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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
FEBRUARY 28, 1995
1940 ACT FILE NO. 811-4975
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 9
MFS MULTIMARKET INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
500 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
617-954-5000
Stephen E. Cavan
Secretary and Clerk
MFS Multimarket Income Trust
c/o Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
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MFS MULTIMARKET INCOME TRUST
PART A.
INFORMATION REQUIRED IN A PROSPECTUS
Items 1 and 2: Omitted pursuant to General Instruction
G.3 to Form N-2.
Item 3.1 Fee Table: Inapplicable - 1940 Act filing
only.
Items 3.2, 4, 5, 6 and 7: Omitted pursuant to General
Instruction G.3 to Form N-2.
Item 8. General Description of Registrant:
8.1. General: The Registrant is a closed-end, non-
diversified management investment company which was
organized as a business trust under the laws of The
Commonwealth of Massachusetts on January 9, 1987.
8.2, 8.3, and 8.4. Investment Objectives and
Policies, Risk Factors and Other Policies:
INVESTMENT OBJECTIVE AND POLICIES
The Registrant's investment objective is to
provide a high level of current income through
investment in fixed income securities. The Registrant
will attempt to achieve this objective by allocating
portfolio assets among various categories of fixed
income securities. The investment adviser,
Massachusetts Financial Services Company, a Delaware
corporation ("MFS" or "the Investment Adviser") will
monitor the Registrant's portfolio performance on an
ongoing basis and reallocate assets in response to
actual and anticipated market and economic changes. In
pursuing this objective, preservation of capital will
be a consideration, although capital appreciation, if
any, will be incidental. There can be no assurance
that the Registrant will achieve its investment
objective.
The Registrant will rely on the Investment Adviser
to determine, based upon yields currently available for
various categories of fixed income securities, the
relative portions of the Registrant's assets which
should be invested in particular markets. Markets
selected will be those which offer the highest income
available, except where differences in yield are not
sufficient to justify investments in higher risk
securities. For the risk considerations involved, see
"Special Considerations" below.
The market categories in which the Registrant may
invest its assets are: (i) high yielding corporate
fixed income securities, some of which may involve
equity features; (ii) debt securities issued by foreign
governments and their political subdivisions; (iii)
securities that are issued or guaranteed as to interest
and principal by the U.S. Government, its agencies,
authorities or instrumentalities ("Government
Securities"), with related options; (iv) long-term or
short-term municipal securities; (v) short-term
corporate obligations and higher quality long-term
corporate obligations; (vi) obligations of banks or
savings and loan associations (including certificates
of deposit and bankers' acceptances); and (vii) to the
extent available and permissible, options and futures
contracts on securities, currencies and indices as more
fully described below. At any given time, the
Registrant's portfolio may be entirely or only
partially invested in a particular securities category.
Under normal economic or market conditions, at least
80% of the Registrant's portfolio will be invested in
fixed income securities. For this purpose the
Registrant will consider preferred stocks to be fixed
income securities. Up to 20% of the Registrant's
assets may be invested in equity securities.
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Government Securities. The Registrant may invest
in Government Securities, which include (i) U.S.
Treasury obligations, which differ only in their
interest rates, maturities and times of issuance: U.S.
Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to 10 years), and
U.S. Treasury bonds (generally maturities of greater
than 10 years), all of which are backed by the full
faith and credit of the United States; (ii) obligations
issued or guaranteed by U.S. Government agencies or
instrumentalities, some of which are backed by the full
faith and credit of the U.S. Treasury, e.g., direct
pass-through certificates of the Government National
Mortgage Association ("GNMA"); some of which are
supported by the right of the issuer to borrow from the
U.S. Government, e.g., obligations of Federal Home Loan
Banks; and some of which are backed only by the credit
of the issuer itself, e.g., obligations of the Student
Loan Marketing Association; and (iii) interests in
trusts or other entities representing interests in
obligations that are issued and guaranteed by the U.S.
Government, its agencies, authorities or
instrumentalities. For a description of obligations
issued or guaranteed by U.S. Government agencies or
instrumentalities, see "Description of Obligations
Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities" below.
Government Securities do not generally involve the
credit risks associated with other types of interest
bearing securities, although, as a result, the yields
available from Government Securities are generally
lower than the yields available from corporate interest
bearing securities. Like other interest bearing
securities, however, the values of Government
Securities change as interest rates fluctuate.
Foreign Securities. The Registrant may invest up
to 70% of its total assets in foreign securities which
are not traded on a U.S. exchange (excluding American
Depositary Receipts), which include fixed income
securities that are issued by foreign governments or
any of their political subdivisions that are considered
stable by the Investment Adviser. The Trustees do not
believe that the credit risk inherent in the
obligations of stable foreign governments is
significantly greater than that of U.S. Government
obligations. For the risk considerations involved, see
"Special Considerations" below. Although the
percentage of the Registrant's assets invested in
securities issued abroad and denominated in foreign
currencies ("non-U.S. dollar securities") will vary
depending on the relative yield of such securities, the
state of the economies of the countries in which the
investments are made and such countries' financial
markets, and the relationship of such countries'
currencies to the U.S. dollar, under normal conditions
the Registrant's portfolio of foreign securities will
include those of a number of foreign countries. As a
"non-diversified" investment company, the Registrant
will be able to invest more than 5% of its assets in
obligations of one or more foreign governments, to the
extent consistent with federal income tax
diversification requirements for qualification as a tax-
exempt entity. The Registrant may also invest in fixed
income securities issued by foreign companies and may
hold foreign currency for hedging purposes. The
Registrant may also hold foreign currency in
anticipation of purchasing foreign securities.
Investments in non-U.S. dollar securities are
evaluated primarily on the strength of a particular
currency against the U.S. dollar and on the interest
rate climate of that country. Currency is judged on
the basis of fundamental economic criteria (e.g.,
relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic
policies) as well as technical and political data. In
addition to the foregoing, interest rates are evaluated
on the basis of differentials or anomalies that may
exist between different countries.
American Depositary Receipts. The Registrant may
invest in American Depositary Receipts ("ADRs") which
are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of
an underlying non-U.S. stock on deposit with a
custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository
which has an exclusive relationship with the issuer of
the underlying security. An unsponsored ADR may be
issued by any number of U.S. depositories. The
Registrant may invest in either
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type of ADR. Although the U.S. investor holds a
substitute receipt of ownership rather than direct
stock certificates, the use of the depository receipts
in the United States can reduce costs and delays as
well as potential currency exchange and other
difficulties. The Registrant may purchase securities
in local markets and direct delivery of these ordinary
shares to the local depository of an ADR agent bank in
the foreign country. Simultaneously, the ADR agents
create a certificate which settles at the Registrant's
custodian in five days. The Registrant 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.
Emerging Market Securities. The Registrant may
invest up to 10% of its assets in emerging market
countries and Brady bonds. Emerging markets include
countries or regions with relatively low gross national
product per capita compared to the world's major
economies, and in countries or regions with the
potential for rapid economic growth. Brady bonds are
securities created through the exchange of existing
commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection
with debt restructurings under a debt restructuring
plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan").
Emerging markets will include any country: (i) having
an "emerging stock market" as defined by the
International Finance Corporation; (ii) with low-to
middle-income economies according to the International
Bank for Reconstruction and Development (the "World
Bank"); (iii) listed in World Bank publications as
developing, or (iv) determined by the Adviser to be an
emerging market as defined above.
Brady Plan debt restructurings have been
implemented to date in Argentina, Brazil, Costa Rica,
Mexico, Nigeria, the Philippines, Uruguay and
Venezuela. Brady bonds have been issued only recently,
and for that reason do not have a long payment history.
Brady bonds may be collateralized or uncollateralized,
are issued in various currencies (but primarily the
U.S. dollar) and are actively traded in over-the-
counter secondary markets. U.S. dollar-denominated,
collateralized Brady bonds, which may be fixed-rate
bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury
zero coupon bonds having the same maturity as the
bonds. Brady bonds are often viewed as having three or
four valuation components: the collateralized repayment
of principal at final maturity; the collateralized
interest payments; the uncollateralized interest
payments; and any uncollateralized repayment of
principal at maturity (the uncollateralized amounts
constituting the "residual risk"). In light of the
residual risk of Brady bonds and the history of
defaults of countries issuing Brady bonds with respect
to commercial bank loans by public and private
entities, investments in Brady bonds may be viewed as
speculative.
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
procedure, 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 Registrant is uninvested and no return is
earned thereon. The inability of the Registrant to
make intended security purchases due to settlement
problems could cause the Registrant to miss attractive
investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could
result either in losses to the Registrant due to
subsequent declines in value of the portfolio security
or, if the Registrant has entered into a contract to
sell the security, in possible liability to the
purchaser. Certain markets may require payment for
securities before delivery. 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
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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
of 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 sale of securities of
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
Registrant could be adversely effected by delays in, or
a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the
application to the Registrant 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
Registrant.
Corporate Fixed Income Securities. Corporate
fixed income securities of both domestic and foreign
issuers in which the Registrant may invest include
preferred and preference stock and all types of long-
term or short-term debt obligations, such as bonds,
debentures, notes, equipment lease certificates,
equipment trust certificates, conditional sales
contracts and commercial paper (including obligations,
such as repurchase agreements, secured by such
instruments). Corporate fixed income securities may
involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the
same or a different issuer; participations based on
revenues, sales or profits; or the purchase of common
stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).
High yield corporate fixed income securities in
which the Registrant may invest are ordinarily unrated
or in the lower rating categories of recognized rating
agencies (that is, ratings of Baa or lower by Moody's
Investors Services, Inc., BBB or lower by Standard &
Poor's Ratings Group or Fitch Investors Service, Inc.)
and will involve greater volatility of price and risk
of principal and income (including the possibility of
default or bankruptcy of the issuers of such
securities) than securities in the higher rating
categories. Certain unrated or lower rated fixed
income securities, e.g., "junk bonds", are very
speculative, involve high risk and may be questionable
as to principal and interest payments. Securities
rated Baa have speculative characteristics, securities
rated Ba or BB or lower are considered speculative and
securities rated below BBB or Baa may be questionable
as to principal and interest payments. For a
description of these and other rating categories, see
"Description of Bond Ratings; Moody's Investors
Service, Inc." and "Standard & Poor's Ratings Group"
and "Fitch Investors Service, Inc." below. No minimum
rating standard is required for a purchase by the
Registrant.
The Registrant may invest up to 40% of the value
of its total assets in each of the electric utility and
telephone industries, but will not invest more than 25%
in either of those industries unless yields available
for four consecutive weeks in the four highest rating
categories on new issue bonds in such industry (issue
size of $50 million or more) have averaged in excess of
105% of yields of new issue long-term industrial bonds
similarly rated (issue size of $50 million or more).
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Bank Obligations. The Registrant may invest in
obligations of domestic and foreign banks which, at the
date of investment, have capital, surplus and undivided
profits (as of the date of their most recently
published financial statements) in excess of $100
million. The Registrant may invest in obligations of
other banks or savings and loan associations if such
obligations are insured by the Federal Deposit
Insurance Corporation.
Municipal Obligations. The Registrant may invest
in municipal obligations issued by or on behalf of
states, territories and possessions of the United
States and the District of Columbia and their political
subdivisions, agencies or instrumentalities when the
Investment Adviser determines that they offer the
highest income available, except where differences in
yield are not sufficient to justify assuming the
investment risk of such securities. Such municipal
obligations may be unrated or in the medium and lower
rating categories of recognized rating agencies, in
which securities are speculative, involve high risk and
are questionable as to principal and interest payments.
For the risk considerations involved, see "Special
Considerations" below.
Other Investments. When the Investment Adviser
believes that investing for defensive purposes is
appropriate, such as during periods of unusual market
conditions, or when relative yields are deemed
attractive, part or all of the Registrant's assets may
be invested in cash (including foreign currency) or
cash equivalent short-term obligations including, but
not limited to, certificates of deposit, commercial
paper, short-term notes, obligations issued or
guaranteed by the U.S. Government or any of its
agencies or instrumentalities and repurchase
agreements.
The investment objective and policies described
above may be changed without shareholder approval,
except that the requirement that at least 80% of the
Registrant's assets under normal circumstances be
invested in fixed income securities is a fundamental
policy and may not be changed without the approval of
the holders of a majority of its shares (as defined
below under "Investment Restrictions").
INVESTMENT PRACTICES
The following investment practices apply to the
portfolio investments of the Registrant:
Options on U.S. and Foreign Government Securities.
In an effort to increase current income and to reduce
fluctuations in net asset value, the Registrant intends
to write covered put and call options and purchase put
and call options on U.S. and foreign government
securities that are traded on United States and foreign
securities exchanges and over-the-counter. This
practice may result in the loss of principal under
certain market conditions. For a further discussion of
the use, risks and costs of options trading, see
"Options and Futures" below.
"Reset Options". In certain instances, the
Registrant may enter into options on Treasury
securities which provide for periodic adjustment of the
premium during the term of each such option. Like
other types of options, these transactions, which may
be referred to as "reset options" or "adjustable strike
options", grant the purchaser the right to purchase (in
the case of a call) or sell (in the case of a put), a
specified type and series of U.S. Treasury security at
any time up to a stated expiration date (or, in certain
instances, on such date). In contrast to other types
of options, however, the price at which the underlying
security may be purchased or sold under a "reset
option" is determined at various intervals during the
term of the option, and such price fluctuates from
interval to interval based on changes in the market
value of the underlying security. As a result, the
strike price of a "reset option", at the time of
exercise, may be less advantageous to the Registrant
than if the strike price had been fixed at the
initiation of the option. In addition, the premium
paid for the purchase of the option may be determined
at the termination, rather than the initiation, of the
option. If the premium is paid at termination, the
Registrant assumes the risk that (i) the premium may be
less than the premium which would otherwise have been
received at the initiation of the option because of
such factors as the volatility in yield of the
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underlying Treasury security over the term of the
option and adjustments made to the strike price of the
option, and (ii) the option purchaser may default on
its obligation to pay the premium at the termination of
the option.
Futures Contracts and Options on Futures
Contracts. The Registrant may enter into contracts for
the purchase or sale for future delivery of fixed
income securities or contracts based on municipal bond
or other financial indices including any index of U.S.
or foreign government securities ("Futures Contracts")
and may purchase and write options to buy or sell
Futures Contracts ("Options on Futures Contracts").
Options on Futures Contracts to be written or purchased
by the Registrant will be traded on U.S. and foreign
exchanges. These investment techniques are designed
only to hedge against anticipated future changes in
interest rates which otherwise might either adversely
affect the value of the Registrant's portfolio
securities or adversely affect the prices of securities
which the Registrant intends to purchase at a later
date. Should interest rates move in an unexpected
manner, the Registrant may not achieve the anticipated
benefits of Futures Contracts or Options on Futures
Contracts or may realize a loss. For further
discussion of the use, risks and costs of Futures
Contracts and Options on Futures Contracts, see
"Options and Futures" below.
