a maturity of more than seven days. The MFS Fund may
only invest 10% of its assets in repurchase agreements maturing in more than
seven days. It is each Fund's present intention to enter into repurchase
agreements only
10
<PAGE> 17
with commercial banks and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or instrumentalities.
Illiquid Securities. Each Fund may invest to a limited degree in
illiquid securities. The MFS Fund may invest up to 15% of its net assets in
illiquid securities, while the New USA Growth Fund may invest up to 10% of its
net assets in illiquid securities. Each Fund may purchase securities that are
not registered under 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"). While the New USA Growth
Fund may invest up to 10% of its net assets in illiquid securities, it may only
invest up to 5% of its net assets in restricted securities. As a result, the
Funds may not be able to sell these securities when its 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, the judgment of the Adviser
may at times play a greater role in valuing these securities than in the case
of liquid securities. Investment in Rule 144A securities could have the effect
of increasing the level of each Fund's illiquidity to the extent that qualified
institutional investors become, for a time, uninterested in purchasing the
Fund's securities.
Investments for Temporary Defensive Purposes. During periods of
unusual market conditions when its Adviser believes that investing for
temporary defensive purposes is appropriate, or in order to meet anticipated
redemption requests, each Fund may make temporary investments in cash or
cash equivalents including, but not limited to, obligations of banks with
assets of $1 billion or more (including certificates of deposit, bankers'
acceptances and repurchase agreements), 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.
The New USA Growth Fund may not invest more than 50% of its assets at time of
purchase in cash or cash equivalents.
Foreign Securities; Foreign Currency. Each Fund may invest up to the
limit of its total assets specified in its Prospectus (which currently is 10%
in the case of the New USA Growth Fund and 25% in the case of the MFS Fund) in
securities principally traded in markets outside the United States. Eurodollar
certificates of deposit and dollar-denominated American Depositary Receipts
("ADRs") traded in the United States on exchanges or in the over-the-counter
market are excluded for purposes of this limitation. Foreign investments can
be affected favorably or unfavorably by changes in currency exchange rates and
in exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments in foreign
securities can involve other risks not associated with U.S. investments,
including local political or economic developments, exportation or
nationalization of assets and imposition of withholding taxes on dividend or
interest payments.
American Depositary Receipts. Each Fund may invest in sponsored or
unsponsored ADRs which are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. The use of the
depositary receipts in the United States can reduce costs and delays as well as
potential currency exchange and other difficulties. Each Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer of the
security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information the
foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the
issuer of the underlying security. ADRs may also be subject to exchange rate
risks if the underlying foreign securities are traded in foreign currency.
Forward Contracts on Foreign Currency. Each Fund may enter into
forward foreign currency exchange contracts ("Forward Contracts") for hedging
purposes. These represent agreements to purchase or sell specified currencies
at specified dates and prices. Forward Contracts may be used for hedging to
attempt to minimize the risks to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. The MFS Fund will
also enter into transactions in Forward Contracts for other than hedging
purposes, which present
11
<PAGE> 18
greater profit potentials and also involve increased risks. A Fund will profit
if the anticipated movements in foreign currency exchange rates occurs, which
will increase its gross income. Where exchange rates do not move in the
direction or to the extent anticipated, however, a Fund may sustain losses
which will reduce its gross income. Such transactions, therefore, could be
considered speculative and could involve significant risk of loss. Each Fund
has established procedures consistent with statements of the Commission and its
staff regarding the use of Forward Contracts by registered investment
companies, which require use of segregated assets of "cover" in connection
with the purchase and sale of such Contracts.
Options on Securities. The New USA Growth Fund may buy
exchange-traded put options on individual common stocks, for hedging purposes
only. The MFS Fund may purchase call and put options on securities 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, a 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
a 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 a Fund.
The MFS Fund may also write (sell) covered call and put 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 MFS Fund writes
an option which expires unexercised or is closed out by the Fund at a profit,
it will retain the premium received 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 MFS Fund's position, the option may be exercised and the MFS
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 MFS 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.
In certain instances, the MFS Fund may also enter into options on
Treasury securities which may be referred to as "reset" options or "adjustable
strike" options. These options provide for periodic adjustment of the strike
price and may also provide for the periodic adjustment of the premium during
the term of the option.
Options on Stock Indices. Each Fund may purchase put or call options
on stock indices in order, respectively, to hedge its investments against a
decline in value or to attempt to reduce the risk of missing a market or
industry segment advance. A Fund's possible loss in either case will be
limited to the premium paid for the option, plus related transaction costs.
The MFS Fund may also write (sell) covered call and put options on
stock indices. The MFS Fund may write options on stock indices for the purpose
of increasing its gross income and to protect its portfolio against declines in
the value of securities it owns or increases in the value of securities to be
acquired. When the Fund writes an option on a stock index, and the value of
the index moves adversely to the holder's position, the option will not be
exercised. The Fund will thereby retain the amount of the premium, less
related transaction costs, which will increase its gross income and offset part
of the reduced value of portfolio securities or the increased cost of
securities to be acquired. Such transactions, however, will constitute only
partial hedges against adverse price fluctuations, since any such fluctuations
will be offset only to the extent of the premium received by the Fund for the
writing of the option, less related transaction costs. In addition, if the
value of an underlying index moves adversely to the Fund's option position, the
option may be exercised, and the Fund will experience a loss which may only be
partially offset by the amount of the premium received.
Each Fund may purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to attempt
to reduce the risk of missing a market or industry segment advance. A Fund's
possible loss in either case will be limited to the premium paid for the
option, plus related transaction costs.
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Futures Contracts. Each Fund may enter into stock index futures
contracts. (Unless otherwise specified, futures contracts on indices are
referred to as "Future Contracts"). Each Fund will utilize Futures Contracts
for hedging purposes. Purchases or sales of Futures Contracts for hedging
purposes are used to attempt to protect a Fund's current or intended stock
investments from broad fluctuations in stock prices. In the event that an
anticipated decrease in the value of portfolio securities occurs as a result of
a general stock market decline, a general increase in interest rates or a
decline in the dollar value of foreign currencies in which the portfolio
securities are denominated, the adverse effects of such changes may be offset,
in whole or in part, by gains on Futures Contracts. Conversely, the increased
cost of portfolio securities to be acquired, caused by a general rise in the
stock market, a general decline in interest rates or a rise in the dollar value
of foreign currencies, may be offset, in whole or in part, by gains on Futures
Contracts purchased by a Fund. A Fund will incur brokerage fees when it
purchases and sells Futures Contracts, and it will be required to make and
maintain margin deposits. The MFS Fund may also utilize Futures Contracts for
non-hedging purposes, subject to the 1940 Act. Each Fund may buy or sell
Futures Contracts, if, at the time the transaction is made and after giving
effect thereto, the sum of the aggregate initial margin deposits on all open
Futures Contracts is 5.0% or less of the Fund's net assets.
Options on Futures Contracts. Each Fund may purchase options on stock
index futures contracts. (Unless otherwise specified, options on stock index
futures contracts are referred to as "Options on Futures Contracts.") With
respect to the New USA Growth Fund, such investment strategies will be used for
hedging purposes only. The MFS Fund may purchase Options on Futures Contracts
for hedging and non-hedging purposes, subject to applicable law. Put and call
Options on Futures Contracts may be traded by a 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 a 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
MFS Fund may also write Options on Futures Contracts. The writing of such
options 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 MFS Fund may suffer a loss on the
transaction. The New USA Growth Fund may purchase put and call options on
index futures only if, at the time the purchase is made and after giving effect
thereto, such premiums are 2.0% or less of the New USA Growth Fund's net assets
and are equal to or less than the further limitations described under "Futures
Contracts" above.
Over-the Counter Options and Futures Contracts. The New USA Growth
Fund may also buy put and call options on securities indices (linked to the
over-the-counter ("OTC") market) and OTC put and call options on securities
indices or customized, equity-based reference instruments. The New USA Growth
Fund limits its activities in OTC options to transactions with U.S. dealers,
specifically leading banks and securities dealers, that are rated by major
credit rating organizations, such as Standard & Poor's Corporation and Moody's
Investors Service, Inc., as "A" or higher.
Short Sales. The New USA Growth Fund may enter into short sales. A
short sale is a sale of a security not owned by the seller. Short sales may
be used to take advantage of an anticipated decline in the price of a security.
The proceeds the New USA Growth Fund receives are retained by the broker until
the New USA Growth Fund replaces the borrowed security. In addition, at the
time a short sale is effected, the New USA Growth Fund incurs an obligation to
replace the security borrowed at whatever its price may be at the time the New
USA Growth Fund purchases it for delivery to the lender. The New USA Growth
Fund's obligation to replace the security borrowed in connection with a short
sale will be secured by collateral deposited with the broker, consisting of
cash or U.S. government securities or other securities acceptable to the
broker. In addition, the New USA Growth Fund will be required to deposit cash
or U.S. Government securities as collateral in a segregated account with its
custodian in an amount such that the value of both collateral deposits is at
all times equal to 100% of the current market value of the securities sold
short. The deposits do not necessarily limit the New USA Growth Fund's
potential loss on a short sale. The New USA Growth Fund may engage in short
sales only up to the limit of the market value of its net assets specified in
its Prospectus (which is currently 5.0% of net assets and, in regards to the
securities of a single issuer, the lesser of 2.0% of net assets or 2.0% of the
capital stock of the issuer).
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<PAGE> 20
The New USA Growth Fund may also sell securities short "against the
box." While a short sale is the sale of a security the Fund does not own, it is
"against the box" if, at all times when the short position is open, the New USA
Growth Fund owns an equal amount of the securities or securities convertible
into, or exchangeable without further consideration for, securities sold short.
Short sales "against the box" are aggregated with other short sales in applying
the percentage limitations described above.
Primes and Scores. The New USA Growth Fund may invest in the
securities of unit investment trusts ("UITs") whose units are divided into
"prime" and "score" components subject to the limitations and restrictions
imposed by applicable provisions of the 1940 Act. These securities are divided
into two separate components, each of which may be separately traded on a stock
exchange. One component carries the dividend and voting rights of the common
stock underlying the UIT (i.e., the "prime" component) while the other
component carries the right to its capital appreciation, if any, over a
specified price (i.e., the "score" component). The presently applicable
provisions of the 1940 Act require that the New USA Growth Fund and affiliated
persons of the New USA Growth Fund not own together (i) more than 3.0% of the
total outstanding stock of any one UIT, (ii) the securities of any single UIT
having an aggregate value in excess of 5.0% of the value of the New USA Growth
Fund's total assets and (iii) securities of all UITs having an aggregate value
in excess of 10% of the value of the Fund's total assets.
Fixed Income Securities. The MFS Fund may invest to a limited extent
in fixed income securities. The net asset value of the shares of an open-end
investment company which may invest to a limited extent in fixed income
securities changes as the general levels of interest rates fluctuate. When
interest rates decline, the value of a fixed income portfolio can be expected to
rise. Conversely, when interest rates rise, the value of a fixed income
portfolio can be expected to decline. The MFS Fund may also invest in fixed
income securities rated Baa by Moody's Investor's Service, Inc. or BBB by
Standard & Poor's Rating Services and Fitch Investor's Service, Inc. and
comparable unrated securities. These securities, while normally exhibiting
adequate protection parameters, may have speculative characteristics and changes
in economic conditions and other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher grade fixed income securities.
Lower-Rated Fixed Income Securities. The MFS Fund may invest to a
limited extent in lower-rated fixed income securities or comparable unrated
securities. These lower-rated high yielding fixed income securities generally
tend to reflect economic changes (and the outlook for economic growth),
short-term corporate and industry developments and the market's perception of
their credit quality (especially during times of adverse publicity) to a greater
extent than higher rated securities which react primarily to fluctuations in the
general level of interest rates (although these lower-rated fixed income
securities are also affected by changes in interest rates). In the past,
economic downturns or an increase in interest rates have under certain
circumstances caused a higher incidence of default by the issuers of these
securities and may do so in the future, especially in the case of highly
leveraged issuers. Furthermore, the liquidity of these lower-rated securities
may be affected by the market's perception of their credit quality. Therefore,
the MFS Fund Adviser's judgment may at times play a greater role in valuing
these securities than in the case of investment grade fixed income securities,
and it also may be more difficult during times of certain adverse market
conditions to sell these lower-rated securities at their fair value to meet
redemption requests or to respond to changes in the market. No minimum rating
standard is required by the MFS Fund. To the extent the MFS Fund invests in
these lower-rated fixed income securities, the achievement of its investment
objective may be more dependent on the MFS Fund Adviser's own credit analysis
than in the case of a fund investing in higher quality bonds.
Corporate Asset-Backed Securities. The MFS Fund may invest in
corporate asset-backed securities. These securities, issued by trusts and
special purpose corporations, are backed by a pool of assets, such as credit
card and automobile loan receivables, representing the obligations of a number
of different parties. Corporate asset-backed securities present certain risks.
There is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. The
underlying assets (e.g., loans) are also subject to prepayments which shorten
the securities' weighted average life and may lower their return.
Emerging Market Securities. Consistent with the MFS Fund's objective
and policies, the MFS Fund may invest in securities of issuers whose principal
activities are located in emerging market countries. Emerging
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<PAGE> 21
market countries include any country determined by the Adviser to have an
emerging market economy, taking into account a number of factors, including
whether the country has a low- to middle-income economy according to the
International Bank for Reconstruction and Development, the country's foreign
currency debt rating, its political and economic stability and the development
of its financial and capital markets. The MFS Fund's Adviser determines
whether an issuer's principal activities are located in an emerging market
country by considering such factors as its country of organization, the
principal trading market for its securities and the source of its revenues and
assets. The issuer's principal activities generally are deemed to be located in
a particular country if: (a) the security is issued or guaranteed by the
government of that country or any of its agencies, authorities or
instrumentalities; (b) the issuer is organized under the laws of, and maintains
a principal office in, that country; (c) the issuer has its principal securities
trading market in that country; (d) the issuer derives 50% or more of its total
revenues from goods sold or services performed in that country; or (e) the
issuer has 50% or more of its assets in that country.
Loans and Other Direct Indebtedness. The MFS Fund may purchase loans
and other direct indebtedness. In purchasing a loan, the MFS Fund acquires
some or all of the interest of a bank or other lending institution in a loan to
a corporate borrower. These loans and other direct indebtedness are made
generally to finance internal growth, mergers, acquisitions, stock repurchases,
leveraged buyouts and other corporate activities. Certain of the loans and
other direct indebtedness acquired by the MFS Fund may involve revolving credit
facilities or other standby financing commitments which obligate the MFS Fund
to pay additional cash on a certain date or on demand. These commitments may
have the effect of requiring the MFS Fund to increase its investment in a
company at a time when the MFS Fund might not otherwise decide to do so
(including at a time when the company's financial condition makes it unlikely
that such amounts will be repaid). To the extent that the Fund is committed to
advance additional funds, it will at all times hold and maintain in a
segregated account cash or other liquid obligations in an amount sufficient to
meet such commitments.
Options on Foreign Currencies. The MFS 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 MFS 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 MFS 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.
____________________
The investment policies of the New USA Growth Fund and the MFS Fund
and the investment objective of the MFS Fund described above may be changed
without shareholder approval, but the investment objective of the New USA
Growth Fund described above may not be changed without shareholder approval.
Fundamental Investment Restrictions. The investment restrictions
summarized below are fundamental and may not be changed without the approval of
the holders of a majority of outstanding shares (as defined in the 1940 Act) of
the New USA Growth Fund or the MFS Fund, as applicable.
The MFS Fund may only borrow money as a temporary measure for
extraordinary or emergency purposes and the New USA Growth Fund may borrow for
leverage purposes from a bank or through reverse repurchase agreements. Each
Fund must maintain asset coverage of at least 300% for all such borrowings.
The New USA Growth Fund may borrow up to 15% of its total assets, while the MFS
Fund may borrow up to 33 1/3% of its total assets. The MFS Fund may not
pledge, mortgage or hypothecate more than 15% of its total assets to secure
permitted borrowings (for the purpose of this restriction, collateral
arrangements with respect to options, futures contracts, options on futures
contracts, forward contracts and options on foreign securities and
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<PAGE> 22
payment of initial and variation margin in connection therewith, are not
considered a pledge of assets). The New USA Growth Fund may not pledge,
mortgage or hypothecate any of its assets, except in connection with
permissible borrowings and permissible options or other hedging transactions.
Neither Fund may underwrite securities issued by other persons except
insofar as the Fund may technically be deemed an underwriter under the
Securities Act of 1933 in selling a portfolio security.
Neither Fund may concentrate its investments in any particular
industry, provided, however, that there is no limitation in respect to
investments in obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. If it is deemed appropriate for the achievement
of its investment objective, up to 25% of each Fund's assets may be invested, at
market value at the time of each investment, in securities of issuers in any one
industry.
Neither Fund may purchase or sell real estate, mineral leases,
commodities or commodity contracts, except each Fund may (a) purchase or sell
readily marketable securities which are secured by interests in real estate or
issued by companies which deal in real estate, including real estate investment
trusts; and (b) engage in certain options, futures contracts, and options on
futures contracts in the ordinary course of business. The New USA Growth Fund
may not invest in oil, gas or mineral exploration or development leases and
programs. The MFS Fund reserves the freedom of action to hold and to sell real
estate, mineral leases, commodities or commodity contracts acquired as a result
of the ownership of securities.
Neither Fund may make loans to other persons except that each Fund may
(a) purchase obligations in which the Fund is authorized to invest and (b)
invest in repurchase agreements. The New USA Growth Fund may lend up to 25% of
its portfolio securities. The MFS Fund may lend up to 30% of the market value
of its total assets. Not more than 10% of the MFS Fund's total assets (taken at
market value) may be subject to repurchase agreements maturing in more than
seven days.
Neither Fund may issue any senior security, as that term is defined in
the 1940 Act, except with respect to permitted borrowings. Collateral
arrangements with respect to options, futures contracts and options on futures
contracts and collateral arrangements with respect to initial and variation
margins and, repurchase agreements are not deemed to be the issuance of a senior
security.
The New USA Growth Fund may not:
(i) Invest in the aggregate, more than 5% of its net assets in
restricted securities;
(ii) Invest, in the aggregate, more than 10% of its net assets in
securities with legal or contractual restrictions on resale,
securities which are not readily marketable, and repurchase
agreements with more than seven days to maturity; or
(iii) Invest in securities of any issuer if the officers and
directors of New USA Mutual Funds or NURM owning beneficially
more than one-half of one percent of the securities of that
issuer together as a group own beneficially more than 5% of the
securities of that issuer.
The MFS Fund may not:
(i) Purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the MFS Trust, or is a
member, partner, officer or director of the Adviser of the MFS
Fund, if after the purchase of the securities of such issuer by
the MFS Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more
than 1/2
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<PAGE> 23
of 1% of such shares or securities together own beneficially
more than 5% of such shares or securities, or both, all
taken at market value;
(ii) Purchase any securities or evidences of interest therein on
margin, except that the Fund may obtain such short- term
credit as may be necessary for the clearance of purchases and
sales of securities and the MFS Fund may make margin deposits
in connection with futures contracts, options on futures
contracts, forward contracts and options on foreign
currencies;
(iii) Sell any security which the MFS Fund does not own, unless by
virtue of its ownership of other securities the MFS Fund has
at the time of sale a right to obtain securities without
payment of further consideration equivalent in kind and amount
to the securities sold, and provided that if such right is
conditional, the sale is made upon equivalent conditions;
(iv) Purchase securities issued by any other registered investment
company or investment trust except by purchase in the open
market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation;
provided, however, that the MFS Fund will not purchase such
securities if such purchase at the time thereof would cause
more than 10% of its total assets (taken at market value) to
be invested in the securities of such issuers; and provided
further, that the MFS Fund will not purchase securities issued
by an open-end investment company;
(v) Write, purchase or sell any put or call option or any
combination thereof, provided that this shall not prevent the
MFS Fund from writing, purchasing and selling puts, calls or
combinations thereof with respect to securities, and indices
of securities or foreign currencies, and with respect to
futures contracts;
(vi) Purchase the securities of any issuer (except U.S.
Government securities) if, as a result, more than 5% of the
MFS Fund's total assets would be invested in that issuer;
(vii) Purchase the voting securities of any issuer if such purchase,
at the time thereof, would cause more than 10% of the
outstanding voting securities of such issuer to be held by the
MFS Fund, or purchase securities of any issuer if such
purchase at the time thereof would cause more than 10% of any
class of securities of such issuer to be held by the MFS Fund.
For this purpose all indebtedness of an issuer shall be deemed
a single class and all preferred stock of an issuer shall be
deemed a single class; or
(viii) The MFS Fund may not invest in companies for the purpose of
exercising control or management.
Non-fundamental Investment Policies. As described below, each Fund
has certain operating policies which are not fundamental and may be changed
without shareholder approval.
The New USA Growth Fund may not:
(i) Invest more than 10% of the value of its net assets, with no
more than 5% in any one issuer, in securities of companies
which have not had a record, together with their predecessors,
of at least three years of continuous operations;
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<PAGE> 24
(ii) Invest in securities of other investment companies except in
the open market where no commission except the ordinary
broker's commission is paid, or as part of a merger,
consolidation or acquisition of assets, and other than primes
and scores. In no event may the New USA Growth Fund invest in
such securities if immediately thereafter such securities
would constitute more than 5% of the total assets of the New
USA Growth Fund;
(iii) Acquire or dispose of put, call, straddle or spread options
except as described in the New USA Growth Fund Prospectus,
provided that, at the time the purchase is made and after
giving effect thereto, the aggregate premiums paid on all such
unexpired options are 5% or less of the New USA Growth Fund's
net assets, except that the Fund may purchase put and call
options on index futures only if, at the time the purchase is
made and after giving effect thereto, such premiums are 2% or
less of the Fund's net assets;
(iv) Buy or sell index futures contracts, unless at the time the
transaction is made and after giving effect thereto, the sum
of the aggregate initial margin deposits on all open index
futures contracts and the premiums paid on all unexpired
options on index futures is 5% or less of the New USA Growth
Fund's net assets;
(v) Engage in short sales of securities, including, without
limitation, short sales "against the box," unless, at the time
the short sale is made and after giving effect thereto, the
aggregate market value of all securities sold short is less
than or equal to 5% of the New USA Growth Fund's net assets,
or unless in connection with permissible futures transactions;
(vi) Invest more than 10% of the market value of its total assets
in securities of unit investment trusts whose units are
divided into "prime" and "score" components;
(vii) Invest in any issuer for the purpose of exercising control or
management;
(viii) Invest in warrants, which when valued at the lower of cost or
market, would be in excess of 5.0% of the value of the New USA
Growth Fund's net assets. Included in such amount, but not to
exceed 2.0% of the value of the New USA Growth Fund's net
assets, may be warrants that are not listed on the New York or
American Stock Exchange. Warrants acquired by the New USA
Growth Fund in units or attached to securities may be deemed
to be without value; or
(ix) Invest in the aggregate, more than 10% of its total assets in
foreign securities (not including American Depositary Receipts
and Eurodollar Certificates of Deposit).
The MFS Fund may not:
(i) Knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase
agreements), unless the Board of Trustees of the MFS Trust has
determined that such securities are liquid based upon trading
markets for the specific security, if, as a result thereof,
more than 15% of the MFS Fund's total assets (taken at market
value) would be so invested;
(ii) Invest more than 5.0% of its total assets in companies which,
including their respective predecessors, have a record of less
than three years' continuous operations; or
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<PAGE> 25
(iii) Pledge, mortgage or hypothecate its portfolio securities if
the percentage of securities so pledged, mortgaged or
hypothecated would exceed 33 1/3%.
RISK FACTORS
Due to the similarities in the investment objectives and techniques of
the New USA Growth Fund and the MFS Fund, the risks involved in investment in
the Funds, as referred to in the subsection entitled "Investment Objectives,
Policies and Restrictions" of this "Special Factors" section, can be considered
similar. For a further discussion of the investment objectives, policies and
restrictions applicable to the MFS Fund and the New USA Growth Fund, and the
risks of investing in each Fund, see "Investment Objectives, Policies and
Restrictions" herein and the discussions under "Investment Techniques" and
"Additional Risk Factors" in the accompanying prospectus of MFS Emerging Growth
Fund.
In addition to the Risk Factors discussed herein and therein, it
should be noted that the MFS Fund may purchase combination of options known as
"straddles," futures contracts for non-hedging purposes, options on foreign
currencies, emerging market securities, corporate asset-backed securities,
loans and other direct indebtedness and lower-rated fixed income securities.
The following sets forth the risks associated with the foregoing types of
investments and should be considered by shareholders of the New USA Growth Fund
in their evaluation of the proposed Reorganization:
With respect to the writing of straddles on securities, the MFS Fund
incurs the risk that the price of the underlying security will not remain
stable, that one of the options written will be exercised and that the
resulting loss will not be offset by the amount of the premiums received. Such
transactions, therefore, create an opportunity for increased return by
providing the MFS Fund with two simultaneous premiums on the same security, but
involve additional risk, since the MFS Fund may have an option exercised
against it regardless of whether the price of the security increases or
decreases.