The Trustees have adopted the requirement that
Futures Contracts and Options on Futures Contracts only
be used as a hedge and not for speculation. In
addition to this requirement, the Board of Trustees has
also adopted two percentage restrictions on the use of
Futures Contracts. The first restriction is that the
Registrant will not enter into any Futures Contracts
and Options on Futures Contracts if immediately
thereafter the amount of initial margin deposits on all
the Futures Contracts of the Registrant and premiums
paid on Options on Futures Contracts would exceed 5% of
the market value of the total assets of the Registrant.
The second restriction is that the value of the
securities and other obligations underlying all such
Futures Contracts held by the Registrant not exceed 50%
of the value of the total assets of the Registrant.
Neither of these restrictions will be changed by the
Registrant's Board of Trustees without considering the
policies and concerns of the various federal and state
regulatory agencies.
Options on Foreign Currencies. The Registrant may
purchase and write put and call options on foreign
currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of
foreign securities to be acquired. As in the case of
other kinds 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 Registrant 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
Registrant's position, it may forfeit the entire amount
of the premium plus related transactions costs.
Options on foreign currencies to be written or
purchased by the Registrant will be traded on U.S. and
foreign exchanges or over-the-counter. For further
discussion of the use, risks and costs of options on
foreign currencies, see "Options and Futures" below.
Forward Foreign Currency Exchange Contracts. The
Registrant may enter into forward foreign currency
exchange contracts for the purchase or sale of a
specific currency at a future date at a price set at
the time of the contract (a "Forward Contract"). The
Registrant will enter into Forward Contracts for
hedging purposes as well as for non-hedging purposes.
The Registrant may also enter into a Forward Contract
on one currency in order to hedge against risk of loss
arising from fluctuations in the value of a second
currency (referred to as a "cross hedge") if, in the
judgment of the Investment Adviser, a reasonable degree
of correlation can be expected between movements in the
values of the two currencies. Transactions in Forward
Contracts entered into for hedging purposes will
include forward purchases or sales of foreign
currencies for the purpose of protecting the dollar
value of securities denominated in a foreign currency
or protecting the dollar equivalent of interest or
dividends to be paid on such securities. By entering
into such transactions, however, the Registrant may be
required to forego the benefits of advantageous changes
in exchange rates. The Registrant may also enter into
transactions in Forward Contracts for other than
hedging purposes.
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For example, if the Investment Adviser expects that the
value of a particular foreign currency will increase or
decrease relative to the value of the U.S. dollar, the
Registrant may purchase or sell such currency,
respectively, through a Forward Contract. If the
expected changes in the value of the currency occur,
the Registrant will realize profits which will increase
its gross income. Where exchange rates do not move in
the direction or to the extent anticipated, however,
the Registrant may sustain losses which will reduce its
gross income. Such transactions could involve
significant risk of loss.
The Registrant has established procedures
consistent with the General Statement of Policy of the
Securities and Exchange Commission (the "SEC") and its
staff regarding the use of Forward Contracts by
registered investment companies which require the use
of segregated assets or "cover" in connection with the
purchase and sale of such contracts. In those
instances in which the Registrant satisfies this
requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash
equivalents or high grade debt securities, which will
be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward
Contracts entered into by the Registrant. While these
contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate Forward
Contracts. In such event, the Registrant's ability to
utilize Forward Contracts in the manner set forth above
may be restricted.
Lending of Portfolio Securities. The Registrant
may seek to increase its income by lending portfolio
securities under present regulatory policies, including
those of the Board of Governors of the Federal Reserve
System and the SEC. Such loans will usually be made
only to member banks of the Federal Reserve System and
member firms of the New York Stock Exchange (and
subsidiaries thereof), and would be required to be
secured continuously by collateral, including cash,
cash equivalents or U.S. Treasury securities maintained
on a current basis by an amount at least equal to the
market value of the securities loaned. The Registrant
would have the right to call a loan and obtain the
securities loaned at any time on customary industry
settlement notice. For the duration of a loan, the
Registrant would continue to receive the equivalent of
the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation
from the investment of the collateral. The Registrant
would not, however, have the right to vote any
securities having voting rights during the existence of
the loan, but the Registrant would call the loan in
anticipation of an important vote to be taken among
holders of the securities or of the giving or
withholding of their consent on a material matter
affecting the investment. As with other extensions of
credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of
the securities fail financially. However, the loans
would be made only to entities deemed by the Investment
Adviser to be of good standing, and when, in the
judgment of the Investment Adviser, the consideration
which can be earned currently from securities loans of
this type justifies the attendant risk. If the
Investment Adviser determines to make securities loans,
it is intended that the value of the securities loaned
would not exceed 30% of the value of the Registrant's
assets.
"When-Issued Securities". Securities may be
purchased on a "when-issued" or on a "forward delivery"
basis, which means that the obligations will usually be
delivered at a future date beyond customary settlement
time. The commitment to purchase a security for which
payment will be made on a future date may be deemed a
separate security. Although the Registrant is not
limited to the amount of securities for which it may
have commitments to purchase on such basis, it is
expected that under normal circumstances, the
Registrant will not commit more than 30% of its assets
to such purchases. The Registrant does not pay for the
securities until received or start earning interest on
them until the contractual settlement date. In order
to invest its assets immediately, while awaiting
delivery of securities purchased on such basis, the
Registrant will normally invest in short-term
securities that offer same-day settlement and earnings,
but that may bear interest at a lower rate than longer
term securities.
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When the Registrant commits to purchase a security
on a "when-issued" or "forward delivery" basis, it will
set up procedures consistent with the General Statement
of Policy of the SEC concerning such purchases.
However, although the Registrant does not intend to
make such purchases for speculative purposes and
intends to adhere to the provisions of the SEC policy,
purchases of securities on such basis may involve more
risk than other types of purchases. For example, if
the Registrant determines it is necessary to sell the
"when-issued" or "forward delivery" securities before
delivery, it may incur a gain or a loss because of
market fluctuations since the time the commitment to
purchase such securities was made.
Repurchase Agreements. The Registrant may enter
into repurchase agreements in order to earn additional
income on available cash or as a temporary defensive
measure. Under a repurchase agreement, the Registrant
acquires securities subject to the seller's agreement
to repurchase at a specified time and price. If the
seller becomes subject to a proceeding under the
bankruptcy laws or its assets are otherwise subject to
a stay order, the Registrant's right to liquidate the
securities may be restricted (during which time the
value of the securities could decline).
The Registrant may enter into repurchase
agreements with sellers who are member firms (or
subsidiaries thereof) of the New York Stock Exchange,
members of the Federal Reserve System, or recognized
primary Government Securities dealers or institutions
which the Investment Adviser has determined to be of
comparable creditworthiness. The securities that the
Registrant purchases and holds through its agent are
Government Securities, the values of which are equal to
or greater than the repurchase price agreed to be paid
by the seller. The repurchase price may be higher than
the purchase price, the difference being income to the
Registrant, or the purchase and repurchase prices may
be the same, with interest at a standard rate due to
the Registrant together with the repurchase price on
repurchase. In either case, the income to the
Registrant is unrelated to the interest rate on the
Government Securities.
The repurchase agreement provides that in the
event the seller fails to pay the price agreed upon on
the agreed upon delivery date or upon demand, as the
case may be, the Registrant will have the right to
liquidate the securities. If at the time the
Registrant is contractually entitled to exercise its
right to liquidate the securities, the seller is
subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the
Registrant's exercise of its right to liquidate the
securities may be delayed (during which time the market
value of the securities could decline, resulting in a
net loss to the Registrant) and the Registrant may
incur certain costs in attempting to exercise this
right. The Registrant has adopted and follows
procedures which are intended to minimize the risks of
repurchase agreements. For example, the Registrant
only enters into repurchase agreements after the
Investment Adviser has determined that the seller is
creditworthy, and the Investment Adviser monitors the
seller's creditworthiness on an ongoing basis.
Moreover, under such agreements, the value of the
securities (which are marked to market every business
day) is required to be greater than the repurchase
price, and the Registrant has the right to make margin
calls at any time if the value of the securities falls
below the agreed upon margin.
Mortgage Pass-Through Securities. The Registrant
may invest in mortgage pass-through securities that are
Government Securities. Mortgage pass-through
securities are securities representing interests in
"pools" of mortgage loans. Monthly payments of
interest and principal by the individual borrowers on
mortgages are passed through to the holders of the
securities (net of fees paid to the issuer or guarantor
of the securities) as the mortgages in the underlying
mortgage pools are paid off. The average lives of
mortgage pass-throughs are variable when issued because
their average lives depend on prepayment rates. The
average life of these securities is likely to be
substantially shorter than their stated final maturity
as a result of unscheduled principal prepayment.
Prepayments on underlying mortgages result in a loss of
anticipated interest, and all or a part of a premium if
any has been paid, and the actual yield (or total
return) to the Registrant may be different than the
quoted yield on the securities. Mortgage prepayments
generally increase with falling interest rates and
decrease with rising interest rates. Like other fixed
income securities, when interest rates
<PAGE>
rise the value of the mortgage pass-through security
generally will decline; however, when interest rates
are declining, the value of mortgage pass-through
securities with prepayment features may not increase as
much as that of other fixed income securities.
Interests in pools of mortgage-related securities
differ from other forms of debt securities, which
normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or
specified call dates. Instead, these securities
provide a monthly payment which consists of both
interest and principal payments. In effect, these
payments are a "pass through" of the monthly payments
of principal resulting from the sale, refinancing or
foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through
securities (such as securities issued by GNMA) are
described as "modified pass-through." These securities
entitle the holder to receive all interests and
principal payments owed on the mortgages in the
mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether the mortgagor
actually makes the payment.
The principal government guarantor of mortgage
pass-through securities is GNMA. GNMA is a wholly-
owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized
to guarantee, with the full faith and credit of the
U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These
guarantees, however, do not apply to the market value
or yield of mortgage pass-through securities. GNMA
securities are often purchased at a premium over the
maturity value of the underlying mortgages. This
premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., whose
guarantees are not backed by the full faith and credit
of the U.S. Government) include the Federal National
Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA is a government-
sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by
the Secretary of Housing and Urban Development. FNMA
purchases conventional residential mortgages (i.e.,
mortgages not insured or guaranteed by any governmental
agency) from a list of approved sellers/servicers which
include state and federally-chartered savings and loan
associations, mutual savings banks, commercial banks,
credit unions and mortgage bankers. Pass-through
securities issued by FNMA are guaranteed as to timely
payment of principal and interest by FNMA and not
guaranteed by the U.S. Government.
FHLMC was created by Congress in 1970 as a
corporate instrumentality of the U.S. Government for
the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC issues
Participation Certificates ("PCs") which represent
interests in conventional mortgages (i.e., not
federally insured or guaranteed) from FHLMC's national
portfolio. FHLMC guarantees timely payment of interest
and ultimate collection of principal regardless of the
status of the underlying mortgage loans. Bonds issued
by FHLMC are not guaranteed by the U.S. Government.
Corporate Asset-Backed Securities. The Registrant
may invest in corporate asset-backed securities. These
securities, issued by trusts and special purpose
corporations are backed by a pool of assets, such as
credit card and automobile loan receivables,
representing the obligations of a number of different
parties.
Corporate asset-backed securities present certain
risks. For instance, in the case of credit card
receivables, these securities may not have the benefit
of any security interest in the related collateral.
Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of
state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance
due. Most issuers of
<PAGE>
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 the 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.
Corporate asset-backed securities are often backed
by a pool of assets representing the obligations of a
number of different parties. To lessen the effect of
failures by obligors to make payments on underlying
assets, the securities may contain elements of credit
support which fall into two categories: (1) liquidity
protection and (2) protection against losses resulting
from ultimate default by an obligor on the underlying
assets. Liquidity protection refers to the provision
of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate
default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor
from third parties. The Registrant will not pay any
additional or separate fees for credit support. The
degree of credit support provided for each issue is
generally based on historical information with respect
to the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of
that anticipated credit support or failure of the
credit support could adversely affect the return on an
investment in such a security.
Mortgage "Dollar Roll" Transactions. The
Registrant may enter into mortgage "dollar roll"
transactions with selected banks and broker-dealers
pursuant to which the Registrant sells mortgage-backed
securities for delivery in the future (generally within
30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity)
securities on a specified future date. The Registrant
will only enter into "covered rolls". A "covered roll"
is a specific type of "dollar roll" for which there is
an offsetting cash position or a cash equivalent
security position which matures on or before the
forward settlement date of the "dollar roll"
transaction. During the roll period, the Registrant
forgoes principal and interest paid on the mortgage-
backed securities. The Registrant is compensated for
the lost interest by the difference between the current
sales price and the lower price for the future purchase
(often referred to as the "drop") as well as by the
interest earned on the cash proceeds of the initial
sale. The Registrant may also be compensated by
receipt of a commitment fee.
Leveraging. The Registrant may borrow money for
investment from banks and through the issuance of
bonds, debentures, notes or other instruments
evidencing indebtedness ("Senior Securities") and to
invest the proceeds in accordance with the Registrant's
investment objective and policies. In determining
whether to employ leverage, the Trustees will consider
such factors as the estimated spread between interest
required to be paid on money borrowed by the Registrant
and interest which can be earned by investing the
proceeds of borrowings, as well as the level of
distributions currently being made by the Registrant to
its shareholders. Under the 1940 Act, the Registrant
must maintain asset coverage (which is the ratio where
the value of the total assets of the Registrant plus
all liabilities and indebtedness not represented by
Senior Securities bears to the aggregate amount of
Senior Securities representing any indebtedness of the
Registrant) of at least 300% with respect to Senior
Securities representing indebtedness. The Registrant
would issue Senior Securities to raise money to
purchase securities for the Registrant's portfolio to
preserve or enhance the Registrant's payment of
dividends.
Zero Coupon Bonds, Deferred Interest Bonds and PIK
Bonds. The Registrant may invest in zero coupon bonds
as well as in deferred interest bonds and bonds on
which the interest is payable in kind ("PIK bonds").
Zero coupon and deferred interest bonds are debt
obligations which are issued at a significant discount
from face value. The discount approximates the total
amount of
<PAGE>
interest the bonds will accrue and compound over the
period until maturity or the first interest payment
date at a rate of interest reflecting the market rate
of the security at the time of issuance. While zero
coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period
of delay before the regular payment of interest begins.
PIK bonds are debt obligations which provide that the
issuer thereof may, at its option, pay interest on such
bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract
investors who are willing to defer receipt of such
cash. Such investments may experience greater
volatility in market value than debt obligations which
make regular payments of interest. The Registrant will
accrue income on such investments for tax and
accounting purposes, which is distributable to
shareholders and which because no cash is received at
the time of accrual may require the liquidation of
other portfolio securities to satisfy the Registrant's
distribution obligations.