Transactions in futures contracts for non-hedging purposes intended to
increase portfolio returns involve greater risks and may result in losses which
may not be offset by increases in the value of portfolio securities or declines
in the cost of securities to be acquired. Transactions in futures contracts
for other than hedging purposes could expose the MFS Fund to significant risk of
loss if foreign currency exchange rates do not move in the direction or to the
extent anticipated. In this regard, the foreign currency may be extremely
volatile from time to time and the use of such transactions for non-hedging
purposes could therefore involve significant risk of loss. While the MFS Fund
will enter into futures positions only if there appears to be a liquid
secondary market therefor, there can be no assurance that such a market will
exist for any particular contracts at any specific time. The inability to
close out futures positions, therefore, could have an adverse impact on the MFS
Funds' ability effectively to hedge its portfolio, and could result in trading
losses. The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of contract
during a single trading day. Prices have in the past moved the daily limit on
a number of consecutive trading days. The trading of futures contracts is also
subject to the risk of trading halts, suspensions, exchange or clearinghouse
equipment failures, government intervention, insolvency of a brokerage firm or
clearinghouse or other disruptions of normal trading activity, which could at
times make it difficult or impossible to liquidate existing positions or to
recover excess variation margin payments. Because of low initial margin
deposits made upon the opening of a futures or forward position and the writing
of an option, such transactions involve substantial leverage. As a result,
relatively small movements in the price of the contract can result in
substantial unrealized gains or losses and the margin requirements associated
with such transactions could expose the MFS Fund to greater risk than that
involved in such a transaction entered into for hedging purposes.
Options on foreign currencies are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the Commission. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board of Options Exchange, subject
to Commission regulation. In an over-the-counter trading environment many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser or an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Options on foreign currencies may be traded on exchanges located in foreign
countries. Such transactions may not be conducted in the same manner as those
entered into on U.S. exchanges, and may be subject to different margin,
exercise, settlement or expiration procedures. As a result, many of the risks
of over-the-counter trading may be present in connection with such transactions.
The purchase and sale of exchange-traded foreign currency options is subject to
the risks of the availability of a liquid secondary market, as well as the risks
regarding adverse market movements, margining of options written, the nature of
the foreign currency market, possible intervention by governmental authorities
and the effects of other political economic events.
In addition, investing in options on foreign currencies is subject to
the risk of governmental actions affecting the trading in or the prices of
currencies underlying such contracts, which could restrict or eliminate trading
and could have a substantial adverse effect on the value of positions held by
the MFS Fund. The value of such positions could be adversely affected by a
number of other complex political and economic factors applicable to the
countries issuing the underlying currencies. Unlike trading in most other types
of instruments, there is no systematic reporting of last sale information with
respect to the foreign currencies underlying contracts thereon. As a result, the
available information on which trading systems will be based may not be as
complete as the comparable data on which the MFS Fund makes investment and
trading decisions in connection with other transactions. Moreover, because the
foreign currency market is a global, 24-hour market, events could occur in that
market which will not be reflected in the forward, futures or options markets
until the following day, thereby making it more difficult for the MFS Fund to
respond to such events in a timely manner. Settlements of exercises of foreign
currency options generally must occur within the country issuing the underlying
currency, which in turn requires traders to accept or make delivery of such
currencies in conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships, fees, taxes or other
charges.
The risks of investing in foreign securities may be intensified in the
case of investments in emerging markets. Securities of many issuers in
emerging markets may be less liquid and more volatile than securities of
comparable domestic issuers. Emerging markets also have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of
the MFS Fund is uninvested and no return is earned thereon. The inability of
the MFS Fund to make intended security purchases due to settlement problems
could cause the MFS Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to the MFS Fund due to subsequent declines in value of the
portfolio security, a decrease in the level of liquidity to the purchaser.
Certain markets may require payment for securities before delivery and in such
markets the MFS Fund bears the risk that the securities will not be delivered
and that the MFS Fund's payments will not be returned. Securities prices in
emerging markets can be significantly more volatile than in the more developed
nations of the world, reflecting the greater uncertainties of investing in less
established markets and economies. In particular, countries with emerging
markets may have relatively unstable governments, present the risk of
nationalization of businesses, restrictions on foreign ownership, or
prohibitions of repatriation of assets, and may have less protection of
property rights than more developed countries. The economies of countries with
emerging markets may be predominantly based on only a few industries, may be
highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates. Local
securities markets may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times.
Securities of issuers located in countries with emerging markets may have
limited marketability and may be subject to more abrupt or erratic price
movements. Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The MFS Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the MFS Fund of any restrictions on investments. Investment in
certain foreign emerging market debt obligations may be restricted or
controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain foreign emerging market debt obligations and
increase the expenses of the MFS Fund.
Investing in corporate asset-backed securities presents certain risks.
These securities may not have the benefit of any security interest in the
related collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
Most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return. Delinquency or
loss in excess of that anticipated or failure of credit support could also
adversely affect the return on an investment in such a security.
The MFS Fund's ability to receive payment of principal, interest and
other amounts due in connection with loans and other direct indebtedness will
depend primarily on the financial condition of the borrower. The highly
leveraged nature of many such loans and other direct indebtedness may make such
loans and other direct indebtedness especially vulnerable to adverse changes in
economic or market conditions. Investments in such loans and other direct
indebtedness may involve additional risk to the MFS Fund. For example, if a
loan or other direct indebtedness is foreclosed, the MFS Fund could become part
owner of any collateral, and would bear the costs and liabilities associated
with owning and disposing of the collateral. In addition, it is conceivable
that under emerging legal theories or lender liability, the MFS Fund could be
held liable. It is unclear whether loans and other forms of direct
indebtedness offer securities law protections against fraud and
misrepresentation. In addition, loans and other direct investments may not be
in the form of securities or may be subject to restrictions on transfer, and
only limited opportunities may exist to resell such instruments. As a result,
the MFS Fund may be unable to sell such investments at an opportune time or may
have to resell them at less than fair market value.
Investments in lower-rated fixed income securities, while generally
providing greater income and opportunity for gain than investments in higher
rated securities, usually entail greater risk of principal and income (including
the possibility of default or bankruptcy of the issuers of such securities), and
involve greater volatility of price (especially during periods of economic
uncertainty or change) than investments in higher rated securities. Because
yields may vary over time, no specified level of income can ever be assured. In
particular, securities rated lower than Baa by Moody's Investors Service, Inc.
or BBB by Standard & Poor's Ratings Service or by Fitch Investors Services, Inc.
or comparable unrated securities (commonly known as "junk bonds") are considered
speculative. In the past, economic downturns or an increase in interest rates
have under certain circumstances caused a higher incidence of default by the
issuers of these securities and may do so in the future, especially in the case
of highly leveraged issuers. During certain periods, the higher yields on the
MFS Fund's lower-rated high yielding fixed income securities are paid primarily
because of the increased risk of loss of principal and income, arising from such
factors as the heightened possibility of default or bankruptcy of the issuers of
such securities. Due to the fixed income payments of these securities, the MFS
Fund may continue to earn the same level of interest income while its net asset
value declines due to portfolio losses, which could result in an increase in the
MFS Fund's yield despite the actual loss of principal. The prices for these
securities may be affected by legislative and regulatory developments. Changes
in the value of securities subsequent to their acquisition will not affect cash
income or yield to maturity to the MFS Fund but will be reflected in the net
asset value of shares of the MFS Fund. The market for these lower-rated fixed
income securities may be less liquid than the market for investment grade fixed
income securities. Furthermore, the liquidity of these lower-rated securities
may be affected by the market's perception of their credit quality.
Although the New USA Growth Fund may not participate in the
aforementioned investments, the New USA Growth Fund may enter into short sales
and invest in primes and scores, investment company securities, over-the-counter
options on stock indexes, foreign currency futures contracts and employ leverage
to purchase securities.
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION
GENERAL
The shareholders of the New USA Growth Fund are being asked to approve
the Agreement between the MFS Trust, on behalf of the MFS Fund, and New USA
Mutual Funds, on behalf of the New USA Growth Fund. A copy of the Agreement is
attached as Exhibit A. Detailed information with respect to the MFS Fund is
set forth in the MFS Fund Prospectus, which is enclosed with this Proxy
Statement and Prospectus. The Reorganization will consist of (i) the transfer
of all of the assets of the New USA Growth Fund to the MFS Fund in exchange
solely for the issuance to the New USA Growth Fund of MFS Fund Shares and the
assumption by the MFS Fund of the stated liabilities of the New USA Growth Fund
as set forth on a schedule of assets and liabilities delivered by New USA
Mutual Funds to the MFS Trust on the Closing Date, (ii) the distribution,
promptly after the Closing Date of the MFS Fund Shares to the shareholders of
the New USA Growth Fund in liquidation of the New USA Growth Fund and (iii) the
liquidation and termination of New USA Mutual Funds. The number of MFS Fund
Shares to be issued upon the consummation of the Reorganization will be
calculated on the basis of the net asset value of the New USA Growth Fund and
the net asset value of the MFS Fund Shares, as more fully described under
"Description of Agreement."
The Agreement and the transactions provided for therein were approved
by the Board of Directors of New USA Mutual Funds and the Board of Trustees of
the MFS Trust on March 4, 1997 and December 11, 1996, respectively.
19
<PAGE> 26
REASONS FOR THE PROPOSED REORGANIZATION
The Board of New USA Mutual Funds believes that the proposed
Reorganization will be to the advantage of the shareholders of the New USA
Growth Fund.
In determining to approve the Reorganization, the Directors considered
a variety of factors, including the following:
(1) the capabilities and resources of MFS to serve as investment
adviser and administrator of the MFS Fund;
(2) the current asset size of the New USA Growth Fund and the MFS
Fund, including recent sales and redemptions, and the greater economies of
scale and diversity of investments that would be achieved for shareholders of
the New USA Growth Fund as investors in a substantially larger portfolio;
(3) the capabilities and resources of MFD and MFSC to serve as
distributor and shareholder servicing agent, respectively, of the MFS Fund;
(4) the ability of the shareholders of the MFS Fund to exchange
their shares for a wider variety of portfolios with differing investment
objectives than are available to shareholders of the New USA Growth Fund;
(5) the terms and conditions of the Reorganization Agreement,
including the fact that the New USA Growth Fund would not bear the expenses of
the Reorganization;
(6) the fee structure and services of MFS under the management
arrangements for the MFS Fund; and comparative management and advisory fee
structures for funds with similar investment objectives; and profitability data
supplied by MFS relating to its operations of the MFS Fund;
(7) the substantial similarity of the investment objectives and
policies of the New USA Growth Fund and the MFS Fund;
(8) the possibility that association with MFS will help to achieve
and sustain higher net asset values for shareholders of the New USA Growth
Fund; and
(9) the different sales charge structure offered by the MFS Fund
and somewhat broader range of shareholder services available from the MFS Fund.
The Directors also considered the advantages and disadvantages of the
Reorganization to the shareholders of the New USA Growth Fund. These
considerations included the following, among others:
(1) Following the Reorganization, shareholders would, as
shareholders of the MFS Fund, be shareholders of a Fund with a substantially
larger asset base. This larger asset base may permit enhanced portfolio
management, flexibility and a greater portfolio diversification. The Directors
also considered, however, that there can be no assurance that a greater asset
base will in fact result in enhanced investment performance. The Directors
further considered that the MFS Fund has significantly lower management fees
and overall expenses than the New USA Growth Fund.
(2) As shareholders of the MFS Fund, shareholders will enjoy
exchange privileges into many other funds (approximately 50 funds in the MFS
family of funds, as compared to no other New USA Mutual Funds).
(3) Class A shares of the MFS Fund are subject to Rule 12b-1 fees
at the annual rate of 0.35% of net assets, as compared to the 1.0% maximum
rate for the New USA Growth Fund.
20
<PAGE> 27
DESCRIPTION OF AGREEMENT
The following explanation of the Agreement is a summary, does not
purport to be complete, and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Agreement. A copy of the
Agreement is attached hereto as Exhibit A to this Proxy Statement and
Prospectus and should be read in its entirety. Paragraph references are to the
numbered paragraphs of the Agreement.
METHOD OF CARRYING OUT REORGANIZATION. If shareholders of the New USA
Growth Fund holding at least a majority (as described in the section entitled
"Voting Rights and Required Vote" below) of the New USA Growth Fund shares
issued and outstanding and entitled to vote at the meeting approve the
Agreement, the Reorganization will be consummated promptly after all the
various conditions to the obligations of each of the parties are satisfied (see
Agreement paragraphs 4 through 8). The Reorganization will be effected as soon
as practicable after this shareholder approval is obtained, but in no event
later than July 31, 1997 (the "Closing Date").
On the Closing Date, the New USA Growth Fund will transfer all of its
assets to the MFS Fund in exchange for (i) MFS Fund Shares having an aggregate
net asset value equal to the value of the assets, less the stated liabilities
of the New USA Growth Fund as so determined and set forth on a schedule of
assets and liabilities delivered by New USA Mutual Funds to the MFS Trust on
the Closing Date, determined as of the close of business on the last business
day preceding the Closing Date (the "Valuation Date") and (ii) the assumption
by the MFS Fund of all of the New USA Growth Fund's stated liabilities as set
forth on such schedule (see Agreement paragraphs 1 and 2). New USA Mutual
Funds will distribute as of the Closing Date such MFS Fund Shares pro rata to
its shareholders of record, determined as of the Valuation Date, in exchange
for their shares of the New USA Growth Fund.
The net asset value of the MFS Fund Shares and the value of the New
USA Growth Fund's assets and the amount of its liabilities will be determined
in accordance with the valuation procedures set forth in the Declaration of
Trust and By-laws of the MFS Trust and the MFS Fund's current Prospectus and
SAI (see "Net Asset Value" in the MFS Fund Prospectus). No initial sales
charge will be imposed on the MFS Fund Shares delivered in exchange for the
assets of the New USA Growth Fund.
SURRENDER OF SHARE CERTIFICATES. Shareholders of the New USA Growth
Fund whose shares of beneficial interest are represented by one or more share
certificates should, prior to the Closing Date, either surrender such
certificates to the New USA Growth Fund or deliver to the New USA Growth Fund
an affidavit with respect to lost certificates, in such form and accompanied by
such surety bonds as the New USA Growth Fund may require (collectively, an
"Affidavit"). On the Closing Date, all certificates which have not been so
surrendered will be deemed to be cancelled, will no longer evidence ownership of
shares of the New USA Growth Fund and shall not evidence, but will evidence the
right to receive, ownership of MFS Fund Shares relating thereto. Shareholders
of the New USA Growth Fund who have not surrendered their certificates or
delivered an Affidavit may not redeem or transfer the MFS Fund Shares received
in the Reorganization until such certificates are surrendered or an Affidavit
is received by MFSC, the MFS Fund's shareholder servicing agent. Such
shareholders will, however, receive distributions payable by the MFS Fund. The
MFS Fund will not issue share certificates in connection with the
Reorganization, except in connection with pledges and assignments and in
certain other limited circumstances.
CONDITIONS PRECEDENT TO CLOSING. The obligation of the New USA Growth
Fund to transfer its assets to the MFS Fund pursuant to the Agreement is
subject, at its election, to the satisfaction of certain conditions precedent,
including performance by the MFS Fund of all acts and undertakings required to
be performed under the Agreement, the receipt of certain documents from the MFS
Fund, the receipt of an opinion of Stephen E. Cavan, General Counsel and Senior
Vice President of MFS, and the receipt of all consents, orders and permits
necessary to consummate the Reorganization (see Agreement paragraphs 4 through
8).
21
<PAGE> 28
The MFS Fund's obligation to consummate the Reorganization is subject,
at its election, to the satisfaction of certain conditions precedent, including
the performance by the New USA Growth Fund of all acts and undertakings to be
performed under the Agreement, the receipt of certain documents and financial
statements from the New USA Growth Fund, the receipt of an opinion of counsel
to the New USA Growth Fund and the receipt of all consents, orders and permits
necessary to consummate the Reorganization (see Agreement paragraphs 4 through
8).
The obligations of both Funds are subject to the receipt of approval
and authorization of the Agreement by the vote of not less than a majority of
the shares of the New USA Growth Fund issued and outstanding and entitled to
vote (as defined in the section entitled "Voting Rights and Required Vote"
below) (see Agreement paragraph 8.1) and the receipt of favorable opinions of
legal counsel as to the federal income tax consequences of the transaction (see
Agreement paragraph 8.6).
EXPENSES OF THE REORGANIZATION. Except to the extent that another
party has agreed to bear certain expenses in connection with the Reorganization,
each party shall bear its own expenses. Pursuant to an agreement between NURM
and New USA Mutual Funds dated March 6, 1997, whether or not the Reorganization
closes, NURM has agreed to pay all of the following expenses associated with the
Reorganization: (a) fees of Berkshire Capital Corporation, Inc., financial
advisor to ODS, the parent of NURM, in connection with the transaction; (b)
legal fees relating to the transaction (except for legal fees payable for
counsel to the independent directors of New USA Mutual Funds); (c) costs of
obtaining an exemptive order from the Commission regarding the transaction; (d)
costs of a press release announcing the transaction; (e) costs of stickers for
the prospectus of the New USA Growth Fund related to the transaction; (f) proxy
costs including filing, printing, mailing and proxy solicitation costs related
to the transaction; (g) costs for holding the Board meetings of the New USA
Mutual Funds (excluding directors' fees) related to the transaction; (h) costs
of holding the New USA Growth Fund shareholder meeting related to the
transaction; (i) fees and expenses of outside accountants related to the
transaction; and (j) Directors' and Officers' Liability Insurance coverage for
three years following consummation of the transaction.
CAPITALIZATION
The following table sets forth the capitalization of the MFS Fund
(with respect to Class A shares) and the New USA Growth Fund as of February 24,
1997, and the pro forma combined capitalization of both Funds as if the
Reorganization had occurred on that date. The table reflects a pro forma
exchange ratio of approximately 0.4146 MFS Fund Shares being issued for each
share of the New USA Growth Fund. If the Reorganization is consummated, the
actual exchange ratio on the Closing Date may vary from the ratio indicated
due to changes in the market value of the portfolio securities of both
the MFS Fund and the New USA Growth Fund between February 24, 1997 and the
Valuation Date, changes in the relative asset size of each Fund, and changes in
the amount of undistributed net investment income of the MFS Fund and the New
USA Growth Fund during that period resulting from income and distributions and
changes in the accrued liabilities of the MFS Fund and the New USA Growth Fund
during the same period.
FEBRUARY 24, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THE MFS FUND THE NEW USA GROWTH PRO-FORMA
CLASS A FUND COMBINED
<S> <C> <C> <C>
Net Assets (in millions) . . . . . . . . $2,648.6 $203 $2,851.6
Net Asset Value per Share . . . . . . . . $ 31.58 $13.09 $31.58
Shares outstanding (in thousands) . . . . 83,859.4 15,538 90,301.6(1)
Shares Authorized . . . . . . . . . . . . Unlimited 200,000,000 Unlimited
</TABLE>
(1) If the Reorganization had taken place on February 24, 1997, the New
USA Growth Fund would have received 6,442,252 MFS Fund Shares, which
would be available for distribution to its shareholders.
22
<PAGE> 29
No assurances can be given as to the number of MFS Fund Shares the New
USA Growth Fund will receive on the Closing Date. The foregoing is
merely an example of what the New USA Growth Fund would have received
and distributed had the Reorganization been consummated on February
24, 1997, and should not be relied upon to reflect the amount that
will actually be received on or after the Closing Date.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the receipt of
favorable opinions of Gibson, Dunn & Crutcher LLP, counsel to New USA Mutual
Funds, and Bingham, Dana & Gould LLP, counsel to the MFS Fund, substantially to
the effect that, for federal income tax purposes:
(i) the acquisition by the MFS Fund of all of the assets of the
New USA Growth Fund solely in exchange for MFS Fund Shares and
the assumption by the MFS Fund, of the New USA Growth Fund's
stated liabilities as set forth on a schedule of assets and
liabilities delivered by New USA Mutual Funds to the MFS
Trust, followed by the distribution by the New USA Growth Fund
of MFS Fund Shares in complete liquidation to shareholders of
the New USA Mutual Funds in exchange for their shares of
New USA Mutual Funds and the termination of New USA Mutual
Funds, will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and New USA Mutual Funds and the MFS
Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by New USA Mutual Funds
upon the transfer of all of its assets to the MFS Fund solely
in exchange for MFS Fund Shares and the assumption by the MFS
Fund of the New USA Growth Fund's stated liabilities as set
forth on a schedule of assets and liabilities delivered by
New USA Mutual Funds to the MFS Trust and upon the
distribution to the shareholders of New USA Mutual Funds of
such MFS Fund Shares pursuant to the Agreement;
(iii) no gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the New USA Growth Fund solely in
exchange for MFS Fund Shares and the assumption by the MFS
Fund of the New USA Growth Fund's stated liabilities as set
forth on a schedule of assets and liabilities delivered by the
New USA Mutual Funds to the MFS Trust;
(iv) the tax basis of the assets of the New USA Growth Fund
acquired by the MFS Fund pursuant to the Agreement will be, in
each instance, the same as the tax basis of those assets in
the hands of the New USA Growth Fund immediately prior to the
transfer;
(v) the holding period of the assets of the New USA Growth Fund
acquired by the MFS Fund pursuant to the Agreement will
include, in each instance, the holding period of such assets
in the hands of the New USA Growth Fund;
(vi) the shareholders of New USA Mutual Funds will not recognize
gain or loss upon the exchange of all of their New USA Mutual
Funds shares solely for MFS Fund Shares as pursuant to the
Agreement;
(vii) the tax basis of the MFS Fund Shares to be received by each New
USA Mutual Funds shareholder pursuant to the Agreement will be,
in the aggregate, the same as the tax basis, in the aggregate,
of the shares of New USA Mutual Funds surrendered by such
shareholder in exchange therefor; and
23
<PAGE> 30
(viii) the holding period of the MFS Fund Shares to be received by
each New USA Mutual Funds shareholder pursuant to the Agreement
will include the holding period of the shares of the New USA
Growth Fund surrendered by such shareholder in exchange
therefor, provided the shares of the New USA Growth Fund were
held by such shareholder as capital assets on the date of the
exchange.
In rendering their opinions, counsel will rely upon and assume as
correct on the date thereof and as of the Closing Date, the information
contained in this Proxy Statement and Prospectus, and certain representations
as to factual matters made by MFS Fund and New USA Mutual Funds. Any
inaccuracy or change with respect to the information or representations
supporting such assumptions, or any past or future actions by MFS Fund or New
USA Mutual Funds contrary to such representations, could adversely affect the
conclusions reached therein.
The opinions of counsel will be based on the federal income tax laws
in effect as of the date thereof, including the Code, applicable Treasury
Regulations, published rulings and administrative practices of the Internal
Revenue Service and court decisions, which are subject to change with possible
retroactive effect. These opinions will represent counsels' best legal
judgment as to the matters addressed therein, but will not be binding on the
Internal Revenue Service or the courts. Any change in such authorities might
affect the conclusions stated therein.
SHAREHOLDERS OF NEW USA GROWTH FUND SHOULD CONSULT THEIR TAX ADVISORS
REGARDING THE EFFECT, IF ANY, OF THE REORGANIZATION IN LIGHT OF THEIR
INDIVIDUAL CIRCUMSTANCES. SINCE THE FOREGOING DISCUSSION ONLY RELATES TO THE
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION, SHAREHOLDERS OF THE NEW
USA GROWTH FUND SHOULD ALSO CONSULT THEIR TAX ADVISORS AS TO STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES, IF ANY, OF THE REORGANIZATION.
24
<PAGE> 31
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The table below indicates the total return (with capital gains and all
dividends and distributions reinvested) on a hypothetical investment of $1,000
in shares of the New USA Growth Fund and Class A shares of the MFS Fund
covering the indicated periods.
VALUE OF $1,000 INVESTMENT IN THE NEW USA GROWTH FUND
<TABLE>
<CAPTION>
Net Asset
Net Asset Value of Total Return
Value of Investment on Total Return Not Giving Effect
Investment on December 31, 1996 Giving Effect to the Sales
December 31, 1996 Not Giving Effect to the Sales Charge* Charge
Investment Amount of Giving Effect to to the Sales -------------------- -------------------
Investment Period Date Investment the Sales Charge* Charge* Cumulative Annualized Cumulative Annualized
- ----------------- ---------- ---------- ------------------ ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 29, 1992 +
to December 31,
1996.... 4/29/92 $1,000 $1,880.04 $1,978.74 88.00% 14.44% 97.87% 15.70%
1 Year ended
December 31,
1996.... 1/1/96 $1,000 $1,148.85 $1,209.31 14.88% 14.84% 20.93% 20.87%
</TABLE>
- ---------------
* The current maximum sales charge is 5.00%.
+ Commencement of investment operations.