Collateralized Mortgage Obligations and Multiclass
Pass-Through Securities. The Registrant may invest a
portion of its assets in collateralized mortgage
obligations or "CMOs", which are debt obligations
collateralized by mortgage loans or mortgage pass-
through securities which in the case of Government
Securities are issued or guaranteed by the U.S.
Government, its agencies, authorities or
instrumentalities. Typically, CMOs are collateralized
by certificates issued by the GNMA, the FNMA or the
FHLMC but also may be collateralized by whole loans or
private mortgage pass-through securities (such
collateral collectively hereinafter referred to as
"Mortgage Assets"). The Registrant may also invest a
portion of its assets in multiclass pass-through
securities which are equity interests in a trust
composed of Mortgage Assets. Unless the context
indicates otherwise, all references herein to CMOs
include multiclass pass-through securities. Payments
of principal and interest on the Mortgage Assets, and
any reinvestment income thereon, provide the funds to
pay debt service on the CMOs. CMOs may be issued by
agencies or instrumentalities of the U.S. Government or
by private originators of, or investors in, mortgage
loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a
Real Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates may be
issued in multiple classes. Each class of CMOs, often
referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity
or final distribution date. Principal prepayments on
the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or
final distribution dates resulting in a loss of all or
part of the premium if any has been paid. Interest is
paid or accrued on all classes of the CMOs on a
monthly, quarterly or semiannual basis. The principal
of and interest on the Mortgage Assets may be allocated
among the several classes of a series of a CMO in
innumerable ways. In a common structure, payments of
principal, including any principal prepayments, on the
Mortgage Assets are applied to the classes of the
series of a CMO in the order of their respective stated
maturities or final distribution dates, so that no
payment of principal will be made on any class of CMOs
until all other classes having an earlier stated
maturity or final distribution date have been paid in
full. Certain CMOs may be stripped (securities which
provide only the principal or interest factor of the
underlying security). See "Stripped Mortgage-Backed
Securities" below for a discussion of the risks of
investing in these stripped securities and of investing
in classes consisting primarily of interest payments or
principal payments.
The Registrant may also invest in parallel pay
CMOs and Planned Amortization Class CMOs ("PAC Bonds").
Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class.
These simultaneous payments are taken into account in
calculating the stated maturity date or final
distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity
date or final distribution date but may be retired
earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date.
PAC Bonds are always parallel pay CMOs with the
required principal payment on such securities having
the highest priority after interest has been paid to
all classes.
<PAGE>
Stripped Mortgage-Backed Securities. The
Registrant may invest a portion of its assets in
stripped mortgage-backed securities ("SMBS"), which are
derivative multiclass mortgage securities issued by
agencies or instrumentalities of the U.S. Government,
or by private originators of, or investors in, mortgage
loans, including savings and loan associations,
mortgage banks, commercial banks and investment banks.
SMBS are usually structured with two classes that
receive different proportions of interest and principal
distributions from a pool of mortgage assets. A common
type of SMBS will have one class receiving some of the
interest and most of the principal from the Mortgage
Assets, while the other class will receive most of the
interest and the remainder of the principal. In the
most extreme case, one class will receive all of the
interest (the interest only or "IO" class) while the
other class will receive all of the principal (the
principal only or "PO" class). The yield to maturity
on an IO is extremely sensitive to the rate of
principal payments (including prepayments on the
related underlying Mortgage Assets) and a rapid rate of
principal payments may have a material adverse effect
on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than
anticipated prepayments of principal, the Registrant
may fail to fully recoup its initial investment in
these securities. The market value of the class
consisting primarily or entirely of principal payments
may be unusually volatile in response to changes in
interest rates. Because SMBS were only recently
introduced, established trading markets for these
securities have not yet developed, although the
securities are traded among institutional investors and
investment banking firms and some liquidity is
available.
Yield Curve Options. The Registrant may also
enter into options on the "spread", or differential,
between two U.S. or foreign government securities, in
transactions referred to as "yield curve" options. In
contrast to other types of options, a yield curve
option is based on the difference between the yields of
designated U.S. or foreign government securities,
rather than the prices of the individual securities,
and is usually settled through cash payments.
Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a
call) or narrows (in the case of a put), regardless of
whether the yields of the underlying securities
increase or decrease.
Yield curve options may be used for the same
purposes as other options on securities. Specifically,
the Registrant may purchase or write such options in
order to protect against the adverse effects of a
potential widening or narrowing of the spreads between
U.S. or foreign government securities, or other
interest rate sensitive instruments, held in the
Registrant's portfolio. The Registrant may also
purchase or write yield curve options for other than
hedging purposes if, in the judgment of the Investment
Adviser, the Registrant will be able to profit from
movements in the spread between the yields of the
underlying U.S. or foreign government securities. The
trading of yield curve options is subject to all of the
risks associated with the trading of other types of
options. In addition, however, such options present
risk of loss even if the yield of one of the underlying
securities remains constant, if the spread moves in a
direction or to an extent which was not anticipated.
Yield curve options written by the Registrant will be
covered. A call (or put) option is covered if the
Registrant holds another call (or put) option on the
spread between the same two securities and maintains in
a segregated account with its custodian, cash or cash
equivalents sufficient to cover the Registrant's net
liability under the two options. Yield curve options
may also be covered in such other manner as may be in
accordance with the requirements of the counterparty
with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-
counter and because they have been only recently
introduced, established trading markets for these
securities have not yet developed.
Swaps and Related Transactions. As one way of
managing its exposure to different types of
investments, the Registrant may enter into interest
rate swaps, currency swaps or structures with embedded
swaps and other types of available swap agreements,
such as caps, collars and floors. Swaps involve the
exchange by the Registrant with another party of cash
payments based upon
<PAGE>
different interest rate indexes, currencies, and other
prices or rates such as the value of mortgage
prepayment rates. For example, in the typical interest
rate swap, the Registrant might exchange a sequence of
cash payments based on a floating rate index for cash
payments based on a fixed rate. Payments made by both
parties to a swap transaction are based on a principal
amount determined by the parties.
The Registrant may also purchase and sell caps,
floors and collars. In a typical cap or floor
agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment
of a fee by the counterparty. For example, the
purchase of an interest rate cap entitles the buyer, to
the extent that a specified index exceeds a
predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from
the counterparty selling such interest rate cap. The
sale of an interest rate floor obligates the seller to
make payments to the extent that a specified interest
rate falls below an agreed-upon level. A collar
arrangement combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's
investment exposure from one type of investment to
another. For example, if the Registrant agreed to
exchange payments in dollars for payments in foreign
currency, in each case based on a fixed rate, the swap
agreement would tend to decrease the Registrant's
exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps
and floors have an effect similar to buying or writing
options. Depending on how they are used, swap
agreements may increase or decrease the overall
volatility of a Fund's investments and its share price
and yield.
Swap agreements are sophisticated hedging
instruments that typically involve a small investment
of cash relative to the magnitude of risks assumed. As
a result, swaps can be highly volatile and may have a
considerable impact on the Registrant's performance.
Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness
deteriorates. The Registrant may also suffer losses if
it is unable to terminate outstanding swap agreements
or reduce its exposure through offsetting transactions.
Swaps, caps, floors and collars are highly
specialized activities which involve certain risks.
Swap agreements may be individually negotiated and
structured to include exposure to a variety of
different types of investments or market factors.
Depending on their structure, swap agreements may
increase or decrease the Registrant's exposure to long
or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate
borrowing rates, or other factors such as securities
prices or inflation rates. Swap agreements can take
many different forms and are known by a variety of
names. The Registrant is not limited to any particular
form or variety of swap agreements if MFS determines it
is consistent with the Registrant's investment
objective and policies.
The Registrant will maintain cash or appropriate
liquid assets with its custodian to cover its current
obligations under swap transactions. If the Registrant
enters into a swap agreement on a net basis (i.e., the
two payment streams are netted out, with the Registrant
receiving or paying, as the case may be, only the net
amount of the two payments), the Registrant will
maintain cash or liquid assets with its Custodian with
a daily value at least equal to the excess, if any, of
the Fund's accrued obligations under the swap agreement
over the accrued amount the Registrant is entitled to
receive under the agreement. If the Registrant enters
into a swap agreement on other than a net basis, it
will maintain cash or liquid assets with a value equal
to the full amount of the Registrant's accrued
obligations under the agreement.
The most significant factor in the performance of
swaps, caps, floors and collars is the change in the
specific interest rate, currency or other factor that
determines the amount of payments to be made under the
arrangement. If MFS is incorrect in its forecasts of
such factors, the investment performance of the
Registrant would be less than what it would have been
if these
<PAGE>
investment techniques had not been used. If a swap
agreement calls for payments by the Registrant, the
Registrant must be prepared to make such payments when
due. In addition, if the counterparty's
creditworthiness declines, the value of the swap
agreement would be likely to decline, potentially
resulting in losses. If the counterparty defaults, the
Fund's risk of loss consists of the net amount of
payments that the Registrant is contractually entitled
to receive. The Registrant anticipates that it will be
able to eliminate or reduce its exposure under these
arrangements by assignment or other disposition or by
entering into an offsetting agreement with the same or
another counterparty.
Loan Participations and Other Direct Indebtedness.
The Registrant may invest a portion of its assets in
loan participations and other direct indebtedness. By
purchasing a loan participation, the Registrant
acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower.
Many such loans are secured, and most impose
restrictive covenants which must be met by the
borrower. These loans are made generally to finance
internal growth, mergers, acquisitions, stock
repurchases, leveraged by-outs and other corporate
activities. Such loans may be in default at the time
of purchase. The Registrant may also purchase trade or
other claims against companies, which generally
represent money owed by the company to a supplier of
goods and services. These claims may also be purchased
at a time when the company is in default. Certain of
the loan participations acquired by the Registrant may
involve revolving credit facilities or other standby
financing commitments which obligate the Registrant to
pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans may
make such loans especially vulnerable to adverse
changes in economic or market conditions. Loan
participations 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 Registrant may be unable to sell such
investments at an opportune time or may have to resell
them at less than fair market value.
Certain of the loan participations acquired by the
Registrant may involve revolving credit facilities or
other standby financing commitments which obligate the
Registrant to pay additional cash on a certain date or
on demand. To the extent that the Registrant is
committed to advance additional funds, it will at all
times hold and maintain in a segregated account cash or
other high grade debt obligations in an amount
sufficient to meet such commitments.
The Registrant's ability to receive payments of
principal, interest and other amounts due in connection
with these investments will depend primarily on the
financial condition of the borrower. In selecting the
loan participations and other direct investments which
the Registrant will purchase, the Investment Adviser
will rely upon its (and not that of the original
lending institution's) own credit analysis of the
borrower. As the Registrant may be required to rely
upon another lending institution to collect and pass on
to the Registrant amounts payable with respect to the
loan and to enforce the Registrant's rights under the
loan, an insolvency, bankruptcy or reorganization of
the lending institution may delay or prevent the
Registrant from receiving such amounts. In such cases,
the Registrant will evaluate as well the
creditworthiness of the lending institution and will
treat both the borrower and the lending institution as
an "issuer" of the loan participation for purposes of
certain investment restrictions pertaining to the
diversification of the Registrant's portfolio
investments. The highly leveraged nature of many such
loans may make such loans especially vulnerable to
adverse changes in economic or market conditions.
Investments in such loans may involve additional risks
to the Registrant. For example, if a loan is
foreclosed, the Registrant 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 of lender liability, the
Registrant could be held liable as a co-lender. It is
unclear whether loans and other forms of direct
indebtedness offer securities law protections against
fraud and misrepresentation. In the absence of
definitive regulatory guidance, the Registrant relies
on the Investment Adviser's research in an attempt to
avoid situations
<PAGE>
where fraud or misrepresentation could adversely affect
the Registrant. In addition, loan participations 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 Registrant
may be unable to sell such investments at an opportune
time or may have to resell them at less than fair
market value. To the extent that the Investment
Adviser determines that any such investments are
illiquid, the Registrant will include them in the
investment limitations described below.
When and if available, fixed income securities may
be purchased at a discount from face value. However,
the Registrant does not intent to hold such securities
to maturity for the purpose of achieving potential
capital gains, unless current yields on these
securities remain attractive.
The general investment practices described above
may be changed without shareholder approval.
SPECIAL CONSIDERATIONS
Investments in fixed income securities offering
the high current income sought by the Registrant, while
generally providing greater income than investments in
higher rated securities, usually entail greater risk
(including the possibility of default or bankruptcy of
the issuers of such securities) and, accordingly, an
investment in shares of the Registrant should not
constitute a complete investment program and may not be
appropriate for all investors. The Registrant will
seek to reduce risk by investing its assets in a number
of markets and issuers, performing credit analyses of
potential investments and monitoring current
developments and trends in both the economy and
financial markets. The Registrant's use of options,
Futures Contracts, Options on Futures Contracts,
Forward Contracts and options on foreign currencies may
result in the loss of principal under certain market
conditions. See "Options and Futures" below.
The Registrant may invest in fixed income
securities rated Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch") (and
comparable unrated securities). These securities,
while normally exhibiting adequate protection
parameters, have speculative characteristics and
changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of
higher grade fixed income securities.
The Registrant may also invest in corporate fixed
income securities rated Ba or lower by Moody's or BB or
lower by S&P or Fitch (and comparable unrated
securities) (commonly known as "junk bonds"). No
minimum rating standard is required by the Registrant.
These securities are considered speculative and, while
generally providing greater income than investments in
higher rated securities, will involve greater risk of
principal and income (including the possibility of
default or bankruptcy of the issuers of such
securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or
change) than securities in the higher rating categories
and because yields vary over time, no specific level of
income can ever be assured.
These lower rated high yielding fixed income
securities generally tend to reflect economic changes
(and the outlook for economic growth), short-term
corporate and industry developments and the market's
perception of their credit quality (especially during
times of adverse publicity) to a greater extent than
higher rated securities which react primarily to
fluctuations in the general level of interest rates
although they are also affected by changes in interest
rates. In the past, economic downturns or an increase
in interest rates have, under certain circumstances,
caused a higher incidence of default by the issuers of
these securities and may do so in the future,
especially in the case of highly leveraged issuers.
During certain periods, the higher yields on the
Registrant'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
<PAGE>
securities, the Registrant 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 Registrant's yield (based on net
asset value) despite the actual loss of principal.
The prices for these securities may be affected by
legislative and regulatory developments. For example,
federal rules require that savings and loan
associations gradually reduce their holdings of high-
yield securities. An effect of such legislation may be
to depress the prices of outstanding lower rated high
yielding fixed income securities.