VALUE OF $1,000 INVESTMENT IN THE MFS FUND
<TABLE>
<CAPTION>
Net Asset
Net Asset Value of
Value of Investment on
Investment on December 31, Total Return Total Return
December 31, 1996 Giving Effect Not Giving Effect
1996 Not Giving to the Sales Charge* to the Sales Charge
Investment Amount of Giving Effect to Effect to the -------------------- -------------------
Investment Period Date Investment the Sales Charge* Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- ---------- ---------- ----------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 29, 1986 to
December 31, 1996 12/29/86 $1,000 $5,839.89 $6,191.74 483.99% 19.30% 511.17% 20.00%
5 years ended
December 31, 1996 1/1/91 $1,000 $2,224.49 $2,359.40 122.45% 17.34% 135.94% 18.73%
1 Year ended
December 31, 1996 1/1/96 $1,000 $1,081.83 $1,147.84 8.19% 8.18% 14.78% 14.78%
</TABLE>
* The current maximum sales charge is 5.75%.
Each Fund calculates its total rate of return for a certain period by
determining the average annual compounded rates of return over the period that
would cause an investment of $1,000 (made at net asset value with all
distributions reinvested) to reach the value of that investment at the end of
the period. If total rate of return gives effect to a sales charge, then the
investment of $1,000 will be reduced by the applicable sales charge (5.00%
maximum in the case of the New USA Growth Fund and 5.75% maximum in the case of
the MFS Fund).
25
<PAGE> 32
BUSINESS OF THE MFS FUND
FINANCIAL INFORMATION
For the Condensed Financial Information of the MFS Fund, see
"Condensed Financial Information" in the MFS Fund Prospectus and the MFS Fund
Annual Report.
GENERAL
For a discussion of the organization and operation of the MFS Fund see
"The Fund" and "Information Concerning Shares of the Fund -- Description of
Shares, Voting Rights and Liabilities" in the MFS Fund Prospectus, and "MFS
Shares and Purchase of MFS Shares" below.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of the MFS Fund's investment objective and policies,
see "Investment Objective and Policies" in the MFS Fund Prospectus.
TRUSTEES
For a discussion of the responsibilities of the MFS Trust's Board of
Trustees, see "The Fund" and "Management of the Fund" in the MFS Fund
Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For information concerning the MFS Fund's investment adviser and
distributor, see "Management of the Fund," "Information Concerning Shares of
the Fund -- Purchases" and "Information Concerning Shares of the Fund --
Distribution Plan" in the MFS Fund Prospectus.
EXPENSES
For a discussion of the MFS Fund expenses, see "Expense Summary,"
"Condensed Financial Information," "Management of the Fund" and "Information
Concerning Shares of the Fund -- Distribution Plan" in the MFS Fund Prospectus.
CUSTODIAN AND TRANSFER AGENT
For a description of the MFS Fund's custodian and transfer agent, see
"Shareholder Services" and the back cover of the MFS Fund Prospectus.
MFS FUND SHARES AND PURCHASE OF MFS FUND SHARES
For a description of MFS Fund Shares, see "Condensed Financial
Information" and "Information Concerning Shares of the Fund -- Description of
Shares, Voting Rights and Liabilities" in the MFS Fund Prospectus.
For a description of how shares of the MFS Fund may be purchased or
exchanged, see "Information Concerning Shares of the Fund -- Purchases,"
"Information Concerning Shares of the Fund -- Exchanges" and "Shareholder
Services" in the MFS Fund Prospectus.
26
<PAGE> 33
REDEMPTION OF THE MFS FUND SHARES
For a discussion of how the MFS Fund Shares may be redeemed, see
"Information Concerning Shares of the Fund -- Redemptions and Repurchases" in
the MFS Fund Prospectus. Shareholders of the New USA Growth Fund whose shares
are represented by certificates will be required to surrender their
certificates for cancellation or deliver an Affidavit to the New USA Growth
Fund or MFSC, the MFS Fund's transfer agent, in order to redeem or transfer the
MFS Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For information concerning the MFS Fund's policy with respect to
dividends, distributions and taxes, see "Information Concerning Shares of the
Fund -- Distributions," "Information Concerning Shares of the Fund -- Tax
Status" and "Shareholder Services" in the MFS Fund Prospectus.
BUSINESS OF THE NEW USA GROWTH FUND
FINANCIAL INFORMATION
For the condensed financial information of the New USA Growth Fund,
see "Financial Highlights" in the New USA Growth Fund Prospectus and "Financial
Highlights" in the New USA Growth Fund Annual Report.
GENERAL
For a discussion of the organization and operation of the New USA
Growth Fund, see "The Fund" and "Management of the Fund" in the New USA Growth
Fund Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
For a discussion of the New USA Growth Fund's investment objective and
policies, see "Investment Objective and Policies of the Fund," "Risk Factors,"
and "Other Investment Policies and Techniques" in the New USA Growth Fund
Prospectus.
DIRECTORS
For a discussion of the responsibilities of New USA Mutual Funds'
Board, see "Management of the Fund" in the New USA Growth Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For information concerning the New USA Growth Fund's investment
adviser and distributor, see "The Manager" and "Management of the Fund," in the
New USA Growth Fund Prospectus.
EXPENSES
For a discussion of the New USA Growth Fund's expenses, see "Fees and
Expenses of the Fund," "Financial Highlights," "The Manager," "Management of
the Fund," "Distribution Plan" and "Money Market Exchange Privilege" in the New
USA Growth Fund Prospectus, and the New USA Growth Fund Annual Report.
CUSTODIAN AND TRANSFER AGENT
For a description of the New USA Growth Fund's custodian and transfer
agent, see "Management of the Fund," and the back cover of the New USA Growth
Fund Prospectus.
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<PAGE> 34
NEW USA GROWTH FUND SHARES AND PURCHASE OF THE NEW USA GROWTH FUND SHARES
For a description of the New USA Growth Fund's shares, see "Financial
Highlights," "How to Invest in the Fund" and "How the Fund's Per Share Value is
Determined" in the New USA Growth Fund Prospectus.
For a description of how the New USA Growth Fund shares may be
purchased or exchanged, see "How to Invest in the Fund" and "Money Market
Exchange Privilege" in the New USA Growth Fund Prospectus.
REDEMPTION OF THE NEW USA GROWTH FUND SHARES
For a discussion of how the New USA Growth Fund shares may be
redeemed, see "How to Redeem an Investment in the Fund" in the New USA Growth
Fund Prospectus.
DIVIDENDS, DISTRIBUTION AND TAXES
For information concerning the New USA Growth Fund's policy with
respect to dividends, distributions and taxes, see "Dividends and
Distributions" and "Taxation" in the New USA Growth Fund Prospectus.
NO APPRAISAL RIGHTS
Shareholders are not entitled to any rights of share appraisal under
New USA Mutual Funds' Articles of Incorporation, Bylaws or under the laws of
the state of Maryland in connection with the Reorganization. Shareholders
have, however, the right to redeem from the New USA Growth Fund their New USA
Growth Fund shares at net asset value subject to any applicable CDSC until the
Closing Date of the Reorganization, and thereafter shareholders may redeem from
the MFS Fund the Class A shares issued to them in the Reorganization.
Shareholders are not entitled to any preemptive rights under New USA Mutual
Funds' Articles of Incorporation, Bylaws or under the laws of the state of
Maryland in connection with the Reorganization.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the MFS Fund
Shares will be passed upon for the MFS Fund by Stephen E. Cavan, Esq., General
Counsel and Senior Vice President of MFS, the Adviser to the MFS Fund.
EXPERTS
The financial statements of the MFS Fund incorporated in this Proxy
Statement and Prospectus by reference to the Annual Report to Shareholders for
the year ended November 30, 1996, have been so incorporated in reliance on the
report of Deloitte & Touche LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of the New USA Growth Fund incorporated in
this Proxy Statement and Prospectus by reference to the Annual Report to
Shareholders for the year ended January 31, 1997, and by reference to the New
USA Growth Fund's SAI dated May 17, 1996, as supplemented, into which the
Annual Report to Shareholders for the year ended January 31, 1996 was
incorporated by reference, have been so incorporated in reliance on the reports
of Arthur Andersen LLP, independent certified public accountants, given on the
authority of said firm as experts in auditing and accounting.
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<PAGE> 35
AVAILABLE INFORMATION
The Funds are subject to the information requirements of the
Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by the Funds can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, Suite 1300, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information filed electronically with the Commission at http://www.sec.gov.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF THE MFS FUND AND THE NEW USA GROWTH FUND
To the knowledge of the MFS Fund, as of February 24, 1997, no person
owned of record or beneficially 5% or more of the outstanding Class A shares of
the MFS Fund. To the knowledge of the New USA Growth Fund, as of February 24,
1997, no person owned of record or beneficially 5% or more of the outstanding
shares of the New USA Growth Fund.
As of February 24, 1997, the Trustees and officers of the MFS Trust,
as a group, owned in the aggregate less than 1% of the outstanding shares of
the MFS Fund. As of February 24, 1997, the directors and officers of New USA
Mutual Funds, as a group, owned in the aggregate less than 1% of the
outstanding shares of the New USA Growth Fund.
VOTING RIGHTS AND REQUIRED VOTE
The Reorganization, having been approved by the Directors of New USA
Mutual Funds on March 4, 1997, requires the approval of the New USA Growth
Fund's shareholders by the affirmative vote of not less than a majority of the
shares of the New USA Growth Fund issued and outstanding and entitled to vote
at the Meeting.
Consummation of the Reorganization will require the approval of the
New USA Growth Fund's shareholders as described above. See "Description of
Agreement -- Conditions Precedent to Closing."
MANNER OF VOTING PROXIES
All proxies received by the management of New USA Mutual Funds will be
voted on all matters presented at the Meeting, and, if not limited to the
contrary, will be voted for Item 1.
The management of New USA Mutual Funds knows of no other matters to be
brought before the Meeting. If, however, because of any unexpected occurrence,
any matters properly come before the Meeting, it is the management's intention
that proxies not limited to the contrary will be voted in accordance with the
judgment of the persons named in the enclosed form of proxy.
All proxies voted, including abstentions, will be counted toward
establishing a quorum. Passage of any proposal being considered at the Meeting
will occur only if a sufficient number of votes are cast FOR the proposal.
With respect to the proposal described in Item 1, abstentions and broker
non-votes have the effect of a negative vote on the proposal.
If sufficient votes to approve Item 1 are not received, the persons
named as proxies may propose one or more adjournments of the Meeting with
respect to such Item to permit further solicitation of proxies. Any such
29
<PAGE> 36
adjournment with respect to Item 1 will require the affirmative vote of a
majority of those shares which are voted on the motion to adjourn present in
person or by proxy at the session of the Meeting to be adjourned. When voting
on a proposed adjournment, the persons named as proxies will vote FOR the
proposed adjournment all shares that they are entitled to vote with respect to
such Item, unless directed to vote AGAINST the Item, in which case such shares
will be voted against the proposed adjournment with respect to Item 1.
SUBMISSION OF CERTAIN PROPOSALS
If the Reorganization is not consummated, proposals of shareholders
which are intended to be presented at a future meeting of shareholders must be
received by the New USA Growth Fund a reasonable amount of time prior to the
New USA Growth Fund solicitation of proxies relating to such future meeting.
ADDITIONAL INFORMATION
Upon the consummation of the Reorganization, MFS will pay ODS, the
parent of NURM, an amount to be determined based on the total net asset value
of the New USA Growth Fund as of the closing of the Reorganization plus an
amount to be determined on the day one year from the closing of the
Reorganization based on the retention of former shareholders of the New USA
Growth Fund by the MFS family of funds for the sale of NURM to MFS; provided,
however, that if the Agreement has not been approved by the shareholders of the
New USA Growth Fund, MFS will not make such payment. This amount is expected
to be in the range of $1.5 million to $4 million. NURM shall promptly
reimburse or pay the costs and expenses incurred by the New USA Growth Fund in
relation to matters contemplated by the Agreement if the Agreement is not
approved by the shareholders. See "Description of Agreement -- Conditions
Precedent to Closing" above.
New USA Mutual Funds, on behalf of the New USA Growth Fund, and ODS
have agreed, jointly and severally, to indemnify and hold harmless the MFS
Trust, its trustees and officers, each person who controls the MFS Fund within
the meaning of applicable federal securities laws, and MFS, its wholly-owned
subsidiaries and the directors, officers and employees of MFS and such
subsidiaries (collectively, the "MFS Indemnified Parties"), against any loss,
claim damage and expense, paid or incurred, arising out of (i) any untrue
statement or alleged untrue statement of material fact contained in the Notice
of Special Meeting or this Proxy Statement and Prospectus or in the
registration statement of the MFS Trust containing this Proxy Statement and
Prospectus filed with the Commission with respect thereto, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to untrue statements or omissions in or from those sections thereof related to
the New USA Growth Fund or New USA Mutual Funds; (ii) any breach of any
representation warranty or covenant of New USA Mutual Funds or the New USA
Growth Fund set forth in the Agreement or set forth in any certificate provided
by New USA Mutual Funds in support of the legal opinion required pursuant to
Section 7.4 of the Agreement); (iii) the failure of the New USA Growth Fund or
its designee to timely file all federal, state and other tax returns, forms and
reports when due by the New USA Growth Fund with respect to all periods up to
and including the Closing Date or to pay any taxes due by the New USA Growth
Fund to any taxing authority with respect to all such periods, including
without limitation, any failure to pay such taxes due in a timely manner; (iv)
non-compliance of the New USA Growth Fund with any applicable federal or state
securities laws or with applicable provisions of the Code, or with the
investment policies and restrictions contained in the New USA Growth Fund's
Prospectus and SAI, as in effect from time to time; and (v) the failure by the
New USA Growth Fund to mail the Prospectus and Proxy Statement to its
stockholders at least 10 days prior to the Meeting.
The MFS Trust, solely on behalf of the MFS Fund, has agreed to
indemnify and hold harmless New USA Mutual Funds, its directors and officers,
each person who controls the New USA Growth Fund within the meaning of
applicable federal securities laws, ODS, together with its subsidiaries and
affiliates and the directors officers and employees of ODS and its subsidiaries
(collectively, the "New USA Indemnified Parties"), against any loss, claim,
damage and expense, paid or incurred, arising out of (i) any untrue statement
or alleged untrue statement of material fact contained in the Notice of Special
Meeting or this Proxy Statement and Prospectus or in the registration statement
of the MFS Trust containing this Proxy Statement and Prospectus filed with the
30
<PAGE> 37
Commission with respect thereto, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to untrue statements
or omissions in or from those sections related to the MFS Trust and MFS Fund
and (ii) any breach of any representation, warranty or covenant of the MFS
Trust or the MFS Fund set forth in the Agreement or set forth in any
certificate provided by the MFS Trust in connection with the consummation of
the Reorganization (including, without limitation, any certificate provided by
the MFS Trust in support of the legal opinion required pursuant to Section 8.6
of the Agreement).
To obtain the necessary representation at the Meeting, solicitations
may be made by mail, telephone or interview by D. F. King and Co., Inc. and
Tritech Services or their agents as well as by officers of New USA Mutual Funds.
It is anticipated that the total cost of any such solicitations, if made by D.
F. King & Co., Inc. and Tritech Services or their agents, would be approximately
$25,000, including out-of-pocket expenses, and if made by any other party, would
be nominal.
The expense of solicitations as well as of the preparation, printing
and mailing of the enclosed form of proxy, and this Notice and Proxy Statement,
will be borne by NURM.
OTHER MATTERS
The management knows of no other matters which are to be brought
before the Meeting. However, if any other matters not now known or determined
properly come before the Meeting, it is the intention of the persons named in
the enclosed form of Proxy to vote such Proxy in accordance with their best
judgment on such matters.
All Proxies received will be voted in favor of all the proposals,
unless otherwise directed therein.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
April 25, 1997
NEW USA GROWTH FUND
the sole series of
NEW USA MUTUAL FUNDS, INC.
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<PAGE> 38
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 6th
day of March, 1997, by and between New USA Mutual Funds, Inc., a Maryland
corporation (the "New USA Mutual Fund"), with its principal place of business at
c/o State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA
02171, on behalf of New USA Growth Fund, the sole series thereof (the "New USA
Growth Fund"), and MFS Series Trust II, a Massachusetts business trust (the "MFS
Trust"), with its principal place of business at 500 Boylston Street, Boston,
Massachusetts 02116, on behalf of MFS Emerging Growth Fund, a series thereof
(the "MFS Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368(a) of the United States Internal
Revenue Code of 1986, as amended (the "Code"). The reorganization will consist
of (i) the transfer of all of the assets of the New USA Growth Fund to the MFS
Fund in exchange solely for the assumption by the MFS Fund of the stated
liabilities of the New USA Growth Fund and the issuance to the New USA Growth
Fund of shares of beneficial interest of the MFS Fund designated as Class A
shares having the rights, preferences and privileges described in the current
prospectus of the MFS Fund referred to in Paragraph 4.2(c) (the "MFS Fund
Shares"), (ii) the distribution, promptly after the Closing Date hereinafter
referred to, of the MFS Fund Shares to the shareholders of the New USA Growth
Fund in liquidation of the New USA Growth Fund as provided herein, and (iii) the
liquidation and termination of the New USA Mutual Fund, all upon the terms and
conditions hereinafter set forth in this Agreement.
All representations, warranties, covenants and obligations of the MFS Fund and
the New USA Growth Fund contained herein shall be deemed to be representations,
warranties, covenants and obligations of the MFS Trust and the New USA Mutual
Fund, respectively, acting on behalf of the MFS Fund and the New USA Growth
Fund, respectively, and all rights and benefits created hereunder in favor of
the MFS Fund and the New USA Growth Fund shall inure to the MFS Trust and the
New USA Mutual Fund, respectively, and shall be enforceable by the MFS Trust and
the New USA Mutual Fund, respectively, acting on behalf of the MFS Fund and the
New USA Growth Fund, respectively.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE NEW USA GROWTH FUND IN EXCHANGE FOR THE MFS FUND
SHARES AND LIQUIDATION OF THE NEW USA MUTUAL FUND
1.1 The New USA Growth Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividend and interest
receivables, cash and other assets) as set forth in the statement of assets and
liabilities as of the Valuation Date (as defined in paragraph 1.4 hereof)
delivered by the New USA Mutual Fund to the MFS Trust pursuant to paragraph 7.2
hereof (the "Statement of Assets and Liabilities") to the MFS Fund, free and
clear
<PAGE> 39
of all liens and encumbrances, except as otherwise provided herein, in
exchange for (a) the assumption by the MFS Fund of all of the stated liabilities
of the New USA Growth Fund as set forth in the Statement of Assets and
Liabilities and (b) the issuance and delivery by the MFS Fund to the New USA
Growth Fund, for distribution in accordance with paragraph 1.4 hereof pro rata
to the New USA Growth Fund shareholders as of the close of business on the
Valuation Date, of a number of the MFS Fund Shares having an aggregate net asset
value equal to the value of the assets, less such liabilities (herein referred
to as the "net value of the assets"), of the New USA Growth Fund so transferred,
assigned and delivered, all determined as provided in paragraph 2 and as of a
date and time as specified therein. Such transactions shall take place at the
closing provided for in paragraph 3.1 hereof (the "Closing"). All computations
for the New USA Growth Fund shall be provided by State Street Bank and Trust
Company (the "Custodian"), as custodian and pricing agent for the New USA Growth
Fund, and all computations for the MFS Fund shall be provided by the Custodian,
as custodian and pricing agent for the MFS Fund. The determinations of the
Custodian shall be conclusive and binding on all parties in interest.
1.2 The New USA Growth Fund has provided the MFS Fund with a list of the current
securities holdings of the New USA Growth Fund as of the date of execution of
this Agreement. The New USA Growth Fund reserves the right to sell any of these
securities (except to the extent sales may be limited by representations made in
connection with issuance of the tax opinions described in paragraph 8.6 hereof)
but will not acquire any additional securities other than securities of the type
that the MFS Fund and the New USA Mutual Fund have agreed upon and are the type
in which the MFS Fund is permitted to invest.
1.3 Except as otherwise described herein, the MFS Trust and the New USA Mutual
Fund shall each bear its own expenses in connection with the transactions
contemplated by this Agreement.
1.4 On or as soon after the closing date established in paragraph 3.1 hereof
(the "Closing Date") as is conveniently practicable (the "Liquidation Date"),
the New USA Growth Fund will liquidate and distribute pro rata to shareholders
of record ("New USA Growth Fund shareholders"), determined as of the close of
business on the last business day preceding the Closing Date (the "Valuation
Date"), the MFS Fund Shares received by the New USA Growth Fund pursuant to
paragraph 1.1 in actual or constructive exchange for the shares of the New USA
Growth Fund held by the New USA Growth Fund shareholders. Such liquidation and
distribution will be accomplished by the transfer of the MFS Fund Shares then
credited to the account of the New USA Growth Fund on the books of the MFS Fund,
to open accounts on the share records of the MFS Fund in the names of the New
USA Growth Fund shareholders and representing the respective pro rata number of
the MFS Fund Shares due such shareholders. The MFS Fund will not issue share
certificates representing the MFS Fund Shares in connection with such exchange,
except in connection with pledges and assignments and in certain other limited
circumstances.
1.5 New USA Growth Fund shall use its best efforts to cause New USA Growth Fund
shareholders holding certificates representing their ownership of shares of
beneficial interest of the New USA Growth Fund to surrender such certificates or
deliver an affidavit with respect to lost certificates, in such form and
accompanied by such surety bonds as the New USA Growth Fund may require
(collectively, an "Affidavit"), to the New USA Growth Fund prior to the Closing
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Date. Any New USA Growth Fund certificate which remains outstanding on the
Closing Date shall be deemed to be canceled, shall no longer evidence ownership
of shares of beneficial interest of the New USA Growth Fund and shall not
evidence, but shall evidence the right to receive, ownership of the MFS Fund
Shares. Unless and until any such certificate shall be so surrendered or an
Affidavit relating thereto shall be delivered, dividends and other distributions
payable by the MFS Fund subsequent to the Closing Date with respect to the MFS
Fund Shares allocable to the holders of such certificate(s) shall be paid to the
holder of such certificate(s), but such shareholder may not redeem or transfer
the MFS Fund Shares received in the Reorganization.
1.6 Any transfer taxes payable upon issuance of the MFS Fund Shares in a name
other than the registered holder of the MFS Fund Shares on the books of the New
USA Growth Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such MFS Fund Shares are to be issued
and transferred.
1.7 Promptly following the Liquidation Date, the New USA Mutual Fund shall
liquidate and de-register as an investment company by filing a request for an
order pursuant to Section 8(f) of the Investment Company Act of 1940, as amended
(the "1940 Act"), and, upon receipt of such an order, shall be terminated.
2. VALUATION
2.1 The net asset value of the MFS Fund Shares and the net value of the assets
of the New USA Growth Fund to be transferred shall in each case be determined as
of the close of business Eastern Daylight Time on the Valuation Date. The net
asset value per MFS Fund Share shall be computed by the Custodian using the
valuation procedures and the then current methodology adopted under the
procedures set forth in the MFS Trust's Declaration of Trust or By-Laws and the
MFS Fund's then current prospectus and statement of additional information and
shall be computed to not less than two decimal places. The net value of the
assets of the New USA Growth Fund to be transferred shall be computed by the
Custodian by calculating the value of the assets transferred by the New USA
Growth Fund and by subtracting therefrom the amount of the liabilities assigned
and transferred to the MFS Fund, said assets and liabilities to be valued in a
manner identical to that being used by the MFS Fund as described in the
preceding sentence.
2.2 The number of MFS Fund Shares to be issued (including fractional shares, if
any) in exchange for the New USA Growth Fund's assets shall be determined by
dividing the net value of the New USA Growth Fund assets by the net asset value
per MFS Fund Share, both as determined in accordance with paragraph 2.1.
2.3 All computations of value shall be made by the Custodian in accordance with
its regular practice as pricing agent for the MFS Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be as soon as practicable after the reorganization
described above is approved by shareholders of the New USA Growth Fund, but in
no event later than July 31, 1997. The Closing shall be held at 10:00 a.m.,
Boston time, at the offices of the MFS Fund, 500
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<PAGE> 41
Boylston Street, Boston, Massachusetts 02116, or at such other time and/or place
as the parties may agree.
3.2 Portfolio securities shall be delivered by the New USA Growth Fund to the
Custodian for the account of the MFS Fund on the Closing Date, duly endorsed in
proper form for transfer, in such condition as to constitute good delivery
thereof in accordance with the custom of brokers, and shall be accompanied by
all necessary federal and state stock transfer stamps or a check for the
appropriate purchase price thereof. The cash delivered shall be in the form of
currency, certified or official bank check in Boston funds or federal fund wire,
as the New USA Growth Fund shall determine, payable to the order of "State
Street Bank and Trust Company, Custodian for MFS Emerging Growth Fund" or in the
name of any successor organization.
3.3 In the event that on the proposed Valuation Date (a) the New York Stock
Exchange shall be closed for trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the net value of the assets of the MFS
Fund or the New USA Growth Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored; provided that, if
trading shall not be fully resumed and reporting restored on or before July 31,
1997, this Agreement may be terminated by the MFS Fund or the New USA Growth
Fund upon the giving of written notice to the other party.