The market for these lower rated fixed income
securities may be less liquid than the market for
investment grade fixed income securities. Furthermore,
the liquidity of these lower rated securities may be
affected by the market's perception of their credit
quality. Therefore, the Investment Adviser's judgment
may at times play a greater role in valuing these
securities than in the case of investment grade fixed
income securities, and it also may be more difficult
during times of certain adverse market conditions to
sell these lower rated securities to respond to changes
in the market. While the Investment Adviser may refer
to ratings issued by established credit rating
agencies, it is not the Registrant's policy to rely
exclusively on ratings issued by these rating agencies,
but rather to supplement such ratings with the
Investment Adviser's own independent and ongoing review
of credit quality. To the extent the Registrant
invests in these lower rated securities, the
achievement of its investment objectives may be more
dependent on the Investment Adviser's own credit
analysis than in the case of a fund investing in higher
quality fixed income securities. These lower rated
securities may also include zero coupon bonds, deferred
interest bonds and PIK bonds which are described above.
The Registrant may also invest in municipal
obligations rated BB or lower by S&P or Fitch or Ba or
lower by Moody's (and comparable rated and unrated
securities). While these high risk securities may have
some quality and protective characteristics, these can
be expected to be outweighed by large uncertainties or
major risk exposures to adverse conditions. Such
securities will be affected by the market's perception
of their credit quality, economic changes and the
outlook for economic growth to a greater extent than
higher rated securities which react primarily to
fluctuations in the general level of interest rates.
Furthermore, an economic downturn may result in a
higher incidence of defaults by issuers of these
securities. In addition, these lower rated or unrated
high risk tax-exempt securities are frequently traded
only in markets where the number of potential
purchasers, if any, is very limited. Therefore,
judgment may at times play a greater role in valuing
these securities than in the case of higher grade tax-
exempt securities. This consideration may have the
effect of limiting the ability of the Registrant to
sell such securities at their fair value either to meet
redemption requests or to respond to changes in the
economy or the financial markets.
While the Investment Adviser may refer to ratings
issued by established credit rating agencies, it is not
a policy of the Registrant to rely exclusively on
ratings issued by these agencies, but rather to
supplement such ratings with the Investment Adviser's
own independent and ongoing review of credit quality.
Furthermore, no minimum rating standard is required by
the Registrant. With respect to those municipal
obligations which are not rated by a major rating
agency, the Registrant will be more reliant on the
Investment Adviser's judgment, analysis and experience
than would be the case if such municipal obligations
were rated. In evaluating the creditworthiness of an
issuer, whether rated or unrated, the Investment
Adviser may take into consideration, among other
things, the issuer's financial resources, its
sensitivity to economic conditions and trends, the
operating history of and the community support for the
facility financed by the issuer, or the ability of the
issuer's management and regulatory matters.
The value of shares of the Registrant will vary as
the aggregate value of the Registrant's portfolio
securities increases or decreases. The net asset value
of the Registrant may change as the general levels of
interest rates fluctuate. When interest rates decline,
the value of a portfolio invested at higher yields can
be expected to rise. Conversely, when interest rates
rise,
<PAGE>
the value of a portfolio invested at lower yields can
be expected to decline. Moreover the value of the
lower-rated fixed income securities that the Registrant
purchases will fluctuate more than the value of higher-
rated fixed income securities. These lower-rated fixed
income securities generally tend to reflect short-term
corporate and market developments to a greater extent
than higher-rated securities, which react primarily to
fluctuations in the general level of interest rates.
Although changes in the value of the Registrant's
portfolio securities subsequent to their acquisition
are reflected in the net asset value of shares of the
Registrant, such changes will not affect the income
received by the Registrant from such securities. The
dividends paid by the Registrant will increase or
decrease in relation to the income received by the
Registrant from its investments, which will in any case
be reduced by the Registrant's expenses before being
distributed to the Registrant's shareholders.
If the Registrant's expectations of changes in
interest rates or its evaluation of the normal yield
relationship between two securities proves to be
incorrect, the Registrant's income, net asset value and
potential capital gain may be decreased or its
potential capital loss may be increased.
Investing in foreign securities involves
considerations and possible risks not typically
associated with investing in U.S. securities. The
value of foreign securities investments will be
affected by changes in currency rates or exchange
control regulations, changes in governmental
administration or economic or monetary policy (in this
country or abroad) or changed circumstances in dealings
between nations. Costs may be incurred in connection
with conversions between various currencies. Moreover,
there may be less publicly available information about
foreign issuers than about domestic issuers, and
foreign issuers may not be subject to accounting,
auditing and financial reporting standards and
requirements comparable to those of domestic issuers.
Securities of some foreign issuers are less liquid and
more volatile than securities of comparable domestic
issuers and foreign brokerage commissions are generally
higher than in the United States. Foreign securities
markets may also be less liquid, more volatile and less
subject to governmental supervision than in the United
States. Investments in foreign countries could be
affected by other factors not present in the United
States, including expropriation, confiscatory taxation
and potential difficulties in enforcing contractual
obligations and could be subject to extended settlement
periods.
For a discussion of the risks involved in trading
options on securities and currencies, Futures
Contracts, Options on Futures Contracts and Forward
Contracts, see "Options and Futures" below.
The Registrant has registered as a "non-
diversified" investment company so that it will be able
to invest more than 5% of its assets in the obligations
of an issuer, subject to the diversification
requirements of Subchapter M of the Code (hereinafter
defined) applicable to the Registrant. Since the
Registrant may invest a relatively high percentage of
its assets in the obligations of a limited number of
issuers, the Registrant may be more susceptible to any
single economic, political or regulatory occurrence.
Risks of Leverage. To the extent that securities
are purchased with proceeds from the issuance of Senior
Securities, the net asset value of the Registrant's
shares generally will increase or decrease at a greater
rate than would otherwise be the case. Any investment
income or gains earned from the securities purchased
with these proceeds which is in excess of the expenses
associated therewith can be expected to cause the value
of the Registrant's shares and distributions on the
Registrant's shares to rise more quickly than would
otherwise be the case. Conversely, if the investment
income or gains earned from the securities purchased
with proceeds from the issuance of Senior Securities
fails to cover the expenses associated therewith, the
value of the Registrant's shares is likely to decrease
more quickly than otherwise would be the case and
distributions thereon will be reduced or eliminated.
Hence, the issuance of Senior Securities (leverage) is
speculative and increases the risk of owning or
investing in the shares of an investment company which
employs that technique. The issuance of Senior
Securities also increases the Registrant's expenses
because of interest payments
<PAGE>
and administrative expenses associated with the
issuance of the Senior Securities. Unless the
appreciation and income on assets purchased with
proceeds from the issuance of Senior Securities exceed
the costs associated with the Senior Securities, the
use of leverage would diminish the investment
performance of the Registrant compared with what it
would have been without leverage.
The Registrant will not be permitted to declare
dividends or other distributions with respect to the
Registrant's shares or repurchase the Registrant's
shares unless at the time thereof (and after giving
effect thereto), asset coverage with respect to the
Registrant's Senior Securities would be at least 300%
(or such other percentage as may in the future be
required by law). Under the Internal Revenue Code of
1986, as amended (the "Code"), the Registrant must,
among other things (i) distribute at least 90% of its
investment company taxable income each fiscal year in
order to maintain its qualification for tax treatment
as a regulated investment company, (ii) distribute the
remaining 10% of its investment company taxable income
and all of its net capital gains each fiscal year in
order to avoid federal income tax and (iii) distribute
substantially all of its income on a calendar-year
basis in accordance with the timing requirements of the
Code in order to avoid excise taxes. The foregoing
limitations on dividends and distributions may under
certain circumstances impair the Registrant's ability
to maintain such qualification (which would result in
the Registrant being taxed as a corporation), or may
result in the Registrant being subject to income or
excise taxes. To the extent any Senior Securities are
given a prior claim against the income of the
Registrant and against the net assets of the Registrant
in a liquidation, they may be a substantial lien and
burden on the Registrant's shares.
For these reasons, an investment in shares of the
Registrant should not constitute a complete investment
program and may not be appropriate for investors who
cannot assume the greater risk of capital depreciation
inherent in seeking higher income.
OPTIONS AND FUTURES
Options on U.S. and Foreign Government Securities.
The Registrant may write covered put and call options
and purchase put and call options on U.S. or foreign
government securities that are traded on United States
and foreign securities exchanges and over-the-counter
options.
Call options written by the Registrant give the
holder the right to buy the underlying securities from
the Registrant at a stated exercise price; put options
written by the Registrant give the holder the right to
sell the underlying security to the Registrant at a
stated exercise price. A call option written by the
Registrant is "covered" if the Registrant owns the
underlying security covered by the call or has an
absolute and immediate right to acquire that security
without additional cash consideration (or for
additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange
of other securities held in its portfolio. A call
option is also covered if the Registrant holds a call
on the same security and in the same principal amount
as the call written where the exercise price of the
call held is (a) equal to or less than the exercise
price of the call written or (b) greater than the
exercise price of the call written if the difference is
maintained by the Registrant in cash, cash equivalents
or Government Securities in a segregated account with
its custodian. A put option written by the Registrant
is "covered" if the Registrant maintains cash, cash
equivalents or Government Securities with a value equal
to the exercise price in a segregated account with its
custodian, or else holds a put on the same security and
in the same principal amount as the put written where
the exercise price of the put held is (a) equal to or
greater than the exercise price of the put written or
(b) less than the exercise price of the put written if
the difference is maintained by the Registrant in cash,
cash equivalents or Government Securities in a
segregated account with its custodian. Put and call
options written by the Registrant may also be covered
in such other manner as may be in accordance with the
requirements of the exchange on which, or the
counterparty with which, the option is traded and
applicable laws and regulations. The premium paid by
the purchaser of an option will reflect, among other
things, the relationship of the exercise
<PAGE>
price to the market price and volatility of the
underlying security, and the remaining term of the
option, supply and demand and interest rates.
The writer of an option may have no control over
when the underlying securities must be sold, in the
case of a call option, or purchased, in the case of a
put option, since with regard to certain options, the
writer may be assigned an exercise notice at any time
prior to the termination of the obligation. Whether or
not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course,
may, in the case of a covered call option, be offset by
a decline in the market value of the underlying
security during the option period. If a call option is
exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option
is exercised, the writer must fulfill the obligation to
purchase the underlying security at the exercise price,
which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate
its obligation may effect a "closing purchase
transaction". This is accomplished by buying an option
of the same series as the option previously written.
The effect of the purchase is that the writer's
position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an
option. Likewise, an investor who is the holder of an
option may liquidate its position by effecting a
"closing sale transaction". This is accomplished by
selling an option of the same series as the option
previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction
can be effected.
Effecting a closing transaction in the case of a
written call option will permit the Registrant to write
another call option on the underlying security with
either a different exercise date or both, or in the
case of a written put option effecting a transaction
will permit the Registrant to write another put option
to the extent that the exercise price thereof is
secured by deposited cash or short-term securities.
Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other
Trust investments. If the Registrant desires to sell a
particular security from its portfolio on which it has
written a call option, it will effect a closing
transaction prior to or concurrent with the sale of
security.
The Registrant will realize a profit from a
closing transaction if the price of the transaction is
less than the premium received from writing the option
or is more than the premium paid to purchase the
option; the Registrant will realize a loss from a
closing transaction if the price of the transaction is
more than the premium received from writing the option
or is less than the premium paid to purchase the
option. Because increases in the market price of a
call option will generally reflect increases in the
market price of the underlying security, any loss
resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation
of the underlying security owned by the Registrant.
An option position may be closed out only where
there exists a secondary market for an option of the
same series, if a secondary market does not exist, it
might not be possible to effect closing transactions in
particular options with the result that the Registrant
would have to exercise the options in order to realize
any profit. If the Registrant is unable to effect a
closing purchase transaction in a secondary market, it
will not be able to sell the underlying security until
the option expires or it delivers the underlying
security upon exercise. Reasons for the absence of a
liquid secondary market include the following: (i)
there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening
transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal
operations on an Exchange; (v) the facilities of an
Exchange or the Options Clearing Corporation may not at
all times be adequate to handle current trading volume;
or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a
particular class or series of options), in which
<PAGE>
event the secondary market on that Exchange (or in that
class or series of options) would cease to exist,
although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a
result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Registrant may write options in connection
with buy-and-write transactions; that is, the
Registrant may purchase a security and then write a
call option against that security. The exercise price
of the call the Registrant determines to write will
depend upon the expected price movement of the
underlying security. The exercise price of a call
option may be below ("in-the-money"), equal to ("at-the-
money") or above "(out-of-the-money") the current value
of the underlying security at the time the option is
written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the
price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-
write transactions using at-the-money call options may
be used when it is expected that the price of the
underlying security will remain fixed or advance
moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be
used when it is expected that the exercise price will
be greater than the appreciation in the price of the
underlying security alone. If the call options are
exercised in such transactions, the Registrant's
maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by
the difference between the Registrant's purchase price
of the security and the exercise price. If the options
are not exercised and the price of the underlying
security declines, the amount of such decline will be
offset in part, or entirely, by the premium received.
The writing of covered put options is similar in
terms of risk/return characteristics to buy-and-write
transactions. If the market price of the underlying
security rises or otherwise is above the exercise
price, the put option will expire worthless and the
Registrant's gain will be limited to the premium
received. If the market price of the underlying
security declines or otherwise is below the exercise
price, the Registrant may elect to close the position
or take delivery of the security at the exercise price
and the Registrant's return will be the premium
received from the put options minus the amount by which
the market price of the security is below the exercise
price. Out-of-the-money, at-the-money, and in-the-
money put options may be used by the Registrant in the
same market environments that call options are used in
equivalent buy-and-write transactions.
The Registrant may purchase put options to hedge
against a decline in the value of its portfolio. By
using put options in this way, the Registrant will
reduce any profit it might otherwise have realized in
the underlying security by the amount of the premium
paid for the put option and by transaction costs.
The Registrant may purchase call options to hedge
against an increase in the price of U.S. or foreign
government securities that the Registrant anticipates
purchasing in the future. The premium paid for the
call option plus any transaction costs will reduce the
benefit, if any, realized by the Registrant upon
exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may
expire worthless to the Registrant.
Futures Contracts. The Registrant may enter into
contracts for the purchase or sale for future delivery
of fixed income securities or contracts based on
municipal bond or other financial indices, including
any index of U.S. or foreign government securities
("Futures Contract"). A "sale" of a Futures Contract
means a contractual obligation to deliver the
securities called for by the contract at a specified
price on a specified date or, in the case of a Futures
Contract on an index, a contractual obligation to make
or receive a cash settlement. A "purchase" of a
Futures Contract means a contractual obligation to
acquire the securities called for by the contract at a
specified price on a specified date or, in the case of
a Futures Contract on an index, a contractual
obligation to make or receive a cash settlement. U.S.
Futures Contracts have been designed by exchanges which
have been designated "contract markets" by the CFTC,
and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the
relevant contract market. Existing
<PAGE>
contract markets include the Chicago Board of Trade and
International Monetary Market of the Chicago Mercantile
Exchange. Futures Contracts trade on these markets
and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the
clearing members of the exchange. The Registrant will
enter into Futures Contracts which are based on debt
securities that are backed by the full faith and credit
of the U.S. Government, such as long-term U.S. Treasury
Bonds, Treasury Notes and three-month U.S. Treasury
Bills. The Registrant may also enter into Futures
Contracts which are based on corporate securities, non-
U.S. Government bonds and Eurodollar deposits.
At the same time a Futures Contract is purchased
or sold, the Registrant must allocate cash or
securities as a deposit payment ("initial deposit").
The initial deposit varies but may be as low as 5% or
less of the value of the contract. Daily thereafter,
the Futures Contract is valued on a marked-to-market
basis and a "variation margin" must be paid or received
based on the change in value of the contract from the
preceding day.
At the time of delivery of securities pursuant to
such a contract, adjustments are made to recognize
differences in value arising from the delivery of
securities with a different interest rate from that
specified in the contract. In some (but not many)
cases, securities called for by a Futures Contract may
not have been issued when the contract was written.
Although Futures Contracts by their terms call for
the actual delivery or acquisition of securities, or,
in the case of Futures Contracts based on an index, the
making or acceptance of a cash settlement at a
specified future time, in most cases the contractual
obligation is fulfilled before the date of the contract
by buying (or selling, as the case may be) on a
commodities exchange an identical Futures Contract
calling for delivery in the same month, subject to the
availability of a liquid secondary market. Such a
transaction, which is effected through a member of an
exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in
the futures market are made, offset or fulfilled
through a brokerage firm which is a member of the
exchange on which the contracts are traded, the
Registrant will incur brokerage fees when it purchases
and sells Futures Contracts.
The purpose of the acquisition or sale of a
Futures Contract, in the case of a portfolio, such as
the portfolio of the Registrant, which holds or intends
to acquire long-term fixed income securities, is to
attempt to protect the Registrant from fluctuations in
interest rates without actually buying or selling long-
term fixed income securities. For example, if the
Registrant owns long-term bonds, and interest rates
were expected to increase, the Registrant might enter
into Futures Contracts for the sale of debt securities.
Such a sale would have much the same effect as selling
an equivalent value of the long-term bonds owned by the
Registrant. If interest rates did increase, the value
of the debt securities in the portfolio would decline,
but the value of the Futures Contracts to the
Registrant would increase at approximately the same
rate, thereby keeping the net asset value of the
Registrant from declining as much as it otherwise would
have. The Registrant could accomplish similar results
by selling bonds with long maturities and investing in
bonds with short maturities when interest rates are
expected to increase. However, since the futures
market is more liquid than the cash market, the use of
Futures Contracts as an investment technique allows the
Registrant to maintain a defensive position without
having to sell its portfolio securities.
Similarly, when it is expected that interest rates
may decline, Futures Contracts may be purchased to
hedge against anticipated purchases of long-term bonds
at higher prices. Since the fluctuations in the value
of Futures Contracts should be similar to that of long-
term bonds, the Registrant could take advantage of the
anticipated rise in the value of long-term bonds
without actually buying them until the market had
stabilized. At that time, the Futures Contracts could
be liquidated and the Registrant could then buy long-
term bonds on the cash market. To the extent the
Registrant enters into Futures Contracts for this
purpose, the Registrant will maintain cash or cash
equivalents in a segregated account in an amount equal
to the difference between
<PAGE>
the fluctuating market value of such Futures Contracts
and the aggregate value of the initial and variation
margin payments made by the Registrant with respect to
such Futures Contracts, thereby assuring that the
positions are unleveraged.
The ordinary spreads between prices in the cash
and futures markets, due to differences in the natures
of those markets, are subject to distortions. First,
all participants in the futures market are subject to
initial deposit and variation margin requirements.
Rather than meeting additional variation margin
requirements, investors may close Futures Contracts
through offsetting transactions which could distort the
normal relationship between the cash and futures
markets. Second, the liquidity of the futures market
depends on participants entering into offsetting
transactions, rather than making or taking delivery,
which could distort the normal relationship between the
cash and futures markets. To the extent participants
decide to make or take delivery, liquidity in the
futures market could be reduced, thus producing
distortion. Third, from the point of view of
speculators, the margin deposit requirements in the
futures market are less onerous than margin
requirements in the securities market. Therefore,
increased participation by speculators in the futures
market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of
general interest rate trends by the Investment Adviser
may still not result in a successful transaction.
In addition, Futures Contracts entail risks.
Although the Registrant believes that use of such
contracts will benefit the Registrant, if the
Investment Adviser's investment judgment about the
general direction of interest rates is incorrect, the
Registrant's overall performance would be poorer than
if it had not entered into any such contract. For
example, if the Registrant has hedged against the
possibility of an increase in interest rates which
would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the
Registrant will lose part or all of the benefit of the
increased value of its bonds which it has hedged
because it will have offsetting losses in its futures
positions. In addition, in such situations, if the
Registrant has insufficient cash, it may have to sell
bonds from its portfolio to meet daily variation margin
requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the
rising market. The Registrant may have to sell
securities at a time when it may be disadvantageous to
do so.
Options on Futures Contracts. The Registrant
intends to purchase and write options on Futures
Contracts for hedging purposes. The purchase of a call
option on a Futures Contract is similar in some
respects to the purchase of a call option on an
individual security. Depending on the pricing of the
option compared to either the price of the Futures
Contract upon which it is based or the price of the
underlying debt securities, it may or may not be less
risky than ownership of the Futures Contract or
underlying debt securities. As with the purchase of
Futures Contracts, when the Registrant is not fully
invested it may purchase a call option on a Futures
Contract to hedge against a market advance due to
declining interest rates.
The writing of a call option on a Futures Contract
constitutes a partial hedge against declining prices of
the securities which are deliverable upon exercise of
the Futures Contract. If the futures price at
expiration of the option is below the exercise price,
the Registrant will retain the full amount of the
option premium which provides a partial hedge against
any decline that may have occurred in the Registrant's
portfolio holdings. The writing of a put option on a
Futures Contract constitutes a partial hedge against
increasing prices of the securities which are
deliverable upon exercise of the Futures Contract. If
the futures price at expiration of the option is higher
than the exercise price, the Registrant will retain the
full amount of the option premium which provides a
partial hedge against any increase in the price of
Government Securities which the Registrant intends to
purchase. If a put or call option the Registrant has
written is exercised, the Registrant will incur a loss
which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation
between changes in the value of its portfolio
securities and changes in the value of its futures
positions, the Registrant's losses from existing
options on futures may to some extent be reduced or
increased by changes in the value of portfolio
securities.
<PAGE>
The purchase of a put option on a Futures Contract
is similar in some respects to the purchase of
protective put options on portfolio securities. The
Registrant will purchase a put option on a Futures
Contract to hedge the Registrant's portfolio against
the risk of rising interest rates.
The amount of risk the Registrant assumes when it
purchases an option on a Futures Contract is the
premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed
above, the purchase of an option also entails the risk
that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of
the option purchased.
The Registrant's ability to engage in the options
and futures strategies described above will depend on
the availability of liquid markets in such instruments.
Markets in options and futures with respect to
Government Securities are relatively new and still
developing. It is impossible to predict the amount of
trading interest that may exist in various types of
options or futures. Therefore no assurance can be
given that the Registrant will be able to utilize these
instruments effectively for the purposes set forth
above. Furthermore, the Registrant's ability to engage
in options and futures transactions may be limited by
tax considerations.
Options on Foreign Currencies. The Registrant may
purchase and write options on foreign currencies for
hedging purposes in a manner similar to that in which
Futures Contracts on foreign currencies, or Forward
Contracts, will be utilized. For example, a decline in
the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in
the foreign currency remains constant. In order to
protect against such diminutions in the value of
portfolio securities, the Registrant may purchase put
options on the foreign currency. If the value of the
currency does decline, the Registrant will have the
right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part,
the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are
denominated is projected, thereby increasing the cost
of such securities, the Registrant may purchase call
options thereon. The purchase of such options could
offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other
types of options, however, the benefit to the
Registrant deriving from purchases of foreign currency
options will be reduced by the amount of the premium
and related transaction costs. In addition, where
currency rates do not move in the direction or to the
extent anticipated, the Registrant could sustain losses
on transactions in foreign currency options which would
require it to forego a portion or all of the benefits
of advantageous changes in such rates.
The Registrant may write options on foreign
currencies for the same types of hedging purposes. For
example, where the Registrant anticipates a decline in
the dollar value of foreign-denominated securities due
to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised,
and the diminution in value of portfolio securities
will be offset by the amount of the premium, and only
if rates move in the expected direction. If this does
not occur, the option may be exercised and the
Registrant would be required to purchase or sell the
underlying currency at a loss which may not be offset
by the amount of the premium. Through the writing of
options on foreign currencies, the Registrant also may
be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable
movements in exchange rates.
All call options written on foreign currencies
will be covered. A call option written on foreign
currencies by the Registrant is "covered" if the
Registrant owns the underlying foreign currency covered
by the call or has an absolute and immediate right to
acquire that foreign currency without additional cash
consideration (or for additional cash
<PAGE>
consideration if such amount, or the equivalent amount
in cash equivalent or Government Securities, is held in
a segregated account by its custodian) upon conversion
or exchange of other foreign currency held in its
portfolio. A call option is also covered if the
Registrant has a call on the same foreign currency and
in the same principal amount as the call written where
the exercise price of the call held is (a) equal to or
less than the exercise price of the call written or (b)
greater than the exercise price of the call written if
the difference is maintained by the Registrant in cash,
cash equivalents or Government Securities in a
segregated account with its custodian.
Additional Risks of Options on Securities, Options
on Futures Contracts, Forward Contracts and Options on
Foreign Currencies. Unlike transactions entered into
by the Registrant in Futures Contracts, options on
foreign currencies and Forward Contracts are not traded
on contract markets regulated by the CFTC or with the
exception of certain foreign currency options by the
SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers,
although foreign currency options are also traded on
certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation.
Similarly, options on securities may be traded over-the-
counter. 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
purchase of an option cannot lose more than the amount
of the premium plus related transaction costs, this
entire amount could be lost. Moreover, the option
writer and a trader of Forward Contracts could lose
amounts substantially in excess of their initial
investments, due to the margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the
SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to
traders on organized exchanges will be available with
respect to such transactions. In particular, all
foreign currency option positions entered into on a
national securities exchange are cleared and guaranteed
by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Further, a
liquid secondary market in options traded on a national
securities exchange may be more readily available than
in the over-the-counter market, potentially permitting
the Registrant to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in
the event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of
the availability of a liquid secondary market described
above, as well as the risks regarding adverse market
movements, margining of options written, the nature of
the foreign currency market, possible intervention by
governmental authorities and the effects of other
political and economic events. In addition, exchange-
traded options on foreign currencies involve certain
risks not presented by the over-the-counter market.
For example, exercise and settlement of such options
must be made exclusively through the OCC, which has
established banking relationships in applicable foreign
countries for this purpose. As a result, the OCC may,
if it determines that foreign governmental restrictions
on taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as
technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or
prohibitions, on exercise.
In addition, options on securities, Futures
Contracts, Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies may be
traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or
securities. The value of such positions also could be
adversely affected by (i) other complex foreign
political and economic factors, (ii) the availability
of data on which to make trading decisions, (iii)
delays in the Registrant's ability to act upon economic
events occurring in foreign markets during non-business
hours in the United States, (iv) the imposition of
different
<PAGE>
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) less
trading volume.
In order to assure that the Registrant will not be
deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require
that the Registrant enter into transactions in Futures
Contracts and Options on Futures Contracts only (i) for
bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes,
provided that the aggregate initial margin and premiums
on such non-hedging positions does not exceed 5% of the
liquidation value of the Registrant's assets. In
addition, the Registrant must comply with the
requirements of various state securities laws in
connection with such transactions.
Future Developments. The Registrant proposes to
take advantage of investment opportunities in the area
of Options and Futures Contracts and Options on Futures
Contracts which are not presently contemplated for use
by the Registrant or which are not currently available
but which may be developed, to the extent such
opportunities are both consistent with the Registrant's
investment objective and legally permissible
investments for the Registrant. Such opportunities, if
they arise, may involve risks which exceed those
involved in the options and futures activities
described above.
PORTFOLIO MANAGEMENT
The Registrant's portfolio management may include
the following strategies:
(1) selling all or a portion of the Registrant's
securities in one market and investing the proceeds in
one or more different markets;
(2) buying and selling particular securities
within one of the fixed income securities markets in
which the Registrant may invest;
(3) varying the maturity, mix and quality profile
of its portfolio.
The Registrant will also use the techniques
described above under "Investment Practices" to manage
its portfolio.
While these strategies are designed to result in
increases in the Registrant's current income available
for distribution to its shareholders, if the
Registrant's expectations of changes in interest rates
or its evaluation of the normal yield relationship
between two securities or obligations proves to be
incorrect, the Registrant's income and net asset value
may be reduced.
In addition to the methods of "cover" set forth in
"Options and Futures" above, the Registrant may also
cover options on securities, Options on Futures
Contracts and Options on Foreign Currencies in such
other manner as may be in accordance with the
requirements of the exchange on which, or the
counterparty with which, such instrument is traded and
applicable laws and regulations.
As a result of its investments in foreign
securities, the Registrant may receive interest
payments, or the proceeds of the sale or redemption of
such securities, in foreign currencies. In that event,
the Registrant may promptly convert such currencies
into dollars at the then-current exchange rate. Under
certain circumstances, alternatively, such as where the
Investment Adviser anticipates that the exchange rate
will improve, the Registrant may hold such currencies
for an indefinite period of time.
In addition, the Registrant may be required or
elect to receive delivery of the foreign currencies
underlying Options on Foreign Currencies or Forward
Contracts it has entered into. This
<PAGE>
could occur, for example, if an option written by the
Registrant is exercised or the Registrant is unable to
close out a Forward Contract it has entered into. The
Registrant may also elect to take delivery of the
currencies underlying options or Forward Contracts if,
in the judgment of the Investment Adviser, it is in the
best interest of the Registrant to do so. The holding
of currencies exposes the Registrant to risk of loss if
currency exchange rates move in a direction adverse to
the Registrant's position. Such losses could reduce
any profits or increase any losses sustained by the
Registrant from the sale or redemption of securities,
and could reduce the dollar value of interest or
dividend payments received. In addition, the holding
of currencies could adversely affect the Registrant's
profit or loss on currency options or Forward
Contracts, as well as its hedging strategies.
The staff of the SEC has taken the position that
purchased over-the-counter options and assets used to
cover written over-the-counter options are illiquid.