3.4 The New USA Growth Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding and
nonresident alien withholding status of the New USA Growth Fund shareholders and
the number of outstanding shares of beneficial interest of the New USA Growth
Fund owned by each such shareholder, all as of the close of business on the
Valuation Date together with such information concerning the New USA Growth Fund
Letter of Intent program (including, without limitation, for each New USA Growth
Fund shareholder participating in such program, the date the Letter of Intent
was entered into, the date on which the 13 month period for making additional
investments under such program expires, and the aggregate amount of investments
to be made, and made as of the Closing Date, under such program) to permit the
MFS Fund to comply with Paragraph 5.11 of this Agreement (the "Shareholder
List"). At the closing, the MFS Fund shall issue and deliver to the New USA
Growth Fund a confirmation evidencing the MFS Fund Shares to be credited on the
Liquidation Date, or provide evidence satisfactory to the New USA Growth Fund
that such MFS Fund Shares have been credited to the New USA Growth Fund's
account on the books of the MFS Fund. At the Closing, each party shall deliver
to the other such bills of sale, checks, assignments, stock certificates,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The New USA Mutual Fund and the New USA Growth Fund represent and warrant to
the MFS Trust and the MFS Fund as follows:
(a) The New USA Mutual Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and has
the power to own all of its
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properties and assets and, subject to approval by the shareholders of the New
USA Growth Fund, to carry out the Agreement. Each of the New USA Mutual Fund
and the New USA Growth Fund is qualified to do business in all other
jurisdictions where the nature of their business requires them to be so
qualified. The Agreement has been duly authorized by the New USA Mutual Fund,
subject to approval by the shareholders of the New USA Growth Fund. The New
USA Mutual Fund has all necessary federal, state and local authorizations to
own all of the properties and assets of the New USA Growth Fund and to carry
on its business as now being conducted;
(b) The New USA Mutual Fund is a duly registered investment company
classified as a management company of the open-end type and its registration
with the Securities and Exchange Commission (the "Commission") as an
investment company under the 1940 Act is in full force and effect;
(c) The New USA Mutual Fund is not, and the execution, delivery and
performance of this Agreement by the New USA Mutual Fund will not result, in
violation of any provision of the Articles of Incorporation or By-Laws of the
New USA Mutual Fund or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the New USA Mutual Fund is a party or by
which the New USA Mutual Fund or the New USA Growth Fund is bound;
(d) The New USA Mutual Fund has no material contracts or other commitments
(other than this Agreement) which will not be terminated without liability to
the New USA Growth Fund at or prior to the Closing Date;
(e) Except as otherwise disclosed in writing and accepted by the MFS Fund,
no litigation or administrative proceeding or investigation of or before any
court or governmental body is currently pending or threatened as to the New
USA Mutual Fund or any of its properties or assets. The New USA Mutual Fund
knows of no facts which might form the basis for the institution of such
proceedings, and the New USA Mutual Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The statement of assets and liabilities, including the schedule of
portfolio investments, of the New USA Growth Fund as of January 31, 1997 and
the related statement of operations for the year ended January 31, 1997, and
the statement of changes in net assets for the year ended January 31, 1997
and the period ended January 31, 1996 (copies of which have been furnished to
the MFS Fund) have been audited by Arthur Andersen LLP, independent certified
public accountants, and present fairly in all material respects the financial
position of the New USA Growth Fund as of January 31, 1997 and the results of
its operations and changes in net assets for the respective stated periods in
accordance with generally accepted accounting principles consistently
applied, and there are no known actual or contingent liabilities of the New
USA Growth Fund as of the respective dates thereof not disclosed therein;
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<PAGE> 43
(g) Since January 31, 1997, there has not been any material adverse change
in the New USA Growth Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by the New USA Growth Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed in writing and accepted by the MFS Fund. For the purposes of this
subparagraph (g), a decline in net asset value per share of beneficial
interest of the New USA Growth Fund as a result of losses upon the
disposition of investments or from changes in the value of investments held
by the New USA Growth Fund, or a distribution or a payment of dividends shall
not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the New USA Growth Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all federal,
state and other taxes, interest and penalties required by law to have been
paid shall have been paid so far as due, and to the best of the New USA
Growth Fund's knowledge no such return is currently under audit and no
assessment has been asserted by any applicable taxing authority with respect
to such returns or reports;
(i) The New USA Mutual Fund has elected to be treated as a regulated
investment company for federal tax purposes, has qualified as such for each
taxable year of its operation and will qualify as such as of the Closing
Date;
(j) The authorized capital of the New USA Mutual Fund consists of 200
million full and fractional shares of common stock, $.01 par value, at the
date hereof. All issued and outstanding shares of common stock attributable
to the New USA Growth Fund are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and nonassessable. There are no
issued and outstanding shares of the New USA Mutual Fund other than those
attributable to the New USA Growth Fund. All of the issued and outstanding
shares of common stock attributable to the New USA Growth Fund will, at the
time of Closing, be held by the persons and in the amounts set forth in the
Shareholder List. New USA Mutual Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of common
stock attributable to the New USA Growth Fund, nor is there outstanding any
security convertible into any shares of common stock attributable to the New
USA Growth Fund;
(k) At the Closing Date, the New USA Mutual Fund will have good and
marketable title to the assets attributable to the New USA Growth Fund to be
transferred to the MFS Fund pursuant to paragraph 1.1, and full right, power
and authority to sell, assign, transfer and deliver such assets hereunder,
and upon delivery and payment for such assets, the MFS Fund will acquire good
and marketable title thereto subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the Securities Act
of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the New USA Mutual
Fund (with the exception of the approval of this Agreement by New USA Growth
Fund shareholders holding a majority of the
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<PAGE> 44
issued and outstanding New USA Growth Fund shares) and this Agreement
constitutes a valid and binding obligation of the New USA Mutual Fund
enforceable in accordance with its terms, subject to the approval of the New
USA Growth Fund shareholders;
(m) The information to be furnished by or on behalf of the New USA Growth
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall
comply fully with federal securities and other laws and regulations
thereunder applicable thereto;
(n) The proxy statement of the New USA Growth Fund (the "Proxy Statement")
to be included in the Registration Statement referred to in paragraph 5.7
(other than written information furnished by or on behalf of the MFS Fund for
inclusion therein, as covered by the MFS Fund's warranty in paragraph
4.2(r)), will conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder on the effective date of the Registration Statement, on
the date of the meeting of the New USA Growth Fund shareholders and on the
Closing Date, and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the New USA Mutual
Fund and the New USA Growth Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act, and such as may be required under state securities laws;
(p) All of the issued and outstanding shares of common stock of the New USA
Mutual Fund attributable to the New USA Growth Fund have been offered for
sale and sold in conformity with all applicable federal and state securities
laws; and
(q) The current prospectus and statement of additional information of the
New USA Growth Fund, each dated May 17, 1996, as supplemented and updated
from time to time (the "New USA Growth Fund Prospectus"), will conform in all
material respects to the applicable requirements of the 1933 Act and the 1940
Act and the rules and regulations of the Commission thereunder on the date of
the Proxy Statement, on the date of the meeting of New USA Growth Fund
shareholders and on the Closing Date, and will not on such dates include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(r) The New USA Growth Fund shall not sell or otherwise dispose of any of
the MFS Fund Shares to be received in the transactions contemplated herein,
except in distribution to its shareholders as contemplated herein; and
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<PAGE> 45
(s) All organizational expenses allocated to the New USA Growth Fund shall
have been fully amortized prior to the Valuation Date.
4.2 The MFS Trust and the MFS Fund represent and warrant to the New USA Mutual
Fund and the New USA Growth Fund as follows:
(a) The MFS Trust is a business trust duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts and has
the power to own all of its properties and assets and to carry out the
Agreement. Neither the MFS Trust nor the MFS Fund is required to qualify to
do business in any other jurisdiction. The Agreement has been duly authorized
by the MFS Trust. The MFS Trust has all necessary federal, state and local
authorization to own all of its properties and assets and to carry on its
business as now being conducted;
(b) The MFS Trust is a duly registered investment company classified as a
management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The prospectus and statement of additional information of the MFS Fund,
each dated April 1, 1996, as supplemented and updated from time to time (the
"MFS Fund Prospectus"), will conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder on the date of the Proxy Statement,
on the date of the meeting of the New USA Growth Fund shareholders and on the
Closing Date and will not on such dates include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(d) Except as previously disclosed to the New USA Growth Fund, at the
Closing Date, the MFS Trust will have good and marketable title to the assets
of the MFS Fund;
(e) The MFS Trust is not, and the execution, delivery and performance of
this Agreement will not result, in violation of any provisions of its
Declaration of Trust or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the MFS Trust is a party or by
which the MFS Trust or the MFS Fund is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or threatened
against the MFS Trust or any of its properties or assets, except for
litigation, proceedings or investigations the outcome of which could not be
reasonably expected to have a material adverse effect on the MFS Trust as
previously disclosed in writing to the New USA Growth Fund. The MFS Trust
knows of no facts which might form the basis for the institution of such
proceedings, and the MFS Trust is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
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<PAGE> 46
(g) The statements of assets and liabilities, including the schedule of
portfolio investments, of the MFS Fund as of November 30, 1996, and the
statement of changes in net assets for the year ended November 30, 1996
(copies of which have been furnished to the New USA Growth Fund) have been
audited by Deloitte & Touche LLP, independent auditors. These audited
financial statements present fairly in all material respects the financial
position of the MFS Fund as of their respective dates and the results of its
operations and changes in net assets for the respective stated periods in
accordance with generally accepted accounting principles consistently applied
and there are no known actual or contingent liabilities of the MFS Fund as of
the respective dates thereof not disclosed therein;
(h) Since November 30, 1996, there has not been any material adverse change
in the MFS Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business or any incurrence
by the MFS Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred except as otherwise disclosed to the New USA
Growth Fund. For the purposes of this subparagraph (h), a decline in net
asset value per share of beneficial interest of the MFS Fund resulting from
losses upon the disposition of investments or from changes in the value of
investments held by the MFS Fund, or a distribution or a payment of
dividends, shall not constitute a material adverse change;
(i) The MFS Fund has elected to be treated as a regulated investment
company for federal tax purposes, has qualified as such for each taxable year
of its operation, and will qualify as such as of the Closing Date;
(j) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the MFS Fund required by law to have been filed or furnished
by such dates shall have been filed or furnished, and all federal, state and
other taxes, interest and penalties required by law to have been paid shall
have been paid so far as due, or adequate provision shall have been made for
the payment thereof, and to the best of the MFS Fund's knowledge no such
return is currently under audit and no assessment has been asserted by any
applicable taxing authority with respect to such returns or reports;
(k) The authorized capital of the MFS Trust consists of an unlimited number
of shares of beneficial interest, no par value, divided into four series and,
with respect to the MFS Fund, into four classes, at the date hereof. All
issued and outstanding shares of beneficial interest attributable to the MFS
Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the MFS Trust. The MFS Trust
does not have outstanding any options, warrants or other rights to subscribe
for or purchase any shares of beneficial interest attributable to the MFS
Fund, nor is there outstanding any security convertible into any shares of
beneficial interest attributable to the MFS Fund;
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the MFS Trust, and
this Agreement constitutes a valid and binding obligation of the MFS Trust
enforceable in accordance with its terms;
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<PAGE> 47
(m) The MFS Fund Shares to be issued and delivered to the New USA Growth
Fund pursuant to the terms of this Agreement have been duly authorized, and
when so issued and delivered, will be duly and validly issued MFS Fund Shares
and will be fully paid and nonassessable by the MFS Trust (recognizing that,
under Massachusetts law, New USA Growth Fund Shareholders could, under
certain circumstances, be held personally liable for the obligations of the
MFS Trust); and upon such issuance of the MFS Fund Shares on the Closing
Date, the New USA Mutual Fund will acquire good and marketable title thereto
subject to no restrictions on the full transfer thereof, including such
restriction as might arise under the 1933 Act. None of the outstanding
securities of the MFS Fund Shares have pre-emptive rights;
(n) The information to be furnished by or on behalf of the MFS Fund for use
in applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply fully
with federal securities and other laws and regulations applicable thereto;
(o) The MFS Trust agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state Blue Sky or securities laws as it may deem appropriate in order
to continue its operations and the operations of the MFS Fund after the
Closing Date;
(p) All of the MFS Trust's issued and outstanding shares of beneficial
interest attributable to the MFS Fund have been offered for sale and sold in
conformity with all applicable federal and state securities laws;
(q) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the MFS Trust of
the transactions contemplated by the Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may
be required under state securities laws; and
(r) The Registration Statement referred to in paragraph 5.7 (other than
written information furnished by or on behalf of New USA Growth Fund for
inclusion therein, as covered by the New USA Growth Fund's warranty in
paragraph 4.1(n)), on the effective date of the Registration Statement, on
the date of the meeting of the New USA Growth Fund shareholders and on the
Closing Date, will conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder, and will not on such dates include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading.
5. COVENANTS
5.1 The New USA Growth Fund and the MFS Fund each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such
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<PAGE> 48
ordinary course of business will include the declaration and payment of
customary dividends and distributions.
5.2 The New USA Mutual Fund will call a meeting of shareholders of the New USA
Growth Fund (the "Meeting") to consider and act upon this Agreement and to take
all other action necessary within its ability to maximize the prospects of
obtaining approval of the transactions contemplated herein and shall bear all of
the costs associated with the Meeting.
5.3 The New USA Mutual Fund covenants that the MFS Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.4 The New USA Mutual Fund will provide such information as the MFS Trust
reasonably requests concerning the ownership of the New USA Growth Fund shares
of common stock, including the information specified in paragraph 3.4.
5.5 Subject to the provisions of this Agreement, the New USA Mutual Fund and the
MFS Trust each will take, or cause to be taken, all action, and do or cause to
be done all things, reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 The New USA Mutual Fund shall furnish to the MFS Trust on the Closing Date
the Statement of Assets and Liabilities which statement shall be prepared in
accordance with generally accepted accounting principles consistently applied
and shall be certified by the New USA Mutual Fund's Treasurer or Assistant
Treasurer. As promptly as practicable, but in any case within 60 days after the
Closing Date, the New USA Mutual Fund or its designee shall furnish to the MFS
Trust, in such form as is reasonably satisfactory to the MFS Trust, a statement
of the earnings and profits of the New USA Growth Fund for federal income tax
purposes, and of any capital loss carryovers and other items that the MFS Fund
will succeed to and take into account as a result of Section 381 of the Code.
5.7 The New USA Mutual Fund will prepare and, on behalf of the MFS Trust, file
with the Securities and Exchange Commission a Registration Statement on Form
N-14 (the "Registration Statement"), in compliance with the 1933 Act and the
1940 Act, in connection with the issuance of the MFS Fund Shares as contemplated
herein and, except to the extent that any party has agreed to bear certain
expenses in connection with the Registration Statement, shall bear all the costs
associated with the preparation, printing and mailing of the Registration
Statement.
5.8 The New USA Mutual Fund will prepare a Proxy Statement, to be included in
the Registration Statement in compliance with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder (collectively, the "Acts") in
connection with the Meeting of New USA Growth Fund shareholders to consider
approval of this Agreement.
5.9 The MFS Trust agrees to provide the New USA Mutual Fund with information
applicable to the MFS Trust and the MFS Fund required under the Acts for
inclusion in the Registration Statement and Proxy Statement.
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<PAGE> 49
5.10 To the extent that the New USA Mutual Fund prepares and files an
application to obtain an order pursuant to Section 6(c) of the 1940 Act
exempting the transactions contemplated herein from the provisions of Section
15(f)(1)(A) of the 1940 Act (the "Exemptive Application"), the New USA Mutual
Fund shall bear all costs associated with the preparation and filing of the
Exemptive Application, except to the extent that any party has agreed to bear
certain expenses in connection with the Exemptive Application.
5.11 The MFS Fund will honor the New USA Growth Fund's Letters of Intent
("Letter of Intent") existing immediately prior to the Closing Date and
additional purchases of MFS Fund Shares made after the Closing Date but within
the remaining 13 month period established under the Letter of Intent, and such
Letter of Intent will qualify for treatment under the MFS Fund letter of intent
during this period, subject to the then-current initial sales charges applicable
to MFS Fund Shares.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE NEW USA MUTUAL FUND
The obligations of the New USA Mutual Fund to consummate the transactions
provided for herein shall be, at its election, subject to the performance by the
MFS Trust of all the obligations to be performed by it hereunder on or before
the Closing Date, and, in addition thereto, the following further conditions
precedent:
6.1 All representations and warranties of the MFS Trust and the MFS Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2 The MFS Trust shall have delivered to the New USA Mutual Fund a certificate
executed in its name by its President, Secretary or its Assistant Secretary and
its Treasurer or Assistant Treasurer, in form satisfactory to the New USA Mutual
Fund and dated as of the Closing Date, to the effect that the representations
and warranties of the MFS Trust and the MFS Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
New USA Mutual Fund shall reasonably request;
6.3 The New USA Mutual Fund shall have received on the Closing Date a favorable
opinion from Stephen E. Cavan, General Counsel and Senior Vice President of
Massachusetts Financial Services Company ("MFS"), the MFS Trust's investment
adviser, dated as of the Closing Date, in a form satisfactory to Gibson, Dunn &
Crutcher LLP, counsel to the New USA Mutual Fund, to the effect that:
(a) The MFS Trust is a business trust duly organized and validly existing
under the laws of The Commonwealth of Massachusetts and has power to own all
of its properties and assets and to carry on its business as currently
conducted, as described in the Registration Statement; (b) the Agreement has
been duly authorized, executed and delivered by the MFS Trust and,
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<PAGE> 50
assuming the due authorization, execution and delivery of the Agreement by
the New USA Mutual Fund, is a valid and binding obligation of the MFS Trust
enforceable against the MFS Trust in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and
other equitable principles; (c) the MFS Fund Shares to be issued to the New
USA Growth Fund shareholders as provided by this Agreement are duly
authorized and upon such delivery will be validly issued and outstanding and
fully paid and nonassessable by the MFS Trust with the rights, preferences
and privileges set forth in the MFS Fund Prospectus (recognizing that, under
Massachusetts law, New USA Growth Fund shareholders could, under certain
circumstances, be held personally liable for the obligations of the MFS
Trust) and upon such issuance of the MFS Fund Shares on the Closing Date, the
New USA Mutual Fund will acquire good and marketable title thereto subject to
no restrictions on the full transfer thereof, including such restrictions as
might arise under the 1933 Act, and no shareholder of the MFS Fund has any
preemptive right to subscription or purchase in respect thereof pursuant to
any federal or Massachusetts law or the Declaration of Trust or By-Laws of
the MFS Trust; (d) the execution and delivery of the Agreement did not, and
the consummation of the transactions contemplated hereby will not, violate
the MFS Trust's Declaration of Trust or By-Laws, or any material provision of
any agreement (known to such counsel after due inquiry) to which the MFS
Trust is a party or by which it or the MFS Fund is bound; (e) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority is required for the consummation by the
MFS Trust of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may
be required under state securities laws; (f) the descriptions in the
Registration Statement of statutes, legal and governmental proceedings and
contracts and other documents, if any, only insofar as they relate to the MFS
Trust and the MFS Fund, are accurate in all material respects; (g) such
counsel does not know of any legal or governmental proceedings existing on or
before the date of mailing of the Proxy Statement or the Closing Date, only
insofar as they relate to the MFS Trust or the MFS Fund, required to be
described in the Registration Statement which are not described as required;
(h) to the knowledge of such counsel, the MFS Trust is a duly registered
investment company and its registration with the Securities and Exchange
Commission as an investment company under the 1940 Act is in full force and
effect; and (i) to the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body currently is pending or threatened as to the MFS Trust or
the MFS Fund or any of the MFS Trust's properties or assets, and the MFS
Trust is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and adversely
affects its business or its ability to consummate the transactions
contemplated hereby. Such opinion shall also state that while such counsel
has not verified, and is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, he reviewed and discussed certain of
such statements with certain officers of the MFS Trust and that in the course
of such review and discussion no facts came to the attention of such counsel
which led him to believe that, on the effective date of the Registration
Statement or on the date of the New USA Growth Fund shareholders' meeting or
on the Closing Date and only insofar as such statements relate to the MFS
Trust and the MFS Fund, the Registration Statement contained any statement
which, in the light of the circumstances under which it was made, was false
or
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misleading with respect to any material fact or which omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not false or misleading. Such opinion may state that such
counsel does not express any opinion or belief as to the financial statements
or other financial or statistical data, or as to the information relating to
the New USA Mutual Fund or the New USA Growth Fund, contained in the Proxy
Statement or Registration Statement. Such opinion may also state that such
opinion is solely for the benefit of the New USA Mutual Fund, its Board of
Directors and its officers and of the New USA Growth Fund. Such opinion shall
also include such other matters incidental to the transaction contemplated
hereby as the New USA Mutual Fund may reasonably request; and
6.4 The Stock Purchase Agreement by and between O'Neil Data Systems, Inc. and
Massachusetts Financial Services Company dated March 6, 1997 shall have been
executed and delivered concurrently with this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST
The obligations of the MFS Trust to complete the transactions provided for
herein shall be, at its election, subject to the performance by the New USA
Mutual Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions precedent:
7.1 All representations and warranties of the New USA Mutual Fund and the New
USA Growth Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
7.2 The New USA Mutual Fund shall have delivered to the MFS Trust the Statement
of Assets and Liabilities dated as of the Valuation Date, together with a list
of the New USA Growth Fund's portfolio securities showing the federal income tax
bases and holding periods of such securities, as of the Closing Date, certified
by the Treasurer or Assistant Treasurer of the New USA Mutual Fund;
7.3 The New USA Mutual Fund shall have delivered to the MFS Trust on the Closing
Date a certificate executed in its name by its President, Secretary or its
Assistant Secretary and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the MFS Trust and dated as of the Closing Date, to the
effect that the representations and warranties of the New USA Mutual Fund in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the MFS Trust shall reasonably request;
7.4 The MFS Trust shall have received on the Closing Date a favorable opinion
from Gibson, Dunn & Crutcher LLP, counsel to the New USA Mutual Fund, in a form
satisfactory to the MFS Trust to the effect that:
(a) the Agreement has been duly authorized, executed and delivered by the
New USA Mutual Fund and assuming due authorization, execution and delivery of
the Agreement by the
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<PAGE> 52
MFS Trust, is a valid and binding obligation of the New USA Mutual Fund
enforceable against the New USA Mutual Fund and the New USA Growth Fund in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles; (b) the execution
and delivery of the Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate any material provision of
any agreement (known to such counsel after due inquiry) to which the New USA
Mutual Fund is a party or by which it or the New USA Growth Fund is bound;
(c) to the knowledge of such counsel, no consent, approval, authorization or
order of any court or governmental authority is required for the consummation
by the New USA Mutual Fund of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act,
and such as may be required under state securities laws; (d) the descriptions
in the Proxy Statement of statutes, legal and governmental proceedings and
contracts and other documents, if any, only insofar as they relate to the New
USA Mutual Fund and the New USA Growth Fund, are accurate in all material
respects; (e) such counsel does not know of any legal or governmental
proceedings existing on or before the date of mailing the Proxy Statement or
the Closing Date, only insofar as they relate to the New USA Mutual Fund or
the New USA Growth Fund, required to be described in the Proxy Statement
which are not described as required; (f) to the knowledge of such counsel,
the New USA Mutual Fund is a duly registered investment company and its
registration with the Securities and Exchange Commission as an investment
company under the 1940 Act is in full force and effect; and (g) to the
knowledge of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened as to the New USA Mutual Fund or any of its properties
or assets and the New USA Mutual Fund is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body, which materially and adversely affects its business or its ability to
consummate the transactions contemplated hereby. Such opinion shall also
state that while such counsel have not verified, and are not passing upon and
do not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Proxy Statement, they reviewed and
discussed certain of such statements with certain officers of the New USA
Mutual Fund and that in the course of such review and discussion no facts
came to the attention of such counsel which led them to believe that, on the
effective date of the Registration Statement, on the date of the New USA
Growth Fund shareholders' meeting or on the Closing Date and only insofar as
such statements relate to the New USA Mutual Fund or the New USA Growth Fund,
the Proxy Statement contained any statement which, in the light of the
circumstances under which it was made, was false or misleading with respect
to any material fact or which omitted to state any material fact required to
be stated therein or necessary to make the statements therein not false or
misleading. Such opinion may state that such counsel does not express any
opinion or belief as to the financial statements or other financial or
statistical data, or as to the information relating to the MFS Trust and the
MFS Fund, contained in the Proxy Statement or Registration Statement. Such
opinion may also state that such opinion is solely for the benefit of the MFS
Trust, its Board of Trustees and its officers and of the MFS Fund. Such
opinion shall also include such other matters incident to the transaction
contemplated hereby as the MFS Trust may reasonably request. In rendering
such opinion, Gibson, Dunn & Crutcher may assume that California law is the
same as Massachusetts law.