Therefore, such options and assets, together with other
illiquid securities, cannot exceed 15% of the
Registrant's assets under its investment restrictions.
Although the Investment Adviser disagrees with this
position, the Investment Adviser intends to limit the
Registrant's writing of over-the-counter options in
accordance with the following procedure. Except as
provided below, the Registrant intends to write over-
the-counter options only with primary Government
Securities dealers recognized by the Federal Reserve
Bank of New York. Also, the contracts which the
Registrant has in place with such primary dealers will
provide that the Registrant has the absolute right to
repurchase an option it writes at any time at a price
which represents the fair market value, as determined
in good faith through negotiation between the parties,
but which in no event will exceed a price determined
pursuant to a formula in the contract. Although the
specific formula may vary between contracts with
different primary dealers, the formula will generally
be based on a multiple of the premium received by the
Registrant for writing the option, plus the amount, if
any, of the option's intrinsic value (i.e., the amount
that the option is in-the-money). The formula may also
include a factor to account for the difference between
the price of the security and the strike price of the
option if the option is written out-of-the-money. The
Registrant will treat all or a part of the formula
price as illiquid for purposes of its investment
restrictions. The Registrant may also write over-the-
counter options with non-primary dealers, including
foreign dealers, and will treat the assets used to
cover these options as illiquid for purposes of such
15% test.
INVESTMENT RESTRICTIONS
The Registrant has adopted the following policies
which cannot be changed without the approval of the
holders of a majority of its shares (which means the
lesser of (i) more than 50% of the outstanding shares
of the Registrant, or (ii) 67% or more of the
outstanding shares of the Registrant present at a
meeting at which holders of more than 50% of its
outstanding shares are represented in person or by
proxy). Except with respect to borrowers, all
percentage limitations set forth below apply
immediately after a purchase or initial investment and
any subsequent change in any applicable percentage
resulting from market fluctuations does not require
elimination of any security from the portfolio. The
Registrant may not:
(1) borrow money or pledge, mortgage or
hypothecate its assets, except (i) as a temporary
measure for extraordinary or emergency purposes, (ii)
for a repurchase of its shares, or (iii) for investment
in accordance with its investment objective and
policies, and in no event shall the Registrant borrow
in excess of 1/3 of its assets;
(2) purchase any security or evidence of interest
therein on margin, except that the Registrant may
obtain such short-term credit as may be necessary for
the clearance of purchases and sales of securities and
except that the Registrant may make deposits on margin
in connection with Futures Contracts and options;
(3) underwrite securities issued by other persons
except insofar as the Registrant may technically be
deemed an underwriter under the Securities Act of 1933
in selling a portfolio security;
<PAGE>
(4) purchase or sell real estate (including
limited partnership interests but excluding securities
secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity
contracts (except contracts for the future acquisition
or delivery of fixed income securities) in the ordinary
course of the business of the Registrant (the
Registrant reserves the freedom of action to hold and
to sell real estate acquired as a result of the
ownership of securities);
(5) purchase securities of any issuer if such
purchase at the time thereof would cause more than 10%
of the voting securities of such issuer to be held by
the Registrant;
(6) issue any senior security (as that term is
defined in the Investment Company Act of 1940 (the
"1940 Act")), if such issuance is specifically
prohibited by the 1940 Act or the rules and regulations
promulgated thereunder (for the purposes of this
restriction, collateral arrangements with respect to
options, Futures Contracts and Options on Futures
Contracts and collateral arrangements with respect to
initial and variation margin are not deemed to be the
issuance of a senior security);
(7) make loans to other persons except through
the lending of its portfolio securities not in excess
of 30% of its total assets (taken at market value) and
except through the use of repurchase agreements, the
purchase of commercial paper or the purchase of all or
a portion of an issue of debt securities in accordance
with its investment objective, policies and
restrictions;
(8) make short sales of securities or maintain a
short position, unless at all times when a short
position is open it owns an equal amount of such
securities or securities convertible into or
exchangeable, without payment of any further
consideration, for securities of the same issue as, and
equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 10%
of the Registrant's net assets (taken at market value)
is held as collateral for such sales at any one time
(it is the Registrant's present intention to make such
sales only for the purpose of deferring realization of
gain or loss for Federal income tax purposes; such
sales would not be make of securities subject to
outstanding options); and
(9) invest more than 25% of the value of its
total assets in any industry, except as described under
the subsection "Corporate Fixed Income Securities" of
the section "Investment Objective and Policies" above.
The Registrant may not invest in illiquid
investments, including securities which are subject to
legal or contractual restrictions on resale or for
which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of
unlisted securities, market makers do not exist or will
not entertain bids or offers), unless the Board of
Trustees has determined that such securities are liquid
based on trading markets for the specific security, if
more than 15% of the Registrant's assets (taken at
market value) would be invested in such securities.
This investment restriction is not fundamental and may
be changed without shareholder approval.
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED
BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES.
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS-
are bonds issued by a cooperatively owned
nationwide system of banks and associations
supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These
bonds are not guaranteed by the U.S. Government.
MARITIME ADMINISTRATION BONDS-
are bonds issued and provided by the Department of
Transportation of the U.S. Government and are
guaranteed by the United States.
FHA DEBENTURES-
are debentures issued by the Federal Housing
Administration of the U.S. Government and are
guaranteed by the United States.
GNMA CERTIFICATES-
are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage
loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan
associations. Each mortgage loan included in the
pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans
Administration.
FHLMC BONDS-
are bonds issued and guaranteed by the Federal
Home Loan Mortgage Corporation and are not guaranteed
by the U.S. Government.
FNMA BONDS-
are bonds issued and guaranteed by the Federal
National Mortgage Association and are not
guaranteed by the U.S. Government.
FEDERAL HOME LOAN BANK NOTES AND BONDS-
are notes and bonds issued by the Federal Home
Loan Bank System and are not guaranteed by the
U.S. Government.
Although this list includes a description of the
primary types of U.S. Government agency or
instrumentality obligations in which the Registrant
intends to invest, the Registrant may invest in
obligations of U.S. Government agencies or
instrumentalities other than those listed above.
DESCRIPTION OF BOND RATINGS*; MOODY'S INVESTORS
SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or
by an exceptionally stable margin and principal is
secure. While the various protective elements are
likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in
Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
[FN]
*The ratings indicated herein are believed to be
the most recent ratings available at the date of this
Prospectus for the securities listed. Ratings are
generally given to securities at the time of issuance.
While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so,
and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the
date of the Registrant's fiscal year end.
<PAGE>
A: bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered
as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of
other terms of the contract over any long period of
time may be small.
Caa: Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may
be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent
obligations which are speculative in a high degree.
Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.
Unrated: Where no rating has been assigned or
where a rating has been suspended or withdrawn, it may
be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be
one of the following:
1. An application for rating was not received or
accepted.
2. The issue or issuer belongs to a group of
securities that are not rated as a matter of
policy.
3. There is a lack of essential data pertaining
to the issue or issuer.
4. The issue was privately placed, in which case
the rating is not published in Moody's
publications.
Suspension or withdrawal may occur if new and
material circumstances arise, the effects of which
preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a
judgment to be formed; if a bond is called for
redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B
groups which Moody's believe possess the strongest
investment attributes are designated by the symbols Aa
1, A 1, Baa 1, Ba 1 and B 1.
<PAGE>
STANDARD & POOR'S RATINGS GROUP*
AAA: Debt rated AAA has the highest rating
assigned by Standard & Poor's Ratings Group ("S&P").
Capacity to pay interest and repay principal is
extremely strong.
AA: Debt rated AA has a very strong capacity to
pay interest and repay principal and differs from the
higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB: Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
BB: Debt rated BB has less near-term
vulnerability to default than other speculative issues.
However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB-
rating.
B: Debt rated B has a greater vulnerability to
default but currently has the capacity to meet interest
payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial
or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied B or
B- rating.
CC: The rating CC is typically applied to debt
subordinated to senior debt that is assigned an actual
or implied CCC rating.
C: The rating C is typically applied to debt
subordinated to senior debt which is assigned an actual
or implied CCC- debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI: The rating CI is reserved for income bonds on
which no interest is being paid.
D: Debt rated D is in payment default. The D
rating category is used when interest payments or
principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P
believes that such payments will be made during such
grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service
payments are jeopardized.
[FN]
*Rates all governmental bodies having $1,000,000
or more debt outstanding, unless adequate information
is not available.
<PAGE>
Plus (+) or Minus (-): The ratings from AA to CCC
may be modified by the addition of a plus or minus sign
to show relative standing within the major rating
categories.
NR: Indicates that no public rating has been
requested, that there is insufficient information on
which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
FITCH INVESTORS SERVICES, INC.
AAA: Bonds considered to be investment grade and
of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by
reasonably foreseeable events.
AA: Bonds considered to be investment grade and
of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are
not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is
generally rated F-1+.
A: Bonds considered to be investment grade and of
high credit quality. The obligor's ability to pay
interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds
with higher ratings.
BBB: Bonds considered to be investment grade and
of satisfactory credit quality. The obligor's ability
to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB: Bonds are considered speculative. The
obligor's ability to pay interest and repay principal
may be affected over time by adverse economic changes.
However, business and financial alternatives can be
identified which could assist the obligor in satisfying
its debt service requirements.
B: Bonds are considered highly speculative.
While bonds in this class are currently meeting debt
service requirements, the probability of continued
timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for
reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable
characteristics which, if not remedied, may lead to
default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in
payment of interest and/or principal seems probable
over time.
C: Bonds are in imminent default in payment of
interest or principal.
Plus (+) Minus (-): Plus and minus signs are used
with a rating symbol to indicate the relative position
of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category.
NR: Indicates that Fitch does not rate the
specific issue.
<PAGE>
Conditional: A conditional rating is premised on
the successful completion of a project or the
occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems
the amount of information available from the issuer to
be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an
issue matures or is called or refinanced, and, at
Fitch's discretion, when an issuer fails to furnish
proper and timely information.
FitchAlert: Ratings are placed on FitchAlert to
notify investors of an occurrence that is likely to
result in a rating change and the likely direction of
such change. These are designated as "Positive",
indicating a potential upgrade, "Negative", for
potential downgrade, or "Evolving", where ratings may
be raised or lowered. FitchAlert is relatively short-
term, and should be resolved within 12 months.
8.5. Share Price Data: Not applicable.
Item 9. Management:
9.1.a. General - Board of Trustees: Management of
the Registrant's business and affairs is the
responsibility of the Board of Trustees of the
Registrant.
9.1.b. General - Investment Advisers: MFS, a
Delaware corporation, is the Registrant's investment
adviser. MFS and its predecessor organizations have a
history of money management dating from 1924, thus
making MFS America's oldest mutual fund organization.
MFS is a subsidiary of Sun Life Assurance Company of
Canada (U.S.) ("Sun Life of Canada (U.S.)") which in
turn is a subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). Sun Life, a mutual life insurance
company, is one of the largest international life
insurance companies and has been operating in the
United States since 1895. The executive officers of
MFS report to the Chairman of Sun Life. The principal
business address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
MFS also serves as investment adviser to each of
the funds in the MFS Family of Funds (the "MFS Funds"),
to MFS/Sun Life Series Trust, MFS Municipal Income
Trust, MFS Government Markets Income Trust, MFS
Multimarket Income Trust, MFS Charter Income Trust, MFS
Special Value Trust, MFS Institutional Trust, MFS
Variable Insurance Trust, MFS Union Standard Trust, Sun
Growth Variable Annuity Fund, Inc. and seven variable
accounts, each of which is a registered investment
company established by Sun Life of Canada (U.S.) in
connection with the sale of Compass-2 and Compass-3
combination fixed/variable annuity contracts. MFS and
its wholly-owned subsidiary, MFS Asset Management Inc.,
provide investment advice to substantial private
clients. Net assets under the management of the MFS
organization were approximately $33.4 billion on behalf
of approximately 1.8 million investors as of January
31, 1995. As of such date, the MFS organization
managed approximately $18.7 billion of assets in fixed
income funds and fixed income portfolios of MFS Asset
Management Inc., including approximately $6.8 billion
in U.S. Government securities and approximately $3.1
billion in fixed income securities of foreign issuers
and non-U.S. dollar denominated fixed income securities
of U.S. issuers.
INVESTMENT ADVISORY AGREEMENT
General. The Investment Advisory Agreement
between MFS and the Registrant (the "Advisory
Agreement") provides that, subject to the direction of
the Board of Trustees of the Registrant, MFS is
responsible for the actual management of the
Registrant's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by
the Board of Trustees. The Investment Adviser also
provides certain administrative services and general
office facilities.
<PAGE>
The Investment Adviser is not dependent on any
other party in providing the investment advisory
services required in the management of the Registrant.
The Investment Adviser may, however, consider analyses
from various sources, including broker-dealers with
which the Registrant does business.
The Investment Adviser pays the compensation of
the Registrant's officers and of the Trustees who are
affiliated with the Investment Adviser. The Investment
Adviser also furnishes at its own expense all necessary
administrative services, including office space,
equipment, clerical personnel, investment advisory
facilities and all executive and supervisory personnel
necessary for managing the Registrant's investments,
effecting the Registrant's portfolio transactions and,
in general, administrating its affairs.
The Advisory Agreement also provides that neither
MFS or its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the
execution and management of the Registrant, except for
willful misfeasance, bad faith or gross negligence in
the performance of its or their duties or by reason of
reckless disregard of its or their obligations and
duties under the Advisory Agreement.
Advisory Fee. For the services provided by MFS
under the Advisory Agreement, the Registrant will pay
MFS a fee computed and paid monthly in an amount equal
to the sum of .34% of the average daily net assets of
the Registrant and 5.4% of the daily gross income
(i.e., income other than gains from the sale of
securities or gains received from options and Futures
Contracts) of the Registrant, in each case on an annual
basis, for the Registrant's then-current fiscal year.
This advisory fee is greater than that paid by most
funds.
Payment of Expenses. The Registrant pays the
compensation of the seven Trustees who are not
affiliated with MFS and all the Registrant's expenses
(other than those assumed by MFS), including
governmental fees, interest charges, taxes, membership
dues in the Investment Company Institute allocable to
the Registrant, fees and expenses of independent
auditors, of legal counsel, and of any transfer agent,
registrar or dividend disbursing agent of the
Registrant, expenses of repurchasing shares, expenses
of preparing, printing and mailing share certificates,
shareholder reports, notices, proxy statements and
reports to governmental officers and commissions,
brokerage and other expenses connected with the
execution, recording and settlement of portfolio
security transactions, insurance premiums, fees and
expenses of the Registrant's Custodian, for all
services to the Registrant, including safekeeping of
funds and securities and maintaining required books and
accounts, expenses of calculating the net asset value
of the Registrant's shares, expenses of shareholder
meetings, expenses in connection with the Dividend
Reinvestment and Cash Purchases Plan and SEC fees.