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<PAGE> 53
7.5. The MFS Trust shall have received on the closing date a favorable opinion
from Piper & Marbury LLP, counsel to the New USA Mutual Fund, in a form
satisfactory to the MFS Trust to the effect that: (a) the New USA Mutual Fund is
a corporation duly incorporated and validly existing under the laws of the State
of Maryland and has the corporate power to own all of its properties and assets
and to carry on its business as currently conducted; and (b) the execution and
delivery of the Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate the New USA Mutual Fund's Articles of
Incorporation or By-Laws. Such opinion may also state that such opinion is
solely for the benefit of the MFS Trust, its Board of Trustees and its officers
and of the MFS Fund. Such opinion shall also include such other matters incident
to the transaction contemplated hereby as the MFS Trust may reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST AND NEW USA
MUTUAL FUND
The obligations of the New USA Mutual Fund and the MFS Trust hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
common stock of the New USA Growth Fund in accordance with the provisions of the
New USA Mutual Fund's Articles of Incorporation and By-Laws, Maryland law and
certified copies of the resolutions evidencing such approval shall have been
delivered to the MFS Trust;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities, including "no-
action" positions of such federal or state authorities) deemed necessary by the
MFS Trust or the New USA Mutual Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
MFS Fund or the New USA Growth Fund, provided that either the MFS Trust or the
New USA Mutual Fund may waive any such conditions for itself or for the MFS Fund
or the New USA Growth Fund, respectively;
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 The New USA Mutual Fund shall have distributed to its shareholders all of
the excess of (i) its investment income excludable from gross income under
Section 103(a) of the Code over (ii) its deductions disallowed under Sections
265 and 171(a)(2) of the Code, and all of its investment
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<PAGE> 54
company taxable income as defined in Section 852(b)(2) of the Code and all of
its net capital gain as such term is used in Section 852(b)(3)(C) of the Code,
after reduction by any capital loss carryforward, in each case for its taxable
year ending January 31, 1997 and its short taxable year ending on the Closing
Date;
8.6 The New USA Mutual Fund and the MFS Trust shall have received an opinion
from Gibson, Dunn & Crutcher LLP and Bingham, Dana & Gould, LLP respectively,
satisfactory to the New USA Mutual Fund and the MFS Trust, substantially to the
effect that for federal income tax purposes:
(a) The acquisition by the MFS Fund of all of the assets of the New USA
Growth Fund, solely in exchange for MFS Fund Shares and the assumption by the
MFS Fund, of the stated liabilities of the New USA Growth Fund as set forth
in the Statement of Assets and Liabilities followed by the distribution by
the New USA Growth Fund of the MFS Fund Shares in complete liquidation to the
shareholders of the New USA Mutual Fund in exchange for their New USA Mutual
Fund shares and the termination of the New USA Mutual Fund pursuant to this
Agreement, will constitute a reorganization within the meaning of Section
368(a) of the Code, and the New USA Mutual Fund and the MFS Fund will each be
"a party to a reorganization" within the meaning of Section 368(b) of the
Code;
(b) No gain or loss will be recognized by the New USA Mutual Fund upon the
transfer of all of its assets to the MFS Fund solely in exchange for MFS Fund
Shares and the assumption by the MFS Fund of the stated liabilities of the
New USA Growth Fund as set forth in the Statement of Assets and Liabilities
or upon the distribution to the New USA Mutual Fund shareholders of such MFS
Fund Shares pursuant to the Agreement;
(c) No gain or loss will be recognized by the MFS Fund upon the receipt of
the assets of the New USA Growth Fund solely in exchange for MFS Fund Shares
and the assumption by the MFS Fund of the stated liabilities of the New USA
Growth Fund as set forth in the Statement of Assets and Liabilities;
(d) The tax basis of the assets of the New USA Growth Fund acquired by the
MFS Fund will be, in each instance, the same as the basis of those assets in
the hands of the New USA Growth Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the New USA Growth Fund in the
hands of the MFS Fund will include, in each instance, the holding period of
such assets in the hands of the New USA Growth Fund;
(f) The shareholders of the New USA Mutual Fund will not recognize gain or
loss upon the exchange of all of their New USA Mutual Fund shares solely for
MFS Fund Shares as part of the transaction;
(g) The basis of the MFS Fund Shares to be received by each New USA Mutual
Fund shareholder will be, in the aggregate, the same as the basis, in the
aggregate, of the New USA Mutual Fund shares surrendered by such shareholder
in exchange therefor; and
A-17
<PAGE> 55
(h) The holding period of the MFS Fund Shares to be received by each New
USA Mutual Fund shareholder will include the holding period of the New USA
Growth Fund shares of common stock surrendered by such shareholder in
exchange therefor, provided the New USA Growth Fund shares were held by such
shareholder as capital assets on the date of the exchange.
For purposes of this paragraph 8.6, any reference to New USA Growth Fund shall
be deemed to be a reference to New USA Mutual Fund. The MFS Trust and the New
USA Mutual Fund each agree to make and provide, at such times as reasonably
requested by counsel, representations with respect to the MFS Fund and the New
USA Growth Fund, respectively, which are reasonably necessary to enable legal
counsel to deliver the opinions pursuant to this Section 8.6. Notwithstanding
anything herein to the contrary, the MFS Trust and the New USA Mutual Fund may
not waive in any material respect the conditions set forth in this paragraph
8.6. Prior to the Closing Date, neither the New USA Mutual Fund nor the MFS
Trust shall take or cause to be taken any action which would cause to be untrue
(or fail to take or cause to be taken) any of the representations set forth in
the certificates contemplated by this paragraph 8.6; and
8.7 The New USA Mutual Fund will not create another series of shares.
9. BROKERAGE FEES AND EXPENSES; SALES CHARGES; CERTAIN TAX MATTERS; CERTAIN
RECORDS
9.1 The MFS Trust and the New USA Mutual Fund each represents and warrants to
the other that there are no brokers or finders entitled to receive any payments
from either party to this Agreement in connection with the transactions provided
for herein.
9.2 The MFS Trust and the New USA Mutual Fund shall be each liable for its
expenses incurred in connection with entering into and carrying out the
provisions of this Agreement whether or not the transactions contemplated hereby
are consummated.
9.3 MFS Fund Shares issued in connection with the transactions contemplated
herein will not be subject to any initial sales charge.
9.4 The New USA Mutual Fund agrees that it or its designee shall, on behalf of
the New USA Growth Fund, file or furnish all federal, state and other tax
returns, forms and reports, including information returns and payee statements,
if applicable, of the New USA Growth Fund required by law to be filed or
furnished by such dates as required by law to be filed or furnished, and shall
provide such other federal and state tax information to shareholders of the New
USA Growth Fund as has been customarily provided by the New USA Growth Fund, all
with respect to the fiscal period commencing February 1, 1997, and ending on the
Closing Date.
9.5 The New USA Mutual Fund agrees that it or its designee shall, on behalf of
the New USA Growth Fund, deliver to the MFS Trust on the Closing Date or as soon
thereafter as possible: (i) New USA Growth Fund shareholder statements and tax
forms (i.e. Forms 1099) for the year ended January 31, 1996, the year ended
January 31, 1997 and the period commencing February
A-18
<PAGE> 56
1, 1997 through the Closing Date (all on microfilm or microfiche, if available);
(ii) detailed records indicating the status of all certificates representing
ownership of New USA Growth Fund shares issued since inception of the New USA
Growth Fund (e.g., indicating whether the certificates are outstanding or
canceled); together with such other information with respect thereto as the MFS
Trust may reasonably request.
10. ENTIRE AGREEMENT
The MFS Trust and the New USA Mutual Fund agree that neither party has made any
representation, warranty or covenant not set forth in this Agreement or referred
to in paragraph 4 or 5 hereof or required in connection with paragraph 8.6
hereof and that this Agreement constitutes the entire agreement between the
parties.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the MFS Trust
and the New USA Mutual Fund. In addition, either party may at its option
terminate this Agreement at or prior to the Closing Date because of:
(a) a material breach by the other party of any representation, warranty
or agreement contained herein to be performed at or prior to the Closing
Date; or
(b) a condition herein expressed to be precedent to the obligations of the
terminating party which has not been met and which reasonably appears will
not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either the MFS Trust or the New USA Mutual Fund, or their
respective trustees or officers, to the other party or its trustees or officers,
but each shall bear the expenses incurred by it incidental to the preparation
and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the authorized officers of the New USA Mutual
Fund and the MFS Trust; provided, however, that following the meeting of
shareholders called by the New USA Mutual Fund pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of MFS Fund Shares to be issued to the New USA Growth
Fund shareholders under this Agreement to the detriment of such shareholders
without their further approval; and provided further that nothing contained in
this Article 12 shall be construed to prohibit the parties from amending this
Agreement to change the Closing Date or the Valuation Date.
A-19
<PAGE> 57
13. SURVIVAL
No representations or warranties in or pursuant to this Agreement (including
certificates of officers), except for the provision in Paragraph 4.1(s) of this
Agreement, shall survive the Closing Date.
14. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the MFS Trust, 500 Boylston Street,
Boston, Massachusetts 02116, Attention: A. Keith Brodkin, President, or to the
New USA Mutual Fund, c/o 12655 Beatrice Street, Los Angeles, California 90066,
Attention: Margaret R. Harries, Senior Vice President, in either case with a
copy to Stephen E. Cavan, General Counsel, MFS, 500 Boylston Street, Boston,
Massachusetts 02116, and to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue,
Los Angeles, California, 90071 Attention: Dhiya El-Saden, Esq.
15. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
15.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
15.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
15.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15.5 A copy of the MFS Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The New USA Mutual Fund
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the MFS Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the MFS Trust in accordance with its proportionate interest hereunder. The
New USA Mutual Fund further acknowledges that the assets and liabilities of each
series of the MFS Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property of
the series on whose behalf the MFS Trust has executed this instrument.
A-20
<PAGE> 58
15.6 Notwithstanding Article 12 of the Agreement, but subject to the first
proviso contained therein, either party to this Agreement, with the consent of
its President, Secretary or its Assistant Secretary, may waive any condition or
covenant to which the other party is subject or may modify such condition or
covenant in a manner deemed appropriate by any such officer.
A-21
<PAGE> 59
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its Chairman or President and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: New USA Mutual Funds, Inc. on behalf
of New USA Growth Fund, its sole
series
Margaret R. Harries By: William J. O'Neil
- -------------------------------- ------------------------------------
Margaret R. Harries, Secretary William J. O'Neil, Chairman and
and not individually Chief Executive Officer, and
not individually
Attest: MFS Series Trust II on behalf of
MFS Emerging Growth Fund, one of
its series
James R. Bordewick, Jr. By: A. Keith Brodkin
- -------------------------------- ------------------------------------
James R. Bordewick, Jr., Assistant A. Keith Brodkin, Chairman and
Secretary and not individually President and not individually
A-22
<PAGE> 60
NEW USA GROWTH FUND
a series of
NEW USA MUTUAL FUNDS, INC.
c/o State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made this proxy will
be voted FOR the proposals.
FOR ( ) AGAINST ( ) ABSTAIN ( )
1. To consider and act upon a proposal to
approve an Agreement and Plan of
Reorganization between New USA Mutual Funds, Inc.
("New USA Mutual Funds") on behalf
of the New USA Growth Fund, the sole series thereof,
and MFS Series Trust II, on behalf of the MFS
Emerging Growth Fund, a series thereof (the "MFS
Fund"), providing for the transfer of all of the
assets of the New USA Growth Fund to the MFS Fund in
exchange solely for the assumption by the MFS Fund
of the stated liabilities of the New USA Growth Fund
and the issuance to the New USA Growth Fund of shares
of beneficial interest of the MFS Fund designates as
Class A Shares (the "MFS Fund Shares"), the
distribution of the MFS Fund Shares to the
shareholders of the New USA Growth Fund in
liquidation of the New USA Growth Fund and the
termination of New USA Mutual Funds.
2. To transact such other business as may properly
come before the meeting or any adjournments
thereof.
<PAGE> 61
NEW USA GROWTH FUND, THE SOLE SERIES OF NEW USA MUTUAL FUNDS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
THE UNDERSIGNED HEREBY APPOINTS WILLIAM J. O'NEIL, MARGARET R. HARRIES
AND DAVID RYAN, AND EACH OF THEM, AS PROXIES, EACH WITH THE POWER TO APPOINT HIS
OR HER SUBSTITUTE, AND HEREBY AUTHORIZES THEM TO REPRESENT AND TO VOTE, AS
DESIGNATED BELOW, ALL SHARES OF STOCK OF NEW USA GROWTH FUND, THE SOLE SERIES OF
NEW USA MUTUAL FUNDS, INC. ("NEW USA MUTUAL FUNDS"), HELD OF RECORD BY THE
UNDERSIGNED ON APRIL 11, 1997, AT THE 1997 SPECIAL MEETING OF STOCKHOLDERS OF
NEW USA MUTUAL FUNDS TO BE HELD ON MAY 28, 1997 OR ANY ADJOURNMENT THEREOF. BY
SIGNING AND DATING THE LOWER PORTION OF THIS CARD, YOU AUTHORIZE THE PROXIES TO
VOTE EACH PROPOSAL, AND TO USE THEIR DISCRETION TO VOTE ANY OTHER MATTER AS MAY
PROPERLY COME BEFORE THE MEETING. IF YOU DO NOT INTEND TO PERSONALLY ATTEND THE
MEETING PLEASE COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENCLOSED ENVELOPE.
Please sign name or names as printed
on proxy to authorize the
voting of your shares as
indicated. Where shares are
registered with joint owners,
all joint owners should sign.
Persons signing as
executors, administrators,
trustees, etc. should so
indicate.
---------------------------------------
Signature
---------------------------------------
Signature
---------------------------------------
Date
<PAGE> 62
ENCLOSURES: MFS FUND PROSPECTUS
The MFS Fund Prospectus dated April 1, 1997 is hereby incorporated by
reference to such Prospectus contained in the Registrant's Post-Effective
Amendment No. 21 to its Registration Statement, as filed with the SEC via
EDGAR on March 27, 1997.
[MFS LOGO]
Annual Report
for Year Ended
November 30, 1996
MFS(R) Emerging Growth Fund
<PAGE>
Table of Contents
Letter from the Chairman 1
A Discussion with the Portfolio Manager 3
Portfolio Manager's Profile 5
Performance Summary 6
Fund Facts 8
Portfolio of Investments 10
Financial Statements 26
Notes to Financial Statements 33
Independent Auditors' Report 40
Trustees and Officers 41
Highlights
o For the 12 months ended November 30, 1996, Class A shares of the Fund
provided a total return at net asset value of 19.52%, Class B shares 18.52%,
and Class C shares, which became available on April 1, 1996, 18.52%.
o Smaller companies underperformed most of the year. With a strong market,
investors ignored the strong earnings growth of the smaller companies and
bid up prices of the larger companies instead.
o Many of the Fund's technology stocks did very well, benefiting from the
restructuring and cost-cutting efforts of corporate America.
o We see a continuation of the slow growth that the United States has been
experiencing for the last few years, a situation which has helped corporate
earnings as restructurings have lowered costs and helped improve profit
margins.
<PAGE>
Letter from the Chairman
[Photo of A. Keith Brodkin]
A. Keith Brodkin
Dear Shareholders:
The U.S. economy appears to have settled into a pattern of moderate growth
and inflation -- two factors that we think can be important contributors to a
favorable long-term investment climate. During the first quarter of 1996,
real (inflation-adjusted) economic growth was 2.3% on an annualized basis,
followed by a rate of 4.7% in the second quarter. However, this unexpectedly
high level was followed by a more moderate 2.0% pace during the third
quarter. Overall, real growth in gross domestic product has surpassed our
expectations this year, and we now expect that growth for all of 1996 could
exceed 2.5%. While the consumer appears to be carrying an excessive debt
load, this sector, which represents two-thirds of the economy, provided some
support to the automobile and housing markets throughout much of the year.
Consumer spending has also been positively impacted by widespread job growth
and, more recently, modestly increasing wages. Retail sales, which have been
flat for several months, appear to be improving for the holiday shopping
season. The economies of Europe and Japan, meanwhile, continue to be in the
doldrums, weakening U.S. export markets. Finally, the capital spending plans
of American corporations are far from robust. Thus, while economic growth
should continue, we expect some slackening toward the end of the year.
We believe U.S. equity investors should lower their expectations for 1997.
The expected slowdown in corporate earnings growth and interest rate
increases earlier in the year have raised some near-term concerns, as was
seen in July's stock market correction. Further increases in interest rates
and an acceleration of inflation, coupled with an additional slowdown in
corporate earnings growth, could have a negative effect on the stock market
in the near term. However, to the extent that some earnings disappointments
are taken as a sign that the economy is not overheating, this may prove
beneficial for the equity market's longer-term health. We believe many of the
technology-driven productivity gains that U.S. companies have made in recent
years will continue to enhance corporate America's competitiveness and
profitability. Therefore, while we have some near-term concerns, we remain
quite constructive on the long-term viability of the equity market.
Finally, as you may notice, this report to shareholders incorporates a
number of changes which we hope you will find informative and useful.
Following a discussion with the Portfolio Manager, we have added new infor-
1
<PAGE>
Letter from the Chairman - continued
mation on the Fund's holdings, including a chart illustrating the portfolio's
concentration in the types of investments that meet its criteria. Near the
back of the report, telephone numbers and addresses are listed if you would
like to contact MFS.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
December 12, 1996
2
<PAGE>
A Discussion with the Portfolio Manager
[Photo of John W. Ballen]
John W. Ballen
For the 12 months ended November 30, 1996, Class A shares of the Fund
provided a total return of 19.52%, Class B shares 18.52%, and Class C shares,
which became available on April 1, 1996, 18.52%. All of these returns assume
the reinvestment of distributions but exclude the effects of any sales
charges, and they compare to a 27.85% return for the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock
performance, and a 16.52% return for the Russell 2000 Total Return Index (an
index comprised of 2,000 of the smallest U.S.-domiciled company common stocks
which are traded on the New York Stock Exchange, the American Stock Exchange,
and the NASDAQ).
Q. What do you think were some of the major reasons for the Fund's
performance over the past year, John?
A. The stock market in 1996 was dominated by the larger-capitalization issues
as represented by the Dow Jones Industrial Average and the S&P 500. Most of
the other indices, which include less well-known names, have lagged. However,
the Fund's performance compared favorably to the Russell 2000 as investors
rewarded the earnings growth of many companies owned by the Fund.
Q. How would you describe the business and economic environment you faced
over the past year, particularly as it relates to the Fund?
A. The business and economic environment was benign. Modest economic growth
coupled with productivity gains by corporate America provided a favorable
environment. However, semiconductor issues performed poorly as inventory
oversupply hurt their sales. The health maintenance organizations (HMOs) also
performed poorly as companies underestimated health care costs and set their
prices too low. This poor performance spilled over from the first half of the
year to affect performance for the entire technology and health care sectors
- -- two of the larger components of the portfolio.
Q. How would you characterize the performance of smaller companies relative
to larger companies over the past year, and what do you think were some of
the reasons for the difference in performance?
A. Smaller companies underperformed most of the year. With a very strong
market, investors ignored the strong earnings growth of the smaller companies
and bid up prices of the larger companies instead. In fact, earnings results
for the smaller companies in the Fund generally remained strong all year.
3
<PAGE>
A Discussion with the Portfolio Manager - continued
Q. We noticed that technology is the largest sector in the Fund. What is it
you like about technology, and could you discuss any sub-groups within
technology that you find particularly attractive?
A. The U.S. economy has experienced very weak growth in gross domestic
product. At the same time, this has been one of the best five-year periods
for earnings growth. A major reason for this is the restructuring occurring
throughout corporate America, which has improved productivity. Much of this
restructuring has been made possible by technology companies, especially
software and networking companies that are helping their corporate customers
reduce costs.
Q. However, your largest holding is not a technology stock, but HFS, Inc., a
franchisor of hotels and real estate companies. What makes this company
attractive?
A. HFS is a consumer services company. This company has acquired companies in
the hotel, real estate, and car rental industries. All of these businesses
fit into HFS very well, and the company has increased internal growth over
30% from revenue and cost savings opportunities. Supplementing this internal
growth has been what we believe to be the best acquisition team of the 1990s.
The team has made several acquisitions that greatly increased the earnings
growth rate this year. And while the stock has outperformed the market, its
valuation has lagged its earnings growth rate, making it attractively priced.
Q. In general, what characteristics or qualities do you look for in selecting
stocks for the Fund?
A. We try to be early in identifying small-and mid-cap growth stocks selling
at lower-than-average valuations, with the potential to become attractive to
investors as they grow. We are long-term investors and the Fund has a low
turnover, so we look for companies that will succeed over the long term with
what we regard as superior management and market positions.
Q. Can you talk about some other stocks or sectors that performed as well as
or better than expected and tell us why you think they did well?
A. Many of our technology stocks did very well. As corporate America
restructures and focuses on reducing costs, companies are making more use of
technology and software. Oracle Systems, the database and applications
provider, BMC Software, Computer Associates, and Compuware have all performed
well.
Q. Now, could you talk about some stocks or sectors that did not perform as
well as you expected?
4
<PAGE>
A Discussion with the Portfolio Manager - continued
A. The health care sector was a disappointing sector for the Fund this year.
The HMOs set their prices too low to ensure revenues in 1996. United
Healthcare, Healthsource, and Mid Atlantic Medical all underperformed. We
are, however, optimistic that these companies will benefit from price
increases implemented in 1997.
Q. Can you tell us about some sectors you might be avoiding, and why?
A. We tend usually to avoid some of the slower-growing sectors of the U.S.
economy. Examples are energy, industrial, and cyclical-related stocks.
Q. As you look ahead, what changes do you see in the overall market or
economic environment, particularly as it relates to the Fund, and how are you
positioning the Fund to try to take advantage of those changes?
A. I see a continuation of the slow growth that the United States has been
experiencing for the past few years. While this has been a slow-growing
economy, it has been great for corporate earnings, as restructurings have
lowered costs and helped improve profit margins. Many of the smaller
companies, with their lower costs, can capitalize on this trend. We believe
technology and outsourcing companies, which are large holdings for the Fund,
can continue to benefit from these developments.
Respectfully,
/s/ John W. Ballen
John W. Ballen
Portfolio Manager
Portfolio Manager's Profile
John W. Ballen began his career at MFS as an industry specialist in
1984. A graduate of Harvard College, the University of New South
Wales and the Stanford University Graduate School of Business
Administration, he was promoted to Investment Officer in 1986,
Vice President - Investments in 1987, Director of Research in 1988,
and Senior Vice President in 1990. In 1993, he became Director of
Equity Portfolio Management and on May 1, 1995 he became Chief
Equity Officer. He has been the Portfolio Manager of MFS Emerging
Growth Fund since 1987.
5
<PAGE>
Performance Summary
The information below and on the following page illustrates the historical
performance of MFS Emerging Growth Fund Class B shares in comparison to
various market indicators. Graph results do not reflect the deduction of any
contingent deferred sales charge (CDSC) which is not applicable after a
six-year period. Benchmark comparisons are unmanaged and do not reflect any
fees or expenses. You cannot invest in an index. All results are historical
and assume the reinvestment of dividends and capital gains. The performance
of Class A and Class C shares will be greater or less than the line shown,
based on differences in loads and fees.
[Description of line chart]
Growth of a Hypothetical $10,000 Investment
(For the Period from December 29, 1986 to November 30, 1996)
MFS Emerging Growth S&P 500 Russell Consumer Price
Fund Class B Composite Index 2000 Index Index - U.S.
12/86 10000 10000 10000 10000
9036 10453 8201 9528
11/88 10745 10891 10648 11735
13982 11398 12811 15345
11/90 12527 12113 9962 14808
21945 12475 14000 17818
11/92 28364 12856 17332 21097
33854 13200 20621 23225
11/94 36633 13553 20391 23463
53079 13901 26200 32104
11/96 62912 14377 30526 41017
6
<PAGE>
Performance Summary - continued
<TABLE>
<CAPTION>
Life of
Average Annual Total Returns 1 Year 3 Years 5 Years Fund+++
- ------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
MFS Emerging Growth Fund (Class A)
including 5.75% sales charge +12.67% +21.50% +22.63% +19.95%
- ------------------------------------- --------- --------- --------- ----------
MFS Emerging Growth Fund (Class A) at
net asset value +19.52% +23.92% +24.09% +20.67%
- ------------------------------------- --------- --------- --------- ----------
MFS Emerging Growth Fund (Class B)
with CDSC +14.52% +22.28% +23.27% +20.35%
- ------------------------------------- --------- --------- --------- ----------
MFS Emerging Growth Fund (Class B)
without CDSC +18.52% +22.94% +23.45% +20.35%
- ------------------------------------- --------- --------- --------- ----------
MFS Emerging Growth Fund (Class C)
with CDSC +17.52% +22.94% +23.45% +20.35%
- ------------------------------------- --------- --------- --------- ----------
MFS Emerging Growth Fund (Class C)
without CDSC +18.52% +22.94% +23.45% +20.35%
- ------------------------------------- --------- --------- --------- ----------
Average mid-cap fund** +19.21% +16.66% +16.45% +14.34%
- ------------------------------------- --------- --------- --------- ----------
Standard & Poor's 500 Composite
Index+ +27.85% +20.88% +18.15% +15.28%
- ------------------------------------- --------- --------- --------- ----------
Russell 2000 Index+ +16.52% +13.97% +16.83% +11.90%
- ------------------------------------- --------- --------- --------- ----------
Consumer Price Index* +3.42% +2.89% +2.88% +3.73%
- ------------------------------------- --------- --------- --------- ----------
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
**Source: Lipper Analytical Services.
+Source: CDA/Wiesenberger.
+++For the period from commencement of investment operations, December 29,
1986 to November 30, 1996.
Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results.
Class B results with the contingent deferred sales charge (CDSC) reflect the
applicable CDSC which declines over six years as follows: 4%, 4%, 3%, 3%, 2%,
1%, 0%. Class C shares have no initial sales charge but, along with Class B
shares, have higher annual fees and expenses than Class A shares. As of April
1, 1996, Class C shares redeemed within 12 months of purchase will be subject
to a 1% CDSC.
Class A and Class C share performance includes the performance of the Fund's
Class B shares for periods prior to the commencement of offering of Class A
shares on September 13, 1993 and of Class C shares on April 1, 1996. Sales
charges and operating expenses for Class A, Class B, and Class C shares
differ. The Class B share performance, which is included within the Class A
share performance, including the sales charge, has been adjusted to reflect
the initial sales charge generally applicable to Class A shares rather than
the CDSC generally applicable to Class B shares. The Class B share
performance included within the Class C share performance with CDSC has
7
<PAGE>
been adjusted to reflect the lower CDSC generally applicable to Class C
shares, rather than the higher CDSC generally applicable to Class B shares.
Class A and Class C share performance has not been adjusted, however, to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are higher for Class B shares, and not significantly different for
Class C shares.
Fund results reflect any applicable expense subsidies and waivers, without
which the performance results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
Fund Facts
Strategy: The Fund's investment objective is to provide long-term
growth of capital by investing primarily in common
stocks of companies that MFS believes are early in their
life cycle but which have the potential to become major
enterprises.
Commencement of
investment operations: December 29, 1986
Size: $6.3 billion net assets as of November 30, 1996
Largest Sectors
[Description of Pie Chart]
Retailing 11.0%
Technology 40.5%
Miscellaneous 19.3%
Leisure 16.1%
Health Care 13.1%
8
<PAGE>
Portfolio Concentration as of November 30, 1996
Top Ten Equity Holdings
HFS, Inc.
Franchiser of hotels and real estate companies
Oracle Corporation
Developer and manufacturer of database software
Computer Associates
Computer software company
Cisco Systems
Computer network developer
United Healthcare
Health maintenance organization
BMC Software
Computer software company
Cadence Design Systems, Inc.
Computer software and systems company
Office Depot
Office supply retailer
Republic Industries
Waste disposal company
Cabletron Systems
Computer network company
Tax Form Summary
In January 1997, shareholders will be mailed a tax form summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
For the year ended November 30, 1996, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
31.1%.
9
<PAGE>
Portfolio of Investments - November 30, 1996
Common Stocks - 97.4%
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - 92.8%
Advertising - 0.2%
Lamar Advertising Co., "A"* 51,300 $ 1,192,725
Leap Group, Inc.* 150,000 918,750
Outdoor Systems, Inc.* 295,425 7,496,409
Universal Outdoor Holdings, Inc.* 113,300 3,087,425
---------------
$12,695,309
--------------------------------------------- ------------ ---------------
Airlines - 0.1%
AirNet Systems, Inc.* 210,400 $ 2,630,000
Atlas Air, Inc.* 77,400 3,599,100
---------------
$ 6,229,100
--------------------------------------------- ------------ ---------------
Apparel and Textiles - 0.4%
Designer Holdings Ltd.* 30,000 $ 461,250
Donna Karan International, Inc.* 50,000 818,750
Donnkenny, Inc.* 30,000 121,875
Mossimo, Inc.* 18,200 275,275
Nine West Group, Inc.* 507,316 24,034,096
---------------
$25,711,246
--------------------------------------------- ------------ ---------------
Automotive - 0.1%
APS Holding Corp.* 144,000 $ 2,736,000
Dura Automotive Systems, Inc.* 58,400 1,562,200
Safety Components International, Inc.* 28,000 343,000
United Auto Group, Inc.* 21,400 494,875
---------------
$ 5,136,075
--------------------------------------------- ------------ ---------------
Aerospace - 0.3%
Greenwich Air Services, Inc., "B"* 649,900 $14,947,700
Gulfstream Aerospace Corp.* 131,800 3,163,200
---------------
$18,110,900
--------------------------------------------- ------------ ---------------
Banks and Credit Companies
Capital One Financial Corp. 28,500 $ 1,029,562
First Bank Systems, Inc. 10,900 794,338
Northern Trust Corp. 10,700 777,088
---------------
$ 2,600,988
--------------------------------------------- ------------ ---------------
Building
Dayton Superior Corp.* 265,000 $ 2,616,875
--------------------------------------------- ------------ ---------------
Business Machines - 0.2%
CMC Industries, Inc.* 25,000 $ 231,250
Sun Microsystems, Inc.* 260,000 15,145,000
---------------
$15,376,250
--------------------------------------------- ------------ ---------------
Business Services - 6.7%
Abacus Direct Corp. 22,700 $ 550,475
AccuStaff, Inc.* 1,992,400 40,346,100
ADT Ltd.* 1,125,800 23,078,900
Affiliated Computer Services, Inc., "A"* 482,800 14,001,200
Alco Standard Corp. 585,300 30,289,275
10
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Business Services - continued
American List Corp. 130,000 $ 3,835,000
Barnett, Inc.* 100,000 2,475,000
BISYS Group, Inc.* 390,623 14,550,707
Caribiner International, Inc.* 28,200 1,244,325
Carriage Services, Inc.* 92,000 1,771,000
CCC Information Services Group, Inc.* 307,100 4,760,050
Ceridian Corp.* 131,300 6,318,812
Claremont Technology Group, Inc.* 53,400 1,308,300
Computer Sciences Corp.* 214,000 16,825,750
Corestaff, Inc.* 894,300 22,916,437
Cornell Corrections, Inc.* 104,300 1,029,963
CUC International, Inc.* 3,450,112 90,996,704
Data Processing Corp.* 65,000 1,129,375
Dendrite International, Inc.* 155,400 3,729,600
Donnelley Enterprise Solution* 57,400 1,442,175
DST Systems, Inc.* 307,850 9,966,644
E Trade Group, Inc.* 82,700 904,531
Education Management Corp.* 129,600 2,397,600
Employee Solutions, Inc.* 259,000 4,791,500
Equity Corp. International* 425,550 9,149,325
Fine Host Corp.* 125,100 1,985,962
First Data Corp. 24,104 961,147
First USA Paymentech, Inc.* 19,500 760,500
Fiserv, Inc.* 307,500 11,608,125
Forrester Research, Inc.* 23,500 502,313
ICT Group, Inc.* 300,000 1,350,000
Intelliquest Information Group* 53,800 1,291,200
Interim Services, Inc.* 565,800 22,207,650
International Network Services* 17,800 569,600
Labor Ready, Inc.* 50,000 612,500
Lason Holdings, Inc.* 18,500 360,750
Learning Tree International, Inc.* 47,700 2,158,425
May and Speh, Inc.* 80,000 1,080,000
Mecon, Inc.* 33,600 226,800
MedQuist, Inc.* 163,000 3,137,750
Meta Group, Inc.* 12,500 346,875
National Data Corp. 70,700 2,819,162
National Processing, Inc.* 190,900 3,436,200
NCO Group Inc.* 33,100 566,838
NOVA Corp.* 22,700 431,300
Nu Skin Asia Pacific, Inc.* 38,300 1,134,637
PHH Corporation* 45,300 2,032,837
PIA Merchandising Services, Inc.* 35,500 319,500
Precision Response Corp.* 250,000 9,281,250
Profit Recovery Group International, Inc.* 75,000 1,050,000
Registry, Inc.* 13,800 674,475
RemedyTemp, Inc.* 99,900 1,598,400
11
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Business Services - continued
Romac International, Inc.* 60,100 $ 1,472,450
RTW, Inc.* 36,000 576,000
Rural/Metro Corp.* 272,700 9,544,500
Sabre Group Holding, Inc.* 124,400 3,638,700
Service Experts, Inc.* 57,100 1,413,225
SPS Transaction Services Corp.* 558,245 8,792,359
Superior Consultant, Inc.* 15,200 364,800
Superior Services, Inc.* 28,700 491,488
Technology Solutions Co.* 64,050 2,882,250
Transaction System Architects, Inc.* 222,800 8,076,500
Vincam Group, Inc.* 21,900 761,025
Walsh International, Inc.* 47,500 380,000
---------------
$420,706,241
--------------------------------------------- ------------ ---------------
Cellular Telephones
Telephone & Data Systems, Inc. 18,000 $ 672,750
--------------------------------------------- ------------ ---------------
Chemicals
Polymer Group, Inc.* 249,600 $ 3,213,600
--------------------------------------------- ------------ ---------------
Computer Software - Services
Ingram Micro, Inc.* 112,900 $ 2,780,163
--------------------------------------------- ------------ ---------------
Computer Software - Personal Computers - 3.6%
Autodesk, Inc.* 1,566,490 $ 43,861,720
Avant Corp.* 8,221 240,464
Clarify, Inc.* 32,400 1,458,000
Compuserve, Inc.* 85,100 893,550
Cybermedia, Inc.* 17,400 352,350
Documentum, Inc.* 12,200 463,600
Electronic Arts, Inc.* 229,679 7,378,438
Epic Design Technology, Inc.* 76,200 1,905,000
HCIA, Inc.* 565,000 16,243,750
HNC Software, Inc.* 25,600 761,600
Hummingbird Communications Ltd.* 302,200 9,557,075
Imnet Systems, Inc.* 35,700 651,525
Insight Enterprises, Inc.* 216,000 7,263,000
InterSolv, Inc.* 135,500 1,253,375
Keane, Inc.* 100,000 5,287,500
Logic Works, Inc.* 52,100 306,088
MapInfo Corp.* 50,000 562,500
McAfee Associates, Inc.* 26,271 1,254,440
Microsoft Corp.* 670,100 105,121,937
National Instruments Corp.* 23,800 761,600
Openvision Technologies, Inc.* 25,300 227,700
P-Com, Inc.* 54,800 1,739,900
Quality Systems* 90,000 821,250
Segue Software, Inc.* 25,800 328,950
Selected Software Tools Ltd.* 31,500 551,250
Softdesk, Inc.* 37,600 329,000
12
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Computer Software - Personal Computers - continued
Symantec Corp.* 1,282,000 $ 19,069,750
Verity, Inc.* 30,400 505,400
Videoserver, Inc.* 19,600 960,400
---------------
$230,111,112
--------------------------------------------- ------------ ---------------
Computer Software - Systems - 21.9%
Adobe Systems, Inc. 1,015,900 $ 40,128,050
Alphanet Solutions, Inc.* 15,000 183,750
Ansys, Inc.* 13,000 147,875
Applix, Inc.* 48,000 948,000
Aspect Development, Inc.* 25,500 592,875
Aspen Technology, Inc.* 75,000 6,253,125
Astea International, Inc.* 22,000 123,750
Aurum Softwave, Inc.* 19,000 672,125
BDM International, Inc.* 43,400 2,039,800
BMC Software, Inc.* 4,053,750 176,338,125
Cadence Design Systems, Inc.+++* 4,267,525 170,167,559
Carnegie Group, Inc.* 150,000 881,250
Checkfree Corp.* 170,000 2,890,000
Citrix Systems, Inc.* 31,000 1,414,375
Computer Associates International, Inc. 4,371,900 287,452,425
Computer Management Sciences, Inc.* 29,475 501,075
Compuware Corp.* 1,963,624 110,944,756
Cotelligent Group, Inc.* 303,100 6,043,056
CSG Systems International, Inc.* 23,300 413,575
Desktop Data, Inc.* 15,400 346,500
Document Sciences Corp.* 24,000 270,000
Edify Corp.* 120,000 1,680,000
Factset Research Systems, Inc.* 59,600 1,400,600
Helisys, Inc.* 50,000 143,750
HMT Technology Corp.* 90,000 1,575,000
HPR, Inc.* 29,000 435,000
IA Corporation I* 100,000 562,500
IDX Systems Corp.* 21,300 527,175
Information Management Resources, Inc.* 106,800 1,762,200
Informix Corp.* 1,184,100 28,122,375
Intelidata Technologies Corp.* 171,200 1,259,925
Intelligroup, Inc.* 10,700 155,150
Isocor* 53,000 311,375
Learning Company, Inc.* 390,000 6,630,000
Metatec Corp.* 60,000 390,000
Metromail Corp.* 106,400 2,460,500
Oak Technology* 400,000 3,950,000
Objective Systems Integrators, Inc.* 38,500 948,063
Oracle Systems Corp.* 7,553,500 370,121,500
Programmers Paradise, Inc.* 100,000 650,000
Radisys Corp.* 85,000 3,888,750
13
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Computer Software - Systems - continued
Remedy Corp.* 41,400 $ 1,873,350
Renaissance Solutions, Inc.* 67,200 2,536,800
Rogue Wave Software, Inc.* 24,400 314,150
Sapient Corp.* 12,400 489,800
Security Dynamics Technology* 59,600 2,451,050
Simulation Sciences, Inc.* 93,200 1,153,350
Sterling Software, Inc.* 10,000 331,250
Summit Design, Inc.* 50,000 500,000
Sunquest Information Systems, Inc.* 20,000 297,500
Sybase, Inc.* 3,054,589 53,837,131
Sykes Enterprises, Inc.* 14,850 645,975
Synopsys, Inc.* 662,800 29,328,900
System Software Associates, Inc.+++ 2,519,350 34,955,981
Techforce Corp.* 50,000 331,250
Technology Modeling Associates, Inc.* 23,100 248,325
Transition Systems, Inc.* 51,900 583,875
Ultradata Corp.* 40,000 200,000
USCS International, Inc.* 217,300 3,639,775
Viisage Technology, Inc.* 41,700 589,013
Whittman-Hart, Inc.* 118,200 5,378,100
Xionics Document Technologies* 134,500 1,748,500
---------------
$1,377,159,984
--------------------------------------------- ------------ ---------------
Construction Services - 0.1%
Shaw Group, Inc.* 159,400 $ 4,104,550
--------------------------------------------- ------------ ---------------
Consumer Goods and Services - 0.6%
American Residential Services, Inc.* 88,000 $ 1,881,000
Bell Sports Corp.* 40,000 255,000
Blyth Industries, Inc.* 115,400 5,005,475
Bollinger Industries, Inc.* 45,000 33,750
Boston Communications Group* 36,100 320,388
Carson, Inc.* 121,100 1,695,400
Cerplex Group, Inc.* 123,800 170,225
Childtime Learning Centers, Inc.* 70,000 595,000
Department 56, Inc.* 50,000 1,162,500
Franklin Quest Co.* 567,800 12,065,750
GT Bicycles, Inc.* 10,000 120,000
Rockshox, Inc.* 90,000 1,158,750
Service Corp. International* 322,400 9,712,300
Ticketmaster Group, Inc.* 170,000 2,486,250
---------------
$ 36,661,788
--------------------------------------------- ------------ ---------------
Electrical Equipment - 0.1%
Anadigics, Inc.* 11,800 $ 442,500
Comdial Corp.* 115,000 790,625
CP Clare Corp.* 180,000 1,485,000
Cyberoptics Corp.* 35,000 411,250
JPM Co.* 145,000 1,776,250
14
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Electrical Equipment - continued
Micrel, Inc.* 29,800 $ 748,725
Remec, Inc.* 10,000 191,250
Zycon Corp.* 47,000 587,500
---------------
$ 6,433,100
--------------------------------------------- ------------ ---------------
Electronics - 4.2%
Aavid Thermal Technologies, Inc.* 65,000 $ 568,750
Actel Corp.* 40,000 880,000
Altera Corp.* 1,300,600 98,195,300
Analog Devices, Inc.* 735,000 23,611,875
Atmel Corp.* 399,300 13,126,987
AVX Corp. 85,800 1,919,775
Blonder Tongue Laboratories, Inc.* 52,500 525,000
Burr Brown Corp.* 398,300 10,355,800
Integrated Measurements Systems, Inc.* 23,900 424,225
Linear Technology Corp. 386,900 18,232,662
LSI Logic Corp.* 994,600 29,962,325
Maxim Integrated Products, Inc.* 155,900 7,229,863
MEMC Electronic Materials, Inc.* 25,000 668,750
Micro Linear Corp.* 198,000 1,274,625
National Semiconductor Corp.* 60,000 1,470,000
Novellus Systems, Inc.* 152,000 8,740,000
Photon Dynamics, Inc.* 32,100 204,638
Triumph Group, Inc.* 31,200 819,000
Ultrak, Inc.* 70,000 2,143,750
Xilinx, Inc.* 994,882 43,650,448
---------------
$264,003,773
--------------------------------------------- ------------ ---------------
Entertainment - 3.1%
Ambassadors International, Inc.* 20,000 $ 165,000
American Radio Systems Corp., "A"* 325,800 8,959,500
Chartwell Leisure, Inc.* 260,000 3,510,000
Clear Channel Communications, Inc.* 9,000 621,000
Cox Radio, Inc.* 157,700 2,759,750
Golden Bear Golf, Inc.* 25,400 346,075
Grand Casinos, Inc.* 1,422,921 18,142,243
Harrah's Entertainment, Inc.* 2,181,402 38,719,885
Hertiage Media Corp.* 118,800 1,648,350
Hollywood Entertainment Corp.+++* 3,436,500 69,159,562
Infinity Broadcasting Corp., "A"* 562,725 18,077,541
International Speedway Corp.* 24,000 480,000
Jacor Communications, Inc., "A"* 379,400 9,105,600
LIN Television Corp.* 412,200 16,539,525
Macromedia, Inc.* 76,000 1,377,500
Metro Networks, Inc.* 74,200 1,799,350
Players International, Inc.* 47,000 305,500
Premier Parks, Inc.* 35,700 1,137,938
Showboat, Inc. 245,000 4,563,125
15
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Entertainment - continued
Sinclair Broadcast Group, Inc.,"A"* 38,900 $ 943,325
Starsight Telecast, Inc.* 15,700 117,750
---------------
$198,478,519
--------------------------------------------- ------------ ---------------
Financial Institutions - 1.2%
Accident Consumer Finance Corp.* 35,000 $ 319,375
Advanta Corp., "B" 13,000 546,000
Amresco, Inc.* 70,000 1,505,000
Contifinancial Corp.* 52,050 2,042,962
Corporate Express, Inc.* 348,000 9,744,000
Credit Acceptance Corp.* 165,000 4,269,375
Delta Financial Corp.* 27,400 626,775
Dignity Partners, Inc.* 78,100 205,013
Emergent Group, Inc.* 149,700 1,777,687
Everen Capital Corp. 90,000 2,025,000
Finova Group, Inc. 10,900 719,400
First Investment Financial Services Group* 78,300 704,700
First Merchants Acceptance Corp.* 45,000 945,000
Franklin Resources, Inc. 335,200 23,966,800
Hambrecht & Quist Group, Inc.* 18,000 441,000
Harrington Financial Group, Inc.* 20,000 202,500
Healthcare Financial Partners, Inc.* 44,900 561,250
IMC Mortgage Co.* 60,000 1,950,000
Jayhawk Acceptance Corp.* 270,000 3,307,500
Mego Mortgage Corp.* 30,000 356,250
Metris Cos., Inc.* 31,200 733,200
National Auto Credit, Inc.* 848,100 8,693,025
RAC Financial Group, Inc.* 90,000 4,837,500
Schwab (Charles) Corp. 25,000 753,125
Southern Pacific Funding Corp.* 58,000 1,841,500
---------------
$ 73,073,937
--------------------------------------------- ------------ ---------------
Food and Beverage Products - 0.1%
Einstein Noah Bagel Corp.* 33,100 $ 988,863
Nuco2, Inc.* 5,000 67,500
Rocky Mountain Chocolate Factory* 67,100 452,925
Suiza Foods Corp.* 190,000 3,467,500
---------------
$ 4,976,788
--------------------------------------------- ------------ ---------------
Insurance - 0.2%
Amerin Corp.* 117,100 $ 2,664,025
Capmac Holdings, Inc. 53,000 1,768,875
Compdent Corp.* 159,300 4,380,750
Equitable of Iowa Cos. 18,500 827,875
---------------
$ 9,641,525
--------------------------------------------- ------------ ---------------
Machinery - 0.1%
Prime Service, Inc.* 112,600 $ 3,096,500
Rental Service Corp.* 57,500 1,480,625
---------------
$ 4,577,125
- --------------------------------------------------------------------------------
16
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Medical and Health Products - 1.1%
AmeriSource Health Corp.* 33,800 $ 1,330,875
Arterial Vascular Engineering, Inc.* 24,800 421,600
Biosource International, Inc.* 144,400 1,019,825
Boston Scientific Corp.* 260,000 15,177,500
Cohr, Inc.* 56,800 1,192,800
Digene Corp.* 24,500 248,063
Guidant Corp.* 382,600 20,229,975
Housecall Medical Resources, Inc.* 75,000 346,875
Innovasive Devices, Inc.* 29,000 224,750
Iridex Corp.* 30,000 247,500
Lanvision Systems, Inc.* 15,000 114,375
Matria Healthcare, Inc.* 578,500 3,471,000
MedCath, Inc.* 30,000 446,250
NCS Healthcare, Inc.* 36,200 995,500
Orthofix International N.V.* 473,749 4,086,085
Parexel International Corp.* 19,500 1,009,125
Physician Sales and Service, Inc.* 42,000 850,500
Seamed Corp.* 30,000 311,250
Sofamor Danek Group, Inc.* 20,000 562,500
Uromed Corp.* 48,765 444,981
Ventritex, Inc.* 148,900 3,461,925
Vitalcom, Inc.* 15,000 80,625
Waters Corp.* 423,500 11,487,437
Xomed Surgical Products, Inc.* 50,000 962,500
Zoll Medical Corp.* 107,500 1,384,062
---------------
$70,107,878
--------------------------------------------- ------------ ---------------
Medical and Health Technology and Services - 11.9%
Access Health, Inc.* 37,500 $ 1,471,875
Advanced Health Corp.* 72,600 1,034,550
AHI Healthcare Systems, Inc.* 47,700 369,675
American Homepatient, Inc.* 420,750 9,729,844
American Medical Response* 44,500 1,335,000
American Medserve Corp.* 47,600 773,500
American Oncology Resources, Inc.* 100,000 975,000
Applied Analytical Industries, Inc.* 12,300 261,375
Carematrix Corp.* 473,500 6,510,625
ClinTrials Research, Inc.* 45,000 978,750
Columbia/HCA Healthcare Corp. 708,184 28,327,360
Community Care of America, Inc.* 100,000 400,000
Coventry Corp.* 502,700 4,964,162
CRA Managed Care, Inc.* 31,900 1,451,450
Equimed, Inc.* 200,000 837,500
First Commonwealth, Inc.* 12,600 207,900
Foundation Health Corp.* 1,146,500 33,535,125
FPA Medical Management, Inc.* 360,425 6,938,181
Genesis Health Ventures, Inc.* 181,150 5,049,556
17
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Medical and Health Technology and Services - continued
HBO & Company 5,900 $ 335,563
Health Management Associates, Inc., "A"* 58,500 1,294,312
Healthdyne Information Enterprises, Inc.* 378,500 1,750,562
Healthdyne, Inc.* 190,000 1,733,750
HealthPlan Services Corp.* 58,000 1,131,000
Healthsource, Inc.+++* 5,070,210 57,039,862
HEALTHSOUTH Corp.* 945,110 35,559,764
Heartport, Inc.* 23,600 542,800
ICU Medical, Inc.* 50,000 412,500
Integrated Health Services, Inc.+++* 1,296,000 28,512,000
Integrated Living Communities, Inc.* 250,000 1,562,500
Kapson Senior Quarters Corp.* 240,000 1,740,000
Lincare Holdings, Inc.* 206,900 8,224,275
Living Centers of America* 96,600 2,451,225
Manor Care, Inc. 78,600 1,984,650
Mariner Health Group, Inc.* 1,048,900 7,866,750
Medpartners, Inc.* 35,765 813,654
Mid Atlantic Medical Services, Inc.* 2,467,600 28,994,300
Multicare Cos., Inc.* 121,350 2,396,662
National Surgery Centers, Inc.* 28,200 895,350
Occusystems, Inc.* 13,100 379,900
Option Care, Inc.* 140,000 682,500
Orthodontic Centers America, Inc.* 1,990,000 25,123,750
Owen Healthcare, Inc.* 732,200 18,762,625
Oxford Health Plans, Inc.* 491,800 28,524,400
Pacificare Health Systems, Inc., "A"* 364,900 28,827,100
Pacificare Health Systems, Inc., "B"* 672,546 55,821,318
Pediatric Services America, Inc.* 30,000 570,000
Pediatrix Medical Group* 37,400 1,444,575
Pharmaceutical Product Development, Inc.* 16,200 356,400
Phymatrix Corp.* 98,200 1,509,825
Physician Corp. America* 23,500 249,688
Physician Reliance Network, Inc.* 510,000 3,570,000
Physician Support Systems, Inc.* 38,100 657,225
Physicians Resource Group, Inc.* 300,000 6,225,000
Physio-Control International Corp.* 212,300 3,927,550
Quorum Health Group, Inc.* 66,100 1,859,062
Renal Care Group, Inc.* 29,100 923,925
Renal Treatment Centers, Inc.* 820,000 21,320,000
Renal Treatment Centers, Inc.+* 35,302 917,852
Riscorp, Inc., "A"* 117,900 515,813
Schein (Henry), Inc.* 26,850 1,094,137
Sierra Health Services, Inc.* 27,700 682,113
Sola International, Inc.* 43,000 1,510,375
St. Jude Medical, Inc.* 500,000 20,875,000
Sterling House Corp.* 22,000 187,000
Summit Medical Systems, Inc.* 26,900 225,288
18
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Medical and Health Technology and Services - continued
Sunrise Assisted Living, Inc.* 40,000 $ 970,000
Total Renal Care Holdings, Inc.* 200,000 6,850,000
Ultratech Stepper, Inc.* 104,800 2,384,200
United Dental Care, Inc.* 25,400 711,200
United Healthcare Corp. 4,939,654 213,022,579
United Payors and United Providers, Inc.* 175,000 2,100,000