Use of Name. The Advisory Agreement provides that
if MFS ceases to serve as the Investment Adviser to the
Registrant, the Registrant will change its name so as
to delete the initials "MFS" and that MFS may render
services to others and may permit funds clients in
addition to the Registrant to use the initials "MFS" in
their names.
The Advisory Agreement will remain in effect until
August 1, 1995, and will continue in effect thereafter
only if such continuance is specifically approved at
least annually by the Board of Trustees or by vote of a
majority of the Registrant's outstanding voting
securities and, in either case, by a majority of the
Trustees who are not parties to the Advisory Agreement
or interested persons of any such party. The Advisory
Agreement terminates automatically if it is assigned
and may be terminated without penalty by vote of a
majority of the Registrant's outstanding voting
securities or by either party on not more than 60 days'
nor less than 30 days' written notice.
<PAGE>
9.1.c. General - Portfolio Management: James T.
Swanson, a Vice President of the Registrant and a
Senior Vice President of MFS joined MFS in 1985. He
became the portfolio manager of the Registrant in 1992.
9.1.d. General - Administrators: Inapplicable.
9.1.e. Custodians: State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts
02110 is the custodian and dividend disbursing agent
for the Registrant. MFS Services Center, Inc., 500
Boylston Street, Boston, Massachusetts 02116 is the
shareholder servicing agent.
9.1.f. General - Expenses: See Item 9.1.b.
9.1.g. General - Affiliated Brokerage:
Inapplicable.
9.2. Non-resident Managers: Inapplicable.
9.3. Control Persons: Inapplicable.
Item 10. Capital Stock, Long-Term Debt, and Other
Securities:
10.1. Capital Stock:
a. and f. Description of Shares. The
Registrant's Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional
Shares of Beneficial Interest, without par value.
Shareholders are entitled to one vote for each share
held and to vote in the election of Trustees and on
other matters submitted to meetings of shareholders. No
material amendment may be made to the Registrant's
Declaration of Trust without the affirmative vote of a
majority of its shares. Under certain circumstances,
shareholders have the right to communicate with other
shareholders and to remove Trustees. Shareholders have
no pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set
forth below under "Certain Provisions of the
Declaration of Trust".
The Registrant's Declaration of Trust permits the
Trustees to divide or combine the shares into a greater
or lesser number of shares without thereby changing the
proportionate beneficial interests in the Registrant.
Each share represents an equal proportionate interest
in the Registrant with each other share. The
Registrant has no present intention of offering
additional shares, except that additional shares may be
issued under the Plan. Other offerings of its shares,
if made, will require approval of the Registrant's
Board of Trustees. Any additional offering will be
subject to the requirements of the Investment Company
Act of 1940, as amended, that shares may not be sold at
a price below the then-current net asset value,
exclusive of underwriting discounts and commissions,
except, among other things, in connection with an
offering to existing shareholders or with the consent
of the holders of a majority of the Registrant's
outstanding voting securities.
The Registrant may be terminated (i) upon the sale
of its assets to a diversified open-end management
investment company, if approved by the vote of the
holders of two-thirds of its outstanding shares, except
that if the Trustees recommend such sale of assets, the
approval by the vote of the holders of a majority of
its outstanding shares will be sufficient, or (ii) upon
liquidation and distribution of its assets, if approved
by the vote of the holders of two-thirds of its
outstanding shares, or (iii) by the Trustees by written
notice to the Registrant's shareholders. If not so
terminated, the Registrant will continue indefinitely.
Upon liquidation of the Registrant the Registrant's
shareholders are entitled to share pro rata in the
Registrant's net assets available for distribution to
its shareholders.
<PAGE>
Repurchase of Shares. The Registrant is a closed-
end management investment company and as such its
shareholders do not, and will not, have the right to
redeem their shares of the Registrant. The Registrant,
however, may purchase its shares from time to time in
the open market or otherwise as and when it is deemed
advisable by the Trustees. Such repurchases will be
made only when the Registrant's shares are trading at a
discount of 5% percent or more from the net asset value
of the shares. Shares repurchased by the Registrant
will held in treasury. The Registrant may incur debt
to finance share repurchase transactions. See
"Investment Restrictions" in Items 8.2, 8.3 and 8.4
above.
The shares of the Registrant will trade in the
open market at a price which will be a function of
several factors, including their net asset value and
yield. The shares of closed-end investment companies
generally sell at market prices varying from their net
asset values. When the Registrant repurchases its
shares for a price below their net asset value, the net
asset value of those shares that remain outstanding
will be enhanced, but this does not necessarily mean
that the market price of those outstanding shares will
be affected, either positively or negatively. Further,
interest on borrowings to finance share repurchase
transactions will reduce the Registrant's net income.
Certain Provisions of the Declaration of Trust.
The Registrant is an entity of the type commonly known
as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable
as partners for its obligations. However, the
Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the
Registrant and provides for indemnification and
reimbursement of expenses out of the Registrant
property for any shareholder held personally liable for
the obligations of the Registrant. The Declaration of
Trust also provides that the Registrant shall maintain
appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection
of the Registrant, its shareholders, Trustees,
officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder
incurring financial loss on account of shareholder
liability is limited to circumstances in which both
inadequate insurance exists and the Registrant itself
is unable to meet its obligations.
The Declaration of Trust further provides that
obligations of the Registrant are not binding upon the
Trustees individually but only upon the property of the
Registrant and that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but
nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
Anti-Takeover Provisions. The Registrant
presently has certain anti-takeover provisions in its
Declaration of Trust which could have the effect of
limiting the ability of other entities or persons to
acquire control of the Registrant, to cause it to
engage in certain transactions or to modify its
structure. The Board of Trustees is divided into three
classes, each having a term of three years. Each year
the term of one class expires. This provision could
delay for up to two years the replacement of a majority
of the Board of Trustees. In addition, the affirmative
vote or consent of the holders of 66% percent of the
shares of the Registrant (a greater vote than that
required by the 1940 Act) is required to authorize the
conversion of the Registrant from a closed-end to an
open-end investment company, or generally to authorize
any of the following transactions:
(i) merger or consolidation of the Registrant with
or into any other corporation;
(ii) issuance of any securities of the Registrant to
any person or entity for cash;
(iii) sale, lease or exchange of all or any
substantial part of the assets of the
Registrant to any entity or person (except
assets having an aggregate fair market value of
less than $1,000,000); or
<PAGE>
(iv) sale, lease or exchange to the Registrant, in
exchange for securities of the Registrant, of
any assets of any entity or person (except
assets having an aggregate fair market value of
less than $1,000,000)
if such corporation, person or entity is directly, or
indirectly through affiliates, the beneficial owner of
five percent or more of the outstanding shares of the
Registrant. However, such vote or consent will not be
required with respect to the foregoing transactions
where the Board of Trustees under certain conditions
approves the transaction. Reference is made to the
Declaration of Trust of the Registrant, on file with
the SEC, for the full text of these provisions.
The foregoing provisions will make more difficult
a change in the Registrant's management, or
consummation of the foregoing transactions without the
Trustees' approval, and could have the effect of
depriving shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain
control of the Registrant in a tender offer or similar
transaction. However, the Board of Trustees has
considered these anti-takeover provisions and believes
that they are in the shareholders' best interests and
benefit shareholders by providing the advantage of
potentially requiring persons seeking control of the
Registrant to negotiate with its management regarding
the price to be paid and facilitating the continuity of
the Registrant's management.
b. Inapplicable.
c. Inapplicable.
d. Inapplicable.
e. Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan. The Registrant
will distribute monthly to shareholders substantially
all of its net investment income in the manner required
by the Code. Short-term capital gains, if any, may be
distributed monthly and net long-term capital gains, if
any, will be distributed at least annually. Premiums
from options, if any, may be distributed at least
annually. See Item 10.4.
Shareholders may elect to have all distributions
of dividends and capital gains automatically reinvested
by State Street Bank and Trust Company ("State
Street"), as Plan agent. Pursuant to the Dividend
Reinvestment and Cash Purchase Plan (the "Plan"), the
provisions of which are set forth below, shareholders
not making such election will receive all such amounts
in cash paid by check mailed directly to the
shareholder by State Street, as the dividend paying
agent.
If the Trustees of the Registrant declare a
dividend or determine to make a capital gain
distribution, the nonparticipants in the Plan will
receive such dividend or distribution in cash and
participants in the Plan will receive the equivalent in
shares of the Registrant. Whenever the market price of
the shares on the payment date for the dividend or
distribution is equal to or exceeds their net asset
value, participants will be issued shares of the
Registrant at the higher of net asset value or 95% of
the market price. This discount reflects savings in
underwriting and other costs which the Registrant would
otherwise be required to incur to raise additional
capital. If net asset value exceeds the market price
of Trust shares at such time or if the Registrant
should declare a dividend or other distribution payable
only in cash, State Street will, as agent for the
participants, buy Trust shares in the open market, on
the New York Stock Exchange or elsewhere, for the
participants' accounts. If, before State Street has
completed its purchases, the market price exceeds the
net asset value of the Registrant's shares, the average
per share purchase price paid by State Street may
exceed the net asset value of the Registrant's shares,
resulting in the acquisition of fewer shares than if
the dividend or distribution had been paid in shares
issued by the Registrant.
<PAGE>
Participants in the Plan may withdraw from the
Plan upon written notice to State Street. When a
participant withdraws from the Plan or upon termination
of the Plan as provided below, certificates for whole
shares credited to his account under the Plan will be
issued and a cash payment will be made for any fraction
of a share credited to such account.
Participants in the Plan have the option of making
additional cash payments to State Street, semi-
annually, for investment in the Registrant's shares.
Such payments may be made in any amount from $100 to
$500. State Street will use all funds received from
participants (as well as any dividend and distributions
received in cash) to purchase Trust shares in the open
market semi-annually. Interest will not be paid on any
uninvested cash payments.
State Street maintains all shareholder accounts in
the Plan and furnishes monthly written confirmations of
all transactions in the account, including information
needed by shareholders for personal and tax records.
Shares in the account of each Plan participant will be
held by State Street in non-certificated form in the
name of the participant, and each shareholder's proxy
will include those shares purchased pursuant to the
Plan. While the Registrant has no plans to issue
additional shares other than pursuant to the Plan, if
participants in the Plan desire to exercise any rights
which may be issued or granted with respect to shares,
they should request that certificates for whole shares
be issued to them. Each participant nevertheless has
the right to receive certificates for whole shares
owned by him.
The Registrant will distribute proxy material to
nominee and record shareholders in accordance with SEC
rules and regulations.
There is no charge to participants for reinvesting
dividends or distributions, except for certain
brokerage commissions, as described below. State
Street's fees for the handling of the reinvestment of
dividends and distributions will be paid by the
Registrant. There will be no brokerage charges with
respect to shares issued directly by the Registrant as
a result of dividends or distributions payable either
in stock or in cash. However, each participant will
pay a pro rata share of brokerage commissions incurred
with respect to State Street's open market purchases in
connection with the reinvestment of dividends or
distributions as well as from voluntary cash payments.
With respect to purchases from voluntary cash
payments, State Street will charge a pro rata share of
the brokerage commissions and a service fee of $0.75
for each cash purchase. Brokerage charges for
purchasing small amounts of stock for individual
accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, as
State Street will be purchasing shares for all
participants in blocks and pro-rating the lower
commission thus attainable.
The automatic reinvestment of dividends and
distributions will not relieve participants of any
income tax which may be payable on such dividends or
distributions.
Experience under the Plan may indicate that
changes are desirable. Accordingly, the Registrant
reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any
dividend or distribution paid subsequent to written
notice of the change sent to the participants in the
Plan at least 90 days before the record date for such
dividend or distribution. The Plan also may be amended
or terminated by State Street on at least 90 days'
written notice to participants in the Plan. All
correspondence concerning the Plan should be directed
to State Street at 225 Franklin Street, Boston,
Massachusetts 02110.
10.2. Long-term debt: The Registrant has entered
into a credit agreement dated as of November 10, 1992
between the Registrant and The Chase Manhattan Bank,
N.A. ("Chase Manhattan") (the "Credit Agreement").
Subject to the terms and conditions of the Credit
Agreement, Chase Manhattan has agreed to make loans
(the "Loans") to the Registrant from time to time
<PAGE>
up to a maximum of $150,000,000 (the "Commitment").
The Loans may be outstanding as either variable rate or
fixed rate loans. The interest rate on variable rate
loans is the higher of (i) the Federal Funds Rate plus
3/8 of 1% and (ii) the prime commercial lending rate of
Chase Manhattan. The interest rate on fixed rate loans
may be the rate either (i) quoted by the principal
London branch of Chase Manhattan for the offering to
leading banks in the London interbank market of United
States Dollar deposits in immediately available funds,
for a period equal or comparable to the period of such
Loan and in an amount substantially equal to the
principal amount of such loan ("Eurodollar Loans"), or
(ii) determined by Chase Manhattan to be the average of
the bid rates quoted to it at its principal office, 1
Chase Manhattan Plaza, New York, New York 10081, for
such Loan by New York certificate of deposit dealers of
recognized standing selected by Chase Manhattan for the
purchase at face value of certificates of deposit of
Chase Manhattan having a maturity equal or comparable
to the period of such Loan and in an amount
substantially equal to the principal amount of such
Loan ("CD Loans"); provided that, if such quotations
from such dealers are not available to Chase Manhattan,
it will determine a reasonably equivalent rate on the
basis of another source or sources selected by it in
good faith. Except for borrowings which exhaust the
full remaining amount of the Commitment, and
prepayments which result in the prepayment of all
Loans, each borrowing and prepayment of principal of
Loans must be in an amount at least equal to
$10,000,000. The Credit Agreement requires that the
Registrant pay a commitment fee on the daily average
unused Commitment of 1/8 of 1%, calculated on the basis
of a year of 365 (or, in a leap year, 366) days for the
actual number of days elapsed. The Registrant has the
right to reduce or terminate the amount of unused
Commitment at any time or from time to time, provided
that: (i) the Registrant gives notice of each such
reduction pursuant to the Credit Agreement; and (ii)
each partial reduction shall be in an aggregate amount
at least equal to $10,000,000. The term of a Loan will
be selected by the Registrant pursuant to the Credit
Agreement but in the case of variable rate loans and CD
Loans will be less than 180 days, and in the case of
Eurodollar Loans will be less than six calendar months.
As of February 1, 1995, the Registrant did not have any
Loans outstanding under the Credit Agreement.