Urocor, Inc.* 21,200 196,100
Vivra, Inc.* 200,000 6,150,000
WellCare Management Group, Inc.* 77,700 689,588
---------------
$750,208,995
--------------------------------------------- ------------ ---------------
Metals and Minerals - 0.1%
Titanium Metals Corp.* 110,000 $ 3,685,000
--------------------------------------------- ------------ ---------------
Pollution Control - 2.6%
Allied Waste Industries, Inc.* 208,000 $ 1,872,000
Laidlaw, Inc. 500,000 6,125,000
Philip Environmental, Inc.* 183,300 2,382,900
Republic Industries+@* 507,900 16,951,162
Republic Industries, Inc.##* 4,000,000 133,000,000
USA Waste Services, Inc.* 137,360 4,429,860
---------------
$164,760,922
--------------------------------------------- ------------ ---------------
Printing and Publishing - 0.1%
Applied Graphics Technologies* 41,200 $ 782,800
Educational Insights, Inc.* 46,500 104,625
Mail Well Holdings, Inc.* 414,000 5,847,750
---------------
$ 6,735,175
--------------------------------------------- ------------ ---------------
Railroads
Wisconsin Central Transportation Corp.* 32,700 $ 1,332,525
--------------------------------------------- ------------ ---------------
Real Estate - 0.2%
CB Commercial Real Estate Services Group* 188,000 $ 3,384,000
NHP, Inc.* 444,700 7,726,663
---------------
$ 11,110,663
--------------------------------------------- ------------ ---------------
Restaurants and Lodging - 12.6%
Amerihost Properties, Inc.+++* 522,000 $ 3,458,250
Apple South, Inc. 412,150 6,079,213
Applebee's International, Inc.+++* 3,126,500 91,059,312
Back Bay Restaurant Group, Inc.* 157,600 433,400
Bertucci's, Inc.* 369,700 1,964,031
Brinker International, Inc.* 440,000 8,140,000
Bristol Hotel Co.* 47,100 1,265,813
Buffets, Inc.+++* 2,953,050 27,500,278
Candlewood Hotel Company, Inc.* 250,000 2,531,250
Capstar Hotel Co.* 500,000 9,187,500
Cheesecake Factory* 10,000 202,500
Choice Hotels Holdings, Inc.* 78,600 1,208,475
Extended Stay America, Inc.* 804,000 16,683,000
19
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Restaurants and Lodging - continued
Hammons John Q Hotels, Inc.+++* 549,300 $ 4,394,400
HFS, Inc.+++* 6,441,610 417,094,247
IHOP Corp.+++* 612,200 14,845,850
Interstate Hotels Co.* 82,600 2,116,625
LA Quinta Inns, Inc. 114,000 2,194,500
Lone Star Steakhouse & Saloon, Inc.* 370,500 10,605,562
MGM Grand, Inc.* 640,000 24,720,000
Morton's Restaurant Group, Inc.+++* 553,200 8,298,000
Outback Steakhouse, Inc.* 120,000 3,465,000
Papa John's International, Inc.* 132,300 4,266,675
PJ America, Inc.* 14,100 264,375
Promus Hotel Corp.* 1,602,501 51,680,657
Rainforest Cafe, Inc.* 115,000 3,363,750
Red Roof Inns, Inc.* 171,400 2,699,550
Renaissance Hotel Group* 1,402,800 23,496,900
Roadhouse Grill, Inc.* 150,000 900,000
Schlotzskys, Inc.* 33,700 370,700
ShoLodge, Inc.* 375,600 5,070,600
Showbiz Pizza Time, Inc.+++* 1,030,000 16,866,250
Signature Resorts, Inc.* 100,000 3,425,000
Sonic Corp.* 464,450 10,624,294
Studio Plus Hotels, Inc.* 31,050 543,375
Suburban Lodges America, Inc.* 20,000 345,000
Sun International Hotels Ltd.* 121,800 6,044,325
Taco Cabana, Inc.+++* 962,395 6,375,867
United States Franchise Services, Inc.* 37,600 394,800
Wyndham Hotel Corp.* 40,550 795,794
---------------
$794,975,118
--------------------------------------------- ------------ ---------------
Retail - 0.3%
American Pad & Paper Co.* 940,000 $ 18,565,000
Oakley, Inc.* 30,000 416,250
---------------
$ 18,981,250
--------------------------------------------- ------------ ---------------
Special Products and Services - 0.7%
Central Parking Corp. 66,600 $ 2,231,100
Childrens Discovery Centers America* 220,000 1,237,500
Columbus Mckinnon Corp.* 155,000 2,421,875
Consolidated Cigar Holdings, Inc.* 10,000 243,750
Cooper & Chyan Technology, Inc.* 69,400 2,290,200
Firearms Training Systems, Inc.* 65,800 908,863
FY I, Inc.* 193,300 4,155,950
Gargoyles, Inc.* 38,100 371,475
ITT Educational Services, Inc.* 247,500 4,795,312
Staffmark, Inc.* 125,000 1,578,125
Stewart Enterprises, Inc.* 401,100 13,537,125
Strayer Education, Inc.* 145,000 3,262,500
Wackenhut Corp. 200,000 2,800,000
20
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Special Products and Services - continued
West Marine, Inc.* 10,000 $ 335,000
Wilmar Industries, Inc.* 66,600 1,515,150
---------------
$ 41,683,925
--------------------------------------------- ------------ ---------------
Steel - 0.1%
Citation Corp.* 640,000 $ 6,440,000
--------------------------------------------- ------------ ---------------
Stores - 8.2%
Abercrombie And Fitch Co.* 34,100 $ 626,588
Alrenco, Inc.* 200,000 2,075,000
AutoZone, Inc.* 21,487 529,117
Bed Bath & Beyond, Inc.* 240,000 6,285,000
Boise Cascade Office Products Corp.* 341,400 6,358,575
Borders Group, Inc.* 200,000 7,300,000
BT Office Products International, Inc.* 771,800 7,139,150
CompUSA, Inc.* 220,000 9,900,000
Consolidated Stores Corp.* 802,000 29,674,000
Creative Computers, Inc.* 76,000 798,000
Dollar Tree Stores, Inc.* 175,000 6,693,750
Doubletree Corp.* 329,600 13,843,200
Duty Free International, Inc. 687,800 10,832,850
Friedman's, Inc.* 125,000 1,718,750
Garden Botanika, Inc.* 13,400 120,600
General Nutrition Cos., Inc.* 1,964,108 33,880,863
Global Directmail Corp.* 313,300 14,098,500
Globe Business Resources, Inc.* 70,000 577,500
Grow Biz International, Inc.* 60,000 525,000
Gymboree Corp.* 630,550 17,813,037
Hello Direct, Inc.* 42,000 183,750
Home Depot, Inc. 125,000 6,515,625
Linens N Things, Inc.* 227,600 3,556,250
Mazel Stores, Inc.* 27,700 547,075
Micro Warehouse, Inc.+++* 2,565,200 63,488,700
Mothers Work, Inc.+++* 211,500 2,220,750
Movie Gallery, Inc.* 378,100 5,293,400
MSC Industrial Direct, Inc.* 150,800 5,636,150
Office Depot, Inc.* 6,862,200 133,812,900
Officemax, Inc.* 1,108,650 16,075,425
Pacific Sunwear of California* 43,083 1,163,241
Party City Corp.* 30,900 463,983
PETsMART, Inc.* 134,974 3,441,837
Renters Choice, Inc.* 321,000 5,858,250
Saks Holdings, Inc.* 60,500 1,966,250
Shoe Carnival, Inc.* 487,000 2,556,750
Sports Club, Inc.* 196,000 490,000
Staples, Inc.* 2,256,000 44,556,000
Sunglass Hut International, Inc.* 500,000 3,687,500
Thrifty Payless Holdings, Inc., "B"* 910,000 23,318,750
21
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Stores - continued
Travis Boats and Motors, Inc.* 90,000 $ 1,136,250
US Office Products Co.* 453,200 14,049,200
Welcome Home, Inc.* 88,900 66,675
West Coast Entertainment Corp.+++* 605,000 6,050,000
Wild Oats Markets, Inc.* 14,800 284,900
---------------
$517,209,091
--------------------------------------------- ------------ ---------------
Technology
Spectrum Holobyte, Inc.* 65,600 $ 328,000
--------------------------------------------- ------------ ---------------
Telecommunications - 10.9%
ACC Corp. 90,000 $ 2,688,750
Advanced Fibre Communications* 22,200 1,085,025
APAC Teleservices, Inc.* 391,400 18,493,650
Ascend Communications, Inc.* 406,400 28,905,200
Bay Networks, Inc.* 1,076,128 28,786,424
Brooks Fiber Properties, Inc.* 66,500 2,086,437
Cable Design Technologies Corp.* 636,800 18,626,400
Cabletron Systems, Inc.* 3,069,000 123,910,875
Call-Net Enterprises, Inc.##* 80,000 936,782
Celeritek, Inc.* 20,000 315,000
Cisco Systems, Inc.* 3,244,650 220,230,619
DSP Communications , Inc.* 120,000 4,665,000
Equalnet Holding Corp.+++* 520,400 1,138,375
Excel Communication, Inc.* 104,700 2,617,500
Glenayre Technologies, Inc.* 2,349,600 56,096,700
International Telecommunication
Data Systems, Inc.* 30,100 714,875
LCC International, Inc.* 33,400 534,400
Lightbridge, Inc.* 39,300 363,525
McLeod, Inc., "A"* 81,200 2,314,200
Metro One Telecommunications, Inc.* 34,500 284,625
Omnipoint Corp.* 40,400 1,060,500
Orckit Communications Ltd.* 23,300 262,125
Pagemart Wireless, Inc.* 69,300 511,088
Paging Network, Inc.* 44,000 715,000
Premiere Technologies , Inc.* 35,200 818,400
Premisys Communications, Inc.* 29,800 1,538,425
RMH Teleservices , Inc.* 208,000 1,768,000
Shiva Corp.* 59,400 2,450,250
Sitel Corp.* 276,400 5,458,900
Snyder Communications, Inc.* 63,300 1,542,938
Sterling Commerce, Inc.* 59,826 1,884,519
Tel-Save Holdings, Inc.+++* 1,827,350 39,744,862
Telespectrum Worldwide, Inc.* 560,000 9,940,000
Teletech Holdings, Inc.* 194,500 6,126,750
Tellabs, Inc.* 100,000 3,975,000
Transaction Network Services, Inc.* 255,700 3,196,250
Trescom International, Inc.* 46,100 478,288
22
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
U.S. Stocks - continued
Telecommunications - continued
Univision Communications, Inc.* 35,700 $ 1,419,075
West Teleservices Corp.* 60,950 1,516,131
Westell Technologies, Inc.* 67,800 1,686,525
WorldCom, Inc.* 3,587,370 82,957,931
Xlconnect Solutions, Inc.* 10,200 288,150
Xpedite Systems, Inc.* 35,000 647,500
Xylan Corp.* 21,100 780,700
---------------
$ 685,561,669
--------------------------------------------- ------------ ---------------
Transportation - 0.1%
Coach USA, Inc.* 46,300 $ 1,169,075
Hub Group, Inc.* 50,000 1,256,250
Team Rental Group, Inc.* 40,000 650,000
U. S. Xpress Enterprises, Inc.* 34,200 299,250
---------------
$ 3,374,575
--------------------------------------------- ------------ ---------------
Utilities - Telephone - 0.7%
MCI Communications Corp. 200,000 $ 6,100,000
MFS Communications Co., Inc.* 357,244 17,237,023
Telco Communications Group* 516,200 8,420,513
Teleport Communications Group, Inc.* 468,300 15,512,437
---------------
$ 47,269,973
--------------------------------------------- ------------ ---------------
Total U.S. Stocks (Identified Cost, $3,961,585,474) $5,848,836,457
--------------------------------------------- ------------ ---------------
Foreign Stocks - 4.6%
Australia - 0.2%
Sydney Harbor Casino Holdings Ltd., Preferred
(Entertainment) 7,500,000 $ 11,310,898
--------------------------------------------- ------------ ---------------
Belgium
Xeikon, N.V., ADR (Printing and
Publishing)## 43,000 $ 408,500
--------------------------------------------- ------------ ---------------
Canada - 0.9%
Loewen Group, Inc. (Business Services) 585,800 $ 23,651,675
Loewen Group, Inc. (Business Services)## 857,200 34,464,611
---------------
$ 58,116,286
--------------------------------------------- ------------ ---------------
France - 0.1%
Dassault Systems S.A., ADR (Computer
Software - Systems) 49,100 $ 2,350,663
--------------------------------------------- ------------ ---------------
Germany - 1.1%
Sap AG, Preferred (Computer
Software - Systems) 406,625 $ 55,891,109
Sap Aktiengesellschsft, ADR
(Computer Software - Systems) 312,200 14,166,075
---------------
$ 70,057,184
--------------------------------------------- ------------ ---------------
Ireland - 0.1%
Cbt Group Public Limited (Publishing) 124,000 $ 7,130,000
--------------------------------------------- ------------ ---------------
Italy - 0.8%
Gucci Group NV (Apparel and Textiles) 652,600 $ 47,884,525
- --------------------------------------------------------------------------------
23
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
Foreign Stocks - continued
Mexico
Banca Quadrum S.A. (Banks and Credit
Companies) 90,000 $ 382,500
--------------------------------------------- ------------ ---------------
Netherlands
Baan Company N.V. (Computer
Software - Systems) 58,400 $ 2,080,500
--------------------------------------------- ------------ ---------------
New Zealand - 0.2%
Sky City Ltd. (Entertainment) 1,668,900 $ 9,517,773
--------------------------------------------- ------------ ---------------
Turkey
Turkiye Garanti Bankasi, ADR (Banks and
Credit Companies)## 72,000 $ 334,800
--------------------------------------------- ------------ ---------------
United Kingdom - 1.2%
Danka Business Systems, ADR
(Business Services) 1,710,000 $ 71,820,000
Dr Solomons Group PLC (Computer
Software - Personal Computers) 100,000 1,725,000
Insignia Solutions PLC (Computer
Software - Personal Computers) 457,700 2,231,288
Pace Micro Technology (Electronics) 328,200 1,307,539
Jarvis Hotels PLC (Restaurants and Lodging)+ 98,300 279,259
---------------
$ 77,363,086
--------------------------------------------- ------------ ---------------
Total Foreign Stocks (Identified Cost, $227,684,420) $ 286,936,715
--------------------------------------------- ------------ ---------------
Total Common Stocks (Identified Cost, $4,189,269,894) $6,135,773,172
- ------------------------------------------------ ------------ ---------------
Convertible Preferred Stocks - 0.1%
- -----------------------------------------------------------------------------
American Radio Systems Corp., 7s##
(Identified Cost, $4,555,000) 91,100 $ 4,190,600
- ------------------------------------------------ ------------ ---------------
Warrants - 0.3%
- -----------------------------------------------------------------------------
Intel Corp. (Electronics)
(Identified Cost, $11,537,522) 203,000 $ 17,813,250
- ------------------------------------------------ ------------ ---------------
Convertible Bonds - 0.1%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
---------------------------------------------------------- ---------------
Midcom Communications Inc., 8.25s, 2003## $ 4,600 $ 4,726,500
Sholodge, Inc., 7.5s, 2004 2,000 1,800,000
Ventritex, Inc., 5.75s, 2001 1,810 2,739,887
--------------------------------------------- ------------ ---------------
Total Convertible Bonds (Identified Cost, $8,410,000) $ 9,266,387
--------------------------------------------- ------------ ---------------
Limited Partnership Units - 0.1% Units
Copley Partners 1@+ 3,000,000 $ 808,110
Copley Partners 2@+ 3,000,000 1,106,460
Highland Capital Partners@+ 7,500,000 5,015,700
- ------------------------------------------------ ------------ ---------------
Total Limited Partnership Units (Identified Cost, $4,585,249) $ 6,930,270
- -----------------------------------------------------------------------------
24
<PAGE>
Portfolio of Investments - continued
Short-Term Obligations - 1.1%
-----------------------------------------------------------------------------
Issuer Shares Value
----------------------------------------------- ------------ ---------------
Federal Home Loan Mortgage, due 12/11/96 $ 840 $ 838,790
Federal Home Loan Mortgage Corp., due 12/02/96 67,300 67,289,344
Federal National Mortgage Assn., due 12/06/96 2,900 2,897,894
Student Loan Marketing Assn., due 12/18/96 1,185 1,182,098
--------------------------------------------- ------------ ---------------
Total Short-Term Obligations, at Amortized Cost and Value $ 72,208,126
--------------------------------------------- ------------ ---------------
Total Investments (Identified Cost, $4,290,565,791) $6,246,181,805
Other Assets, Less Liabilities - 0.9% 54,973,751
- -----------------------------------------------------------------------------
Net Assets - 100.0% $6,301,155,556
- ------------------------------------------------ ------------ ---------------
*Non-income producing security.
##SEC Rule 144A Restriction.
@Security valued by or at the direction of the Trustees.
+Restricted security.
+++Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting shares of the issuer.
See notes to financial statements
25
<PAGE>
Financial Statements
Statement of Assets and Liabilities
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, 1996
- -------------------------------------------------------------------- --------------
<S> <C>
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $3,784,568,546) $5,183,811,695
Affiliated issuer (identified cost, $505,997,245) 1,062,370,110
--------------
Total investments, at value (identified cost, $4,290,565,791) $6,246,181,805
Cash 938,636
Receivable for investments sold 59,947,253
Receivable for Fund shares sold 30,842,383
Interest and dividends receivable 460,152
Other assets 67,620
--------------
Total assets $6,338,437,849
--------------
Liabilities:
Payable for investments purchased $ 27,315,881
Payable for Fund shares reacquired 5,587,855
Payable to affiliates -
Management fee 375,529
Shareholder servicing agent fee 78,241
Distribution fee 2,962,102
Accrued expenses and other liabilities 962,685
--------------
Total liabilities $ 37,282,293
--------------
Net assets $6,301,155,556
--------------
Net assets consist of:
Paid-in capital $4,299,522,703
Unrealized appreciation on investments 1,955,615,519
Accumulated undistributed net realized gain on investments and
foreign currency transactions 46,092,532
Accumulated net investment loss (75,198)
--------------
Total $6,301,155,556
--------------
Shares of beneficial interest outstanding 198,843,744
-----------
Class A shares:
Net asset value per share
(net assets of $2,523,794,588 / 78,833,157 shares of beneficial
interest outstanding) $32.01
------
Offering price per share (100/94.25) $33.96
------
Class B shares:
Net asset value and offering price per share
(net assets $3,658,388,298 / 116,231,548 shares of beneficial
interest outstanding) $31.48
------
Class C shares:
Net asset value and offering price per share
(net assets of $118,972,670 / 3,779,039 shares of beneficial
interest outstanding) $31.48
------
</TABLE>
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
Class B, and Class C shares.
See notes to financial statements
26
<PAGE>
Financial Statements - continued
Statement of Operations
-----------------------------------------------------------------------------
Year Ended November 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 5,451,041
Dividends (including $353,567 received from affiliated
issuers) 3,383,356
--------------
Total investment income $ 8,834,397
--------------
Expenses -
Management fee $ 34,371,549
Trustees' compensation 47,890
Shareholder servicing agent fee (Class A) 2,169,376
Shareholder servicing agent fee (Class B) 4,333,722
Shareholder servicing agent fee (Class C) 57,997
Distribution and service fee (Class A) 4,758,763
Distribution and service fee (Class B) 27,867,887
Distribution and service fee (Class C) 386,649
Custodian fee 1,115,624
Postage 675,417
Printing 315,399
Auditing fees 35,928
Legal fees 13,801
Miscellaneous 2,695,745
--------------
Total expenses $ 78,845,747
Fees paid indirectly (221,330)
--------------
Net expenses $ 78,624,417
--------------
Net investment loss $(69,790,020)
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions (including $1,546,735 net gain from
transactions with affiliated issuers) $116,119,140
Foreign currency transactions 5,021
--------------
Net realized gain on investments $116,124,161
--------------
Change in unrealized appreciation (depreciation) -
Investments $775,004,400
Translation of assets and liabilities in foreign currencies (495)
--------------
Net unrealized gain on investments $775,003,905
--------------
Net realized and unrealized gain on investments and
foreign currency $891,128,066
--------------
Increase in net assets from operations $821,338,046
--------------
See notes to financial statements
27
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30, 1996 1995
- ----------------------------------------------- ---------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (69,790,020) $ (32,364,501)
Net realized gain on investments and foreign
currency transactions 116,124,161 9,896,203
Net unrealized gain on investments and
foreign currency 775,003,905 847,013,830
---------------- ---------------
Increase in net assets from operations $ 821,338,046 $ 824,545,532
---------------- ---------------
Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions (Class A) $ -- $ (9,533,382)
From net realized gain on investments and
foreign currency transactions (Class B) -- (10,006,703)
Tax return of capital -- (544,859)
---------------- ---------------
Total distributions declared to
shareholders $ -- $ (20,084,944)
---------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 6,317,337,270 $ 3,022,835,060
Net asset value of shares issued to
shareholders in reinvestment of
distributions -- 17,796,191
Cost of shares reacquired (4,150,039,758) (1,771,034,994)
---------------- ---------------
Increase in net assets from Fund share
transactions $ 2,167,297,512 $ 1,269,596,257
---------------- ---------------
Total increase in net assets $ 2,988,635,558 $ 2,074,056,845
Net assets:
At beginning of period 3,312,519,998 1,238,463,153
---------------- ---------------
At end of period (including accumulated net
investment loss of $75,198 and $62,577,
respectively) $ 6,301,155,556 $ 3,312,519,998
---------------- ---------------
</TABLE>
See notes to financial statements
28
<PAGE>
Financial Highlights
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30, 1996 1995 1994 1993**
- ---------------------------------------------------- --------- --------- --------------------
Class A
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 26.79 $ 18.73 $ 17.68 $ 16.43
-------- -------- -------- --------
Income from investment operations# -
Net investment loss $ (0.29) $ (0.23) $ (0.20) $ (0.03)
Net realized and unrealized gain on investments 5.51 8.68 1.78 1.28
-------- -------- -------- --------
Total from investment operations $ 5.22 $ 8.45 $ 1.58 $ 1.25
-------- -------- -------- --------
Less distributions declared to shareholders -
From net realized gain on investments $ -- $ (0.38) $ (0.53) $ --
In excess of net realized gain on investments -- -- *** -- --
Tax return of capital -- (0.01) -- --
-------- -------- -------- --------
Total distributions declared to shareholders $ -- $ (0.39) $ (0.53) $ --
-------- -------- -------- --------
Net asset value - end of period $ 32.01 $ 26.79 $ 18.73 $ 17.68
-------- -------- -------- --------
Total return++ 19.52% 45.98% 9.06% 38.98%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.20% 1.28% 1.33% 1.19%+
Net investment loss (1.01)% (1.04)% (1.09)% (0.98)%+
Portfolio turnover 22% 20% 39% 58%
Average commission rate### $ 0.0498 -- -- --
Net assets at end of period (000,000 omitted) $ 2,524 $ 1,312 $ 470 $ 371
</TABLE>
+ Annualized.
** For the period from the date of issue of Class A shares, September 13, 1993
to November 30, 1993.
*** The per share distribution in excess of net realized gain on investments
was $0.0049.
# Per share data for the periods subsequent to December 1, 1993 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
++ Total returns for Class A shares do not include the applicable sales charge.
If the charge had been included, the results would have been lower.
See notes to financial statements
29
<PAGE>
Financial Statements - continued
Financial Highlights - continued
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30, 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 26.56 $ 18.57 $ 17.64 $ 14.93 $ 12.07 $ 6.89
--------- --------- --------- --------- --------- ----------
Income from investment
operations# -
Net investment loss $ (0.52) $ (0.41) $ (0.35) $ (0.33) $ (0.07) $ (0.13)
Net realized and
unrealized gain on
investments 5.44 8.65 1.78 3.19 3.52 5.31
--------- --------- --------- --------- --------- ----------
Total from investment
operations $ 4.92 $ 8.24 $ 1.43 $ 2.86 $ 3.45 $ 5.18
--------- --------- --------- --------- --------- ----------
Less distributions declared
to shareholders -
From net realized gain on
investments $ -- $ (0.24) $ (0.50) $ (0.15) $ (0.59) $ --
In excess of net realized
gain on investments -- -- *** -- -- -- --
Tax return of capital -- (0.01) -- -- -- --
--------- --------- --------- --------- --------- ----------
Total distributions
declared to
shareholders $ -- $ (0.25) $ (0.50) $ (0.15) $ (0.59) $ --
--------- --------- --------- --------- --------- ----------
Net asset value - end of
period $ 31.48 $ 26.56 $ 18.57 $ 17.64 $ 14.93 $ 12.07
--------- --------- --------- --------- --------- ----------
Total return 18.52% 44.89% 8.21% 19.36% 29.25% 75.18%
Ratios (to average net assets)/Supplemental data:
Expenses## 2.00% 2.08% 2.14% 2.19% 2.33% 2.50%
Net investment loss (1.80)% (1.83)% (1.90)% (1.61)% (2.00)% (1.98)%
Portfolio turnover 22% 20% 39% 58% 59% 112%
Average commission rate### $ 0.0498 -- -- -- -- --
Net assets at end of period
(000,000 omitted) $ 3,659 $ 2,001 $ 769 $ 602 $ 357 $ 145
</TABLE>
*** The per share distribution in excess of net realized gain on investments
was $0.0031.
# Per share data for the periods subsequent to December 1, 1993 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
See notes to financial statements
30
<PAGE>
Financial Statements - continued
Financial Highlights - continued
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30, 1990 1989 1988 1987*
- ---------------------------------------------------- ----------- --------- --------- ------------
Class B
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 7.69 $ 5.91 $ 4.97 $ 5.50
----------- --------- --------- ------------
Income from investment operations -
Net investment loss $ (0.14) $ (0.13) $ (0.11) $ (0.06)
Net realized and unrealized gain (loss) on
investments (0.66) 1.91 1.05 (0.47)
----------- --------- --------- ------------
Total from investment operations $ (0.80) $ 1.78 $ 0.94 $ (0.53)
----------- --------- --------- ------------
Net asset value - end of period $ 6.89 $ 7.69 $ 5.91 $ 4.97
----------- --------- --------- ------------
Total return (10.40)% 30.12% 18.91% (10.44)%+
Ratios (to average net assets)/Supplemental data:
Expenses 2.75% 2.81% 2.30% 2.40%+
Net investment loss (1.86)% (1.91)% (1.65)% (1.50)%+
Portfolio turnover 86% 95% 57% 81%
Net assets at end of period (000,000 omitted) $ 73 $ 82 $ 61 $ 50
</TABLE>
* For the period from the commencement of investment operations, December
29, 1986 to November 30, 1987.
+ Annualized.
See notes to financial statements
31
<PAGE>
Financial Statements - continued
Financial Highlights - continued
-----------------------------------------------------------------------------
Year Ended November 30, 1996
- ----------------------------------------------------------------
Class C**
- ----------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 28.37
-----------
Income from investment operations# -
Net investment loss $ (0.38)
Net realized and unrealized gain on investments 3.49
-----------
Total from investment operations $ 3.11
-----------
Net asset value - end of period $ 31.48
-----------
Total return 10.96%+++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.35%+
Net investment loss (1.25)%+
Portfolio turnover 22%
Average commission rate### $ 0.0498
Net assets at end of period (000,000 omitted) $ 119
** For the period from the date of issue of Class C shares, April 1, 1996 to
November 30, 1996.
## For fiscal years ending after September 1, 1995, Fund's expenses are
calculated without reduction for fees paid indirectly.
+ Annualized.
+++ Not annualized.
# Per share distributions for the periods subsequent to December 1, 1993
are based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years
beginning on or after September 1, 1995.
See notes to financial statements
32
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Emerging Growth Fund (the Fund) is a diversified series of MFS Series
Trust II (the Trust). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days or less), including
listed issues, are valued on the basis of valuations furnished by dealers or
by a pricing service with consideration to factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data,
without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which there
are no such quotations or valuations are valued at fair value as determined
in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax
33
<PAGE>
Notes to Financial Statements - continued
reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividends received in additional securities are recorded on the ex-dividend
date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on
Form 1099-DIV. Foreign taxes have been provided for on interest and dividend
income earned on foreign investments in accordance with the applicable
country's tax rates and to the extent unrecoverable are recorded as a
reduction of investment income. Distributions to shareholders are recorded on
the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended November 30, 1996, $69,777,399 was
reclassified from accumulated net realized gain on investments and foreign
currency transactions to accumulated net investment loss due to differences
between book and tax accounting for currency transactions and the offset of
short-term capital gains against accumulated net investment loss. This change
had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. All shareholders
bear the
34
<PAGE>
Notes to Financial Statements - continued
common expenses of the Fund pro rata based on average daily net assets of
each class, without distinction between share classes. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.73%
of average daily net assets.
The Fund pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $17,415 for the year ended November 30, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$2,019,102 for the year ended November 30, 1996, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted separate distribution plans for Class A and Class B
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service
fee to each securities dealer who enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer, a
distribution fee to MFD of up to 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares, commissions to dealers and
payments to MFD wholesalers for sales at or above a certain dollar level, and
other such distribution-related expenses that are approved by the Fund. MFD
retains the service fee for accounts not attributable to a securities dealer
which amounted to $485,527 for the year ended November 30, 1996. Payment of
the 0.10% per annum Class A distribution fee will commence on such date as
the Trustees may determine. Fees incurred under the distribution plan during
the year ended November 30, 1996 were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis.
35
<PAGE>
Notes to Financial Statements - continued
The Class B and Class C distribution plan provides that the Fund will pay MFD
a distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers who enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class
B and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $465,341
and $228 for Class B and Class C shares for the year ended November 30, 1996.
Fees incurred under the distribution plans during the year ended November 30,
1996 were 1.00% of average daily net assets attributable to Class B and Class
C shares on an annualized basis.
Purchases over $1 million of Class A shares and certain purchases into
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class C shares in the event of a shareholder redemption within
twelve months of purchases made on or after April 1, 1996. MFD receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended November 30, 1996 were $96,069, $3,455,966, and $25,307
for Class A, Class B and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15% and up to 0.22% and up to 0.15%
attributable to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations aggregated
$3,045,816,546 and $1,009,831,710, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $4,291,516,852
---------------
Gross unrealized appreciation $2,194,361,178
Gross unrealized depreciation (239,696,225)
---------------
Net unrealized appreciation $1,954,664,953
---------------
36
<PAGE>
Notes to Financial Statements - continued
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
Year Ended November 30, 1996 Year Ended November 30, 1995
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------------ --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 125,633,192 $ 3,667,675,756 67,800,740 $ 1,533,247,118
Shares issued to
shareholders in
reinvestment
of distributions -- -- 488,159 9,182,865
Shares reacquired (95,760,044) (2,803,650,694) (44,418,694) (1,017,261,903)
--------------- ---------------- --------------- ----------------
Net increase 29,873,148 $ 864,025,062 23,870,205 $ 525,168,080
--------------- ---------------- --------------- ----------------
Class B Shares
Year Ended November 30, 1996 Year Ended November 30, 1995
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------------ --------------- ---------------- --------------- ----------------
Shares sold 86,922,156 $ 2,514,573,078 67,040,946 $ 1,489,587,942
Shares issued to
shareholders in
reinvestment
of distributions -- -- 458,635 8,613,326
Shares reacquired (46,040,180) (1,324,527,599) (33,540,206) (753,773,091)
--------------- ---------------- --------------- ----------------
Net decrease 40,881,976 $ 1,190,045,479 33,959,375 $ 744,428,177
--------------- ---------------- --------------- ----------------
Class C Shares
Year Ended November 30, 1996*
--------------------------------
Shares Amount
------------------ --------------- ----------------
Shares sold 4,515,421 $ 135,088,436
Shares issued to
shareholders in
reinvestment
of distributions -- --
Shares reacquired (736,382) (21,861,465)
--------------- ----------------
Net decrease 3,779,039 $ 113,226,971
--------------- ----------------
</TABLE>
*For the period from the commencement of offering of Class C shares,
April 1, 1996 to May 31, 1996.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate.
In addition, a commitment fee, based on the average daily unused portion of
the line of credit, is allocated among the participating funds at the end of
each quarter. The commitment fee allocated to the Fund for the year ended
November 30, 1996 was $53,279.
37
<PAGE>
Notes to Financial Statements - continued
(7) Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the year ended
November 30, 1996 is set forth below.
<TABLE>
<CAPTION>
Acquisitions Dispositions
---------------------------- ------------------------------
Beginning
Share/Par Shares/Par Shares/Par
Affiliate Amount Amount Cost Amount Cost
- ----------------------------------- ------------ ------------ --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Amerihost Properties 451,000 71,000 $ 468,375 0 $ 0
Applebees International Inc. 1,960,800 1,218,700 26,294,790 (53,000) (1,472,196)
Buffets Inc. 1,568,000 1,385,050 18,168,411 0 0
Cadence Design Systems 2,513,250 1,754,275 15,619,605
Equalnet Holding Corporation 447,000 113,400 969,300 (40,000) (81,250)
John Q. Hammons Hotels, Inc. 544,300 5,000 40,925 0 0
Health Source, Inc. 382,305 4,687,905 74,762,700
HFS, Inc. 3,220,805 3,220,805
Hollywood Entertainment Corp. 1,050,000 2,386,500 20,349,293
IHOP Corp. 612,200 0 0
Integrated Health Services, Inc. 1,404,927 11,073 233,063 (120,000) (3,134,524)
Micro Warehouse Inc. 1,730,600 856,200 24,357,978 (21,600) 807,622
Mortons Restaurant 553,200 0 0
Mothers Work Inc. 211,500 0 0 0 0
Showbiz Pizza Time Inc. 755,000 375,000 0 (100,000) (1,866,875)
System Software Associates, Inc. 2,045,100 456,850 7,271,405 (1,035,100) (15,794,637)
Taco Cabana, Inc. 962,395 0 0 0 0
Tel-Save Holdings, Inc. 704,900 1,127,450 11,990,043 (5,000) (105,000)
West Coast Entertainment Corp. 0 605,000 7,870,050 0 0
--------------- ---------------
$208,395,938 $(21,646,860)
--------------- ---------------
</TABLE>
38
<PAGE>
Notes to Financial Statements - continued
<TABLE>
<CAPTION>
Ending Realized
Share/Par Gain Dividend Ending
Affiliate Amount (Loss) Income Value
- ----------------------------------- ------------ -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Amerihost Properties 522,000 $ $ $ 3,458,250
Applebees International Inc. 3,126,500 81,545 118,968 91,059,313
Buffets Inc. 2,953,050 27,500,278
Cadence Design Systems 4,267,525 170,167,559
Equalnet Holding Corporation 520,400 (521,432) 1,138,375
John Q. Hammons Hotels, Inc. 549,300 4,394,400
Health Source, Inc. 5,070,210 57,039,863
HFS, Inc. 6,441,610 417,094,248
Hollywood Entertainment Corp. 3,436,500 (263,175) 69,159,563
IHOP Corp. 612,200 14,845,850
Integrated Health Services, Inc. 1,296,000 (1,250,239) 28,099 28,512,000
Micro Warehouse Inc. 2,565,200 1,360,521 63,488,700
Mortons Restaurant 553,200 8,298,000
Mothers Work Inc. 211,500 2,220,750
Showbiz Pizza Time Inc. 1,030,000 (140,416) 16,866,250
System Software Associates, Inc. 2,519,350 2,228,787 206,500 34,955,981
Taco Cabana, Inc. 962,395 6,375,867
Tel-Save Holdings, Inc. 1,827,350 51,144 39,744,863
West Coast Entertainment Corp. 605,000 6,050,000
-------------- ----------- --------------
$ 1,546,735 $353,567 $1,062,370,110
-------------- ----------- --------------
</TABLE>
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At November 30,
1996 the Fund owned the following restricted securities (constituting 0.40%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Share
Description Date of Acquisition Amount Cost Value
------------------------------- -------------------------------- ------------- -----------
<S> <C> <C> <C> <C>
Jarvis Hotels 6/21/96 98,300 $ 264,282 $ 279,259
Copley Partners 1 12/6/86 3,000,000 1,437,794 808,110
Copley Partners 2 12/2/86-8/9/91 3,000,000 2,451,234 1,106,460
Highland Capital Partners 6/28/88-6/28/93 7,500,000 4,636,048 5,015,700
Republic Industries, Inc. 5/15/96 507,900 10,284,975 16,951,163
Renal Treatment Centers, Inc. 6/28/95 35,302 450,100 917,852
-----------
$25,078,544
-----------
</TABLE>
39
<PAGE>
Independent Auditors' Report
To the Trustees of MFS Series Trust II and Shareholders of
MFS Emerging Growth Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Emerging Growth Fund (one of
the Series constituting MFS Series Trust II) as of November 30, 1996, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years November 30, 1996 and 1995, and the
financial highlights for each of the years in the ten-year period ended
November 30, 1996. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at November 30, 1996 by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Emerging
Growth Fund at November 30, 1996, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 3, 1997
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
40
<PAGE>
MFS(R) Emerging Growth Fund
Trustees
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991),
Massachusetts Financial Services Company;
Director, Cambridge Bancorp; Director,
Cambridge Trust Company
Marshall N. Cohan - Private Investor
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.;
Chairman, Bank of N.T. Butterfield & Son Ltd.
Abby M. O'Neill - Private Investor;
Director, Rockefeller Financial Services, Inc.
(investment advisers)
Walter E. Robb, III - President and Treasurer,
Benchmark Advisors, Inc. (corporate financial
consultants); President, Benchmark Consulting
Group, Inc. (office services); Trustee, Landmark
Funds (mutual funds)
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary, Massachusetts
Financial Services Company
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company
J. Dale Sherratt - President, Insight Resources,
Inc. (acquisition planning specialists)
Ward Smith - Former Chairman (until 1994),
NACCO Industries; Director, Sundstrand
Corporation
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
Portfolio Manager
John W. Ballen*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
*Affiliated with the Investment Adviser
Assistant Secretary
James R. Bordewick, Jr.*
Custodian
State Street Bank and Trust Company
Auditors
Deloitte & Touche LLP
Investor Information
For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
a touch-tone telephone.
For information on MFS mutual funds,
call your financial adviser or, for an
information kit, call toll free:
1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free:
1-800-225-2606 any business day from
8 a.m to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from
9 a.m. to 5 p.m. Eastern time. (To use this
service, your phone must be equipped with a
Telecommunications Device for the Deaf.)
For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
telephone.
World Wide Web
www.mfs.com
[DALBAR LOGO]
For the third year in a row,
MFS earned a #1
ranking in the
DALBAR, Inc.
Broker/Dealer
Survey, Main Office
Operations Service
Quality Category. The
firm achieved a 3.48 overall score on a scale of 1
to 4 in the 1996 survey. A total of 110 firms
responded, offering input on the quality of service
they received from 29 mutual fund companies
nationwide. The survey contained questions
about service quality in 15 categories, including
"knowledge of phone service contacts," "accuracy
of transaction processing," and "overall ease of
doing business with the firm."
41
<PAGE>
MFS(R) Emerging
Growth Fund
500 Boylston Street
Boston, MA 02116
[DALBAR LOGO]
[MFS LOGO]
[10TH ANNIVERSARY LOGO]
Bulk Rate
U.S. Postage
P A I D
Permit #55638
Boston, MA
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116
MEG-2 1/97/585M 7/207/307
<PAGE> 63
PART C
ITEM 15. INDEMNIFICATION
The information set forth in Item 27 of Form N-1A filed as
Post-Effective Amendment No. 19 under the Securities Act of 1933 (File No.
33-7637 and Amendment No. 21 to the Registration Statement under the Investment
Company Act of 1940 (File No. 811-4775), as filed with the Commission via EDGAR
on August 27, 1996, is incorporated herewith by reference.
Insofar as indemnification for liabilities arising out of the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense in any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
New USA Mutual Funds, on behalf of the New USA Growth Fund, and ODS
have agreed, jointly and severally, to indemnify and hold harmless the MFS
Trust, its trustees and officers, each person who controls the MFS Fund within
the meaning of applicable federal securities laws, and MFS, its wholly-owned
subsidiaries and the directors, officers and employees of MFS and such
subsidiaries (collectively, the "MFS Indemnified Parties"), against any loss,
claim damage and expense, paid or incurred, arising out of (i) any untrue
statement or alleged untrue statement of material fact contained in the Notice
of Special Meeting or this Proxy Statement and Prospectus or in the
registration statement of the MFS Trust containing this Proxy Statement and
Prospectus filed with the Commission with respect thereto, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to untrue statements or omissions in or from those sections thereof related to
the New USA Growth Fund or New USA Mutual Funds; (ii) any breach of any
representation warranty or covenant of New USA Mutual Funds or the New USA
Growth Fund set forth in the Agreement or set forth in any certificate provided
by New USA Mutual Funds in support of the legal opinion required pursuant to
Section 7.4 of the Agreement); (iii) the failure of the New USA Growth Fund or
its designee to timely file all federal, state and other tax returns, forms and
reports when due by the New USA Growth Fund with respect to all periods up to
and including the Closing Date or to pay any taxes due by the New USA Growth
Fund to any taxing authority with respect to all such periods, including
without limitation, any failure to pay such taxes due in a timely manner; (iv)
non-compliance of the New USA Growth Fund with any applicable federal or state
securities laws or with applicable provisions of the Code, or with the
investment policies and restrictions contained in the New USA Growth Fund's
Prospectus and SAI, as in effect from time to time; and (v) the failure by the
New USA Growth Fund to mail the Prospectus and Proxy Statement to its
stockholders at least 10 days prior to the Meeting.
The MFS Trust, solely on behalf of the MFS Fund, has agreed to
indemnify and hold harmless New USA Mutual Funds, its directors and officers,
each person who controls the New USA Growth Fund within the meaning of
applicable federal securities laws, ODS, together with its subsidiaries and
affiliates and the directors, officers and employees of ODS and its subsidiaries
(collectively, the "New USA Indemnified Parties"), against any loss, claim,
damage and expense, paid or incurred, arising out of (i) any untrue statement
or alleged untrue statement of material fact contained in the Notice of Special
Meeting or this Proxy Statement and Prospectus or in the registration statement
of the MFS Trust containing this Proxy Statement and Prospectus filed with the
Commission with respect thereto, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to untrue statements
or omissions in or from those sections related to the MFS Trust and MFS Fund
and (ii) any breach of
C-1
<PAGE> 64
any representation, warranty or covenant of the MFS Trust or the MFS Fund set
forth in the Agreement or set forth in any certificate provided by the MFS
Trust in connection with the consummation of the Reorganization (including,
without limitation, any certificate provided by the MFS Trust in support of the
legal opinion required pursuant to Section 8.6 of the Agreement).
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
<S> <C> <C>
1. (a) Amended and Restated Declaration of Trust dated February 3, 1995. (1)
(b) Amendment to the Declaration of Trust dated February 21, 1996. (2)
(c) Amendment to the Declaration of Trust dated June 12, 1996. (3)
(d) Amendment to the Declaration of Trust dated December 19,
1996. (4)
2. Amended and Restated By-Laws dated December 14, 1994. (4)
3. Not Applicable.
4. Form of Agreement and Plan of Reorganization between Registrant and New USA Growth
Fund; filed herewith as Exhibit A to the MFS Fund Prospectus set forth as Part A to
the Registration Statement on Form N-14.*
5. Form of share certificate for classes of shares. (5)
6. Investment Advisory Agreement dated August 1, 1993, as amended through August 9,
1995. (2)
7. (a) Distribution Agreement between MFS Trust and MFD, dated January 1, 1995. (1)
(b) Dealer Agreement between MFD and a dealer, dated December 28, 1994, and the Mutual
Fund Agreement between MFD and a bank or NASD affiliate, dated December 28, 1994. (6)
8. Retirement Plan for Non-Interested Person Trustees, dated January 1, 1991. (6)
9. (a) Custodian Agreement dated January 28, 1988. (6)
(b) Amendment to Custodian Agreement dated February 29, 1988. (6)
(c) Amendment to the Custodian Agreement dated October 1, 1989. (6)
(d) Amendment to the Custodian Agreement dated October 9, 1989. (6)
10. (a) Master Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of
1940, effective January 1, 1997. (7)
(b) Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940. (5)
11. Opinion and Consent of Stephen E. Cavan, Senior Vice President and General Counsel
of MFS, as to the legality of securities being issued.*
12. (a) Opinion and Consent of Bingham, Dana & Gould LLP as to tax matters.*
(b) Opinion and Consent of Gibson, Dunn & Crutcher LLP as to tax matters.*
13. Form of Cross-Indemnity Agreement between the Registrant and O'Neil Data Systems, Inc.*
14. (a) Consent of Deloitte & Touche LLP regarding Financial Statements of MFS Emerging Growth
Fund.
(b) Consent of Arthur Andersen LLP regarding Financial Statements of New USA Growth Fund.
15. Not Applicable.
16. Power of Attorney dated August 11, 1994. (1).
17. Rule 24f-2 Notice of Election of Registrant.*
---------------
</TABLE>
* Previously Filed.
(1) Incorporated by reference to Registrant's Post-Effective Amendment
No. 16 to the MFS Trust's Registration Statement filed with the
SEC via EDGAR on March 30, 1995.
(2) Incorporated by reference to Registrant's Post-Effective Amendment
No. 18 to the MFS Trust's Registration Statement filed with the
SEC via EDGAR on March 28, 1996.
(3) Incorporated by reference to Registrant's Post-Effective Amendment
No. 19 to the MFS Trust's Registration Statement filed with the
SEC via EDGAR on August 27, 1996.
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(4) Incorporated by reference to Registrant's Post-Effective Amendment
No. 20 to the MFS Trust's Registration Statement filed with the
SEC via EDGAR on January 27, 1997.
(5) Incorporated by reference to MFS Series Trust I's (File Nos.
33-7638 and 811-4777) Post-Effective Amendment No. 25 filed with
the SEC via EDGAR on August 27, 1996.
(6) Incorporated by reference to Registrant's Post-Effective Amendment
No. 17 to the MFS Trust's Registration Statement filed with the
SEC via EDGAR on October 31, 1995.
(7) Incorporated by reference to MFS Series Trust I's (File Nos.
33-7638 and 811-4777) Post-Effective Amendment No. 27 filed with
the SEC via EDGAR on December 27, 1996.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that, prior to any public reoffering of
the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration
statement for the securities affected therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
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<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized in the city of Boston and
the commonwealth of Massachusetts on the 25th day of April, 1997.
MFS SERIES TRUST II ON BEHALF OF
MFS EMERGING GROWTH FUND
By: James R. Bordewick, Jr.
--------------------------------------------
James R. Bordewick, Jr., Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 25, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
A. KEITH BRODKIN* Chairman, President (Chief Executive Officer) and Trustee
-----------------------------------------------
A. KEITH BRODKIN
W. THOMAS LONDON* Treasurer (Principal Financial Officer) and Principal
-----------------------------------------------
W. THOMAS LONDON Accounting Officer
RICHARD B. BAILEY* Trustee
-----------------------------------------------
RICHARD B. BAILEY
MARSHALL N. COHAN* Trustee
-----------------------------------------------
MARSHALL N. COHAN
LAWRENCE H. COHN* Trustee
-----------------------------------------------
LAWRENCE H. COHN
J. DAVID GIBBONS* Trustee
-----------------------------------------------
J. DAVID GIBBONS
ABBY M. O'NEILL* Trustee
-----------------------------------------------
ABBY M. O'NEILL
WALTER E. ROBB, III* Trustee
-----------------------------------------------
WALTER E. ROBB, III
ARNOLD D. SCOTT* Trustee
-----------------------------------------------
ARNOLD D. SCOTT
JEFFREY L. SHAMES* Trustee
-----------------------------------------------
JEFFREY L. SHAMES
J. DALE SHERRATT* Trustee
-----------------------------------------------
J. DALE SHERRATT
WARD SMITH* Trustee
-----------------------------------------------
WARD SMITH
*BY: JAMES R. BORDEWICK, JR.
------------------------------------------
JAMES R. BORDEWICK, JR.
AS ATTORNEY-IN-FACT
</TABLE>
Executed by James R. Bordewick, Jr. on behalf of those indicated
pursuant to a Power of Attorney dated August 11, 1994, incorporated by
reference to the Registrant's Post-Effective Amendment No. 16 filed with the
Securities and Exchange Commission on March 30, 1995.
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<PAGE> 1
Exhibit 14(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in the Registration Statement on Form N-14 of MFS
Series Trust II on behalf of MFS Emerging Growth Fund (one of the series
constituting MFS Series Trust II) of our report dated January 3, 1997 appearing
in the Annual Report to shareholders of MFS Emerging Growth Fund for the year
ended November 30, 1996. We also consent to the reference to us under the
heading "Experts" appearing in the Combined Prospectus/Proxy Statement which is
included as part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 25, 1997
<PAGE> 1
Exhibit 14(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 4, 1997 for
New USA Growth Fund and to all references to our firm included in or made a
part of Post-Effective Amendment No. 1 to Registration Statement File Nos.
333-23129 and 811-4775, respectively.
Arthur Andersen LLP
Boston, Massachusetts
April 25, 1997