10.3. General: Inapplicable.
10.4. Taxes: The Registrant has elected to be
treated and intends to qualify each year as a regulated
investment company under Subchapter M of the Code by
meeting all applicable requirements of Subchapter M,
including requirements as to the nature of the
Registrant's gross income, the amount of Registrant
distributions, and the composition and holding period
of the Registrant's portfolio assets. Because the
Registrant intends to distribute all of its net
investment income and net realized capital gains to
shareholders in accordance with the timing requirements
imposed by the Code, it is not expected that the
Registrant will be required to pay any federal income
or excise taxes, although the Registrant's foreign-
source income may be subject to foreign withholding
taxes.
The Registrant's investment in zero coupon bonds,
deferred interest bonds, bonds that provide for payment
of interest in kind and stripped securities are subject
to special tax rules that will affect the amount,
timing and character of distributions to shareholders
by causing the Registrant to recognize income prior to
the receipt of cash payments. For example, with
respect to zero coupon bonds, deferred interest bonds
and stripped securities, the Registrant will be
required to accrue as income each year a portion of the
discount (or deemed discount) at which the securities
were issued and to distribute such income each year in
order to maintain its qualification as a regulated
investment company and to avoid income and excise
taxes. The Registrant may also elect to accrue market
discount on a current basis and be required to
distribute any such accrued discount. In order to
generate cash to satisfy these distribution
requirements, the Registrant may have to dispose of
portfolio securities which it would otherwise have
continued to hold, potentially resulting in additional
gain or loss to the Registrant.
<PAGE>
Distributions of net investment income (including
interest on municipal obligations) and the excess of
net short-term capital gain over net long-term capital
loss will be treated as ordinary income in the hands of
shareholders. It is expected that a portion of such
distributions will be eligible for the dividends-
received deduction for corporate shareholders subject
to the limitations applicable to the deduction. Amounts
eligible for the corporate dividends-received deduction
may be subject to alternative minimum tax or result in
certain basis adjustments. Distributions of the excess
of net long-term capital gain over net short-term
capital loss are taxable to shareholders as long-term
capital gain, regardless of the length of time the
shares of the Registrant have been held by such
shareholders. Such distributions are not eligible for
the dividends-received deduction. Monthly
distributions by the Registrant of net short-term
capital gains may, to the extent capital losses are
subsequently realized, be treated as a return of
capital. Distributions that are treated for federal
income tax purposes as a return of capital will reduce
each shareholder's basis in his shares and, to the
extent the return of capital exceeds such basis, will
be treated as gain to the shareholder from a sale of
shares. Dividends declared by the Registrant in
October, November and December to shareholders of
record in such a month and paid the following January
will be reportable by shareholders as if received on
December 31 of the year in which they are declared.
Distributions will be taxable as described above,
whether received in cash or in shares under the
Dividend Reinvestment and Cash Purchase Plan (the
"Plan"). With respect to distributions received in
cash or reinvested in shares purchased on the open
market, the amount of the distribution for tax purposes
is the amount of cash distributed or allocated to the
shareholder. However, with respect to distributions
made in shares issued by the Registrant pursuant to the
Plan, the amount of the distribution for tax purposes
is the fair market value of the issued shares on the
payment date and a portion of such distributions may be
treated as a return of capital. In the case of shares
purchased on the open market, a participating
shareholder's tax basis in each share received is its
cost. In the case of shares issued by the Registrant,
the shareholder's tax basis in each share received is
its fair market value on the payment date.
Distributions by the Registrant generally result
in a reduction in the fair market value of the
Registrant's shares. Should a distribution reduce the
fair market value below a shareholder's cost basis,
such distribution nevertheless would be taxable to the
shareholder as described above, even though, from an
investment standpoint, it may constitute a partial
return of capital. In particular, since the price of
shares purchased shortly before a distribution includes
the amount of the forthcoming distribution, investors
purchasing shares at that time should be aware that the
distribution may be taxable to them even though it
represents a return of their investment.
In general, any gain or loss realized upon a
taxable disposition of shares of the Registrant by a
shareholder that holds such shares as a capital asset
will be treated as long-term capital gain or loss if
the shares have been held for more than twelve months
and otherwise as short-term capital gain or loss.
However, any loss realized upon a taxable disposition
of shares within (or deemed to be within) six months
from the date of their purchase will be treated as a
long-term capital loss to the extent of any amounts
treated by shareholders as long-term capital gains
during such six-month period. All or a portion of any
loss realized upon a taxable disposition of Registrant
shares may be disallowed if other Registrant shares are
purchased (whether under the Plan or otherwise) within
30 days before or after such disposition.
The Registrant's transactions in options, Futures
Contracts, Options on Futures Contracts and Forward
Contracts will be subject to special tax rules that
could affect the amount, timing and character of
distributions to shareholders. For example, the tax
treatment of Futures Contracts entered into by the
Registrant as well as listed non-equity options written
or purchased by the Registrant on U.S. exchanges
(including options on debt securities and Options on
Futures Contracts) and certain Forward Contracts
entered into by the Registrant will be governed by
Section 1256 of the Code. Absent a tax election for
"mixed straddles" (see below), each such position held
by the Registrant on the last business day of each
taxable year of the Registrant will be marked
<PAGE>
to market (i.e., treated as if it were closed out), and
gain or loss associated with such positions (other than
Forward Contracts) will be treated as 60% long-term
capital gain or loss and 40% short-term capital gain or
loss, with subsequent adjustments made to any gain or
loss realized upon an actual disposition of such
positions. When the Registrant holds an option or
contract governed by Section 1256 which substantially
diminishes the Registrant's risk of loss with respect
to another position of the Registrant not governed by
Section 1256 (as might occur in some hedging
transactions), this combination of positions could be a
"mixed straddle" that is subject to the additional
straddle rules of Section 1092 of the Code, which might
result in deferral of losses, adjustments in the
holding periods of Registrant securities and conversion
of short-term capital losses into long-term capital
losses. The Registrant may make certain tax elections
for its "mixed straddles" which could alter certain
effects of Section 1256 or Section 1092. In order to
qualify as a regulated investment company, the
Registrant must derive less than 30% of its annual
gross income from the sale or other disposition of
securities or other investments held less than three
months and will limit its activities in options,
Futures Contracts, Options on Futures Contracts,
Forward Contracts, and swaps and related transactions
to the extent necessary to comply with this
requirement.
An investment in residual interests of a CMO that
has elected to be treated as a real estate mortgage
investment conduit, or "REMIC", can create complex tax
problems, especially if the Fund has state or local
governments or other tax-exempt organizations as
shareholders.
Foreign exchange gains and losses realized by the
Registrant generally will be treated as ordinary income
and losses rather than capital gains and losses. Use
of foreign currencies, foreign currency options and
Forward Contracts for non-hedging purposes and
investment by the Registrant in certain "passive
foreign investment companies" may be limited in order
to avoid imposition of tax on the Registrant.
The Registrant may be subject to foreign taxes on
income received from foreign securities to the extent
such taxes are not reduced or eliminated by tax
treaties and may be unable to pass through to
shareholders foreign tax credits or deductions with
respect to these taxes.
Amounts paid by the Registrant to individuals and
certain other shareholders who have not provided the
Registrant with a correct taxpayer identification
number and certain required certifications or with
respect to whom the Registrant has received
notification to withhold from the Internal Revenue
Service or a broker may be subject to "backup"
withholding at a rate of 31%. An individual's taxpayer
identification number is generally his social security
number.
Dividends and certain other payments to persons
who are not citizens or residents of the United States
("Non-U.S. Persons") are generally subject to U.S. tax
withholding at the rate of 30%. The Registrant intends
to withhold 30% on any payments made to Non-U.S.
Persons that are subject to withholding, irrespective
of whether a lower rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing
a claim for refund with the U.S. Internal Revenue
Service within the time period applicable to such
claims. Backup withholding at a rate of 31% may also
apply to capital gain distributions and the proceeds of
redemptions and exchanges unless Non-U.S. Persons
provide a completed Form W-8 to the Registrant. Backup
withholding will not, however, be applied to payments
that have been subject to 30% withholding.
Under present law, the Registrant will not be
subject to any excise or income taxes in Massachusetts
as long as it qualifies as a regulated investment
company under the Code.
Distributions of the Registrant which are derived
from interest on obligations of the U.S. Government and
certain of its agencies and instrumentalities may be
exempt from state and local taxes in certain states.
The Registrant intends to advise shareholders of the
proportion of its dividends which consists of such
interest. Residents of certain states may be subject
to an intangibles tax or a personal property tax on all
or a portion of
<PAGE>
the value of their shares. Shareholders should consult
their tax advisers regarding the possible exclusion of
such portion of their dividends for state and local
income tax purposes as well as regarding the tax
consequences of an investment in the Registrant.
The Registrant will send written notices to
shareholders regarding the federal income tax status of
all distributions made during each calendar year.
10.5. Outstanding Securities: The following information
is furnished as of February 1, 1995:
<TABLE>
<S> <C> <C> <C>
(1) (2) (3) (4)
Amount
Outstanding
Amount Held by Exclusive
Amount Registrant or of Amount
Title of Class Authorized for Shown
its Account Under (3)
Shares of Unlimited 12,108,500* 112,737,553
Beneficial shares
Interest,
without par
value
*Treasury Shares
</TABLE>
10.6. Securities Ratings: Inapplicable.
Item 11. Defaults and Arrears on Senior Securities:
None.
Item 12. Legal Proceedings: None.
Item 13. Table of Contents of Statement of Additional
Information: See below.
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION
Item 14. Cover Page: Inapplicable.
Item 15. Table of Contents: See below.
Item 16. General Information and History:
Inapplicable.
Item 17. Investment Objective and Policies:
17.1, 17.2 and 17.3: None that are not described
in the Prospectus.
17.4. In fiscal year 1994, the turnover rate of
the Registrant's portfolio was 133%. In fiscal year
1993, the turnover rate of the Registrant's portfolio
was 415%. More volatile markets accounts for the
change in the turnover rate between 1993 and 1994.
A high turnover rate necessarily involves greater
expenses to the Registrant. The Registrant will engage
in portfolio trading if it believes that a transaction
net of costs (including custodian transaction charges)
will help in achieving its investment objective.
Item 18. Management:
18.1. Trustees, Officers and Advisory Board
Members: The Trustees and officers of the Registrant
and their principal occupations for at least the last
five years are set forth below. (Their titles may have
varied during that period.) Unless otherwise noted,
the address of each Trustee and officer is 500 Boylston
Street, Boston, Massachusetts 02116. Trustees and
officers who are "interested persons" of the
Registrant, as defined in the Investment Company Act of
1940, are denoted by an asterisk (*). The Board of
Trustees is divided into three classes, each class
having a term of three years ending with the annual
meeting of shareholders (or any adjournment thereof)
held in the year of expiration, or until the election
of a successor. Each year the term of office of one
class expires: Messrs. Harwood, Ives and Perera will
continue in office until 1995, Messrs. Bailey, Brodkin,
Schmidt and Ms. Smith will continue in office until
1996 and Messrs. Poorvu, Scott, Shames and Stone will
continue in office until 1997.
<TABLE>
<S> <C> <C>
Name and Address Position(s) Held Principal
with Registrant Occupation(s)
During Past 5 years
A. Keith Brodkin* Chairman, President Massachusetts Financial Services Company, Director, Chairman,
and Trustee Chief Executive Officer, Chief Operating Officer and Chief
Investment Officer
Richard B. Bailey* Trustee Private Investor;
Massachusetts
Financial
Services Company,
former
Chairman and
Director
(until September 30,
1991)
Peter G. Harwood Trustee Private Investor
211 Lindsay Pond Road
Concord, Massachusetts
J. Atwood Ives Trustee Eastern Enterprises
9 Riverside Road (diversified holding
Weston, Massachusetts company), Chairman
and
Chief Executive
Officer
(since December
1991);
General Cinema
Corpora-
tion, Vice Chairman
and
Chief Financial
Officer
(until December
1991);
The Neiman Marcus
Group,
Inc., Vice Chairman
and
Chief Financial
Officer
(from August 1987 to
December 1991);
Property
Capital Trust,
Trustee
Lawrence T. Perera Trustee Hemenway & Barnes,
60 State Street Partner (attorneys)
Boston, Massachusetts
William J. Poorvu Trustee Harvard University
Harvard Business Graduate School of
School Business
Soldiers Field Road Administration,
Cambridge, Adjunct Professor;
Massachusetts CBL &
Associates
Properties,
Inc. (a real estate
investment trust),
Director; The
Baupost
Fund (a registered
investment company),
Vice Chairman (since
November 1993),
Chairman
and Trustee (June
1990
until November 1993)
Charles W. Schmidt Trustee Private Investor;
30 Colpitts Road Raytheon Company
Weston, Massachusetts (diversified
electronics
manufacturer),
Senior
Vice President and
Group
Executive (until
December 1990); OHM
Corporation,
Director;
The Boston Company,
Director; Boston
Safe
Deposit and Trust
Company, Director
Arnold D. Scott* Trustee Massachusetts
Financial
Services Company,
Director, Senior
Executive Vice
President
and Secretary
Jeffrey L. Shames* Trustee Massachusetts
Financial
Services Company,
Director, President
and
Chief Executive
Officer
Elaine R. Smith Trustee Independent
Weston, Massachusetts Consultant;
Brigham and Women's
Hospital, Executive
Vice
President and Chief
Operating Officer
(from
August 1990 until
September 1992);
Ernst &
Young (accountants),
Consultant (from
February to July
1990)
David B. Stone Trustee North American
Ten Post Office Management Corp.
Square, (investment
Suite 300 adviser), Chairman
Boston, Massachusetts
Patricia Zlotin* Vice President Massachusetts
Financial
Services Company,
Executive Vice
President
Les Nanberg* Vice President Massachusetts
Financial
Services Company,
Senior
Vice President and
Director of Fixed
Income
Portfolio Management
W. Thomas London* Treasurer Massachusetts
Financial
Services Company,
Senior Vice
President
and Assistant
Treasurer
Stephen E. Cavan* Secretary and Clerk Massachusetts
Financial
Services Company,
Senior
Vice President,
General
Counsel and
Assistant
Secretary (since
December
1989)
James R. Bordewick, Assistant Secretary Massachusetts
Jr.* Financial
Services Company,
Vice
President and
Associate
General Counsel
(since
September 1990);
associated with
major
law firm (prior to
August 1990)
James O. Yost* Assistant Treasurer Massachusetts
Financial
Services Company,
Vice
President
</TABLE>
Each Trustee and officer holds comparable
positions with certain MFS affiliates or with certain
other funds of which MFS or a subsidiary of MFS is the
investment adviser or distributor.
18.2. Each Trustee is also a Trustee of MFS
Series Trust III, MFS Series Trust IV, MFS Series Trust
V, MFS Series Trust VII, MFS Fixed Income Trust,
Massachusetts Investors Trust, Massachusetts Investors
Growth Stock Fund, MFS Growth Opportunities Fund, MFS
Government Securities Fund, MFS Government Mortgage
Fund, and MFS Municipal Income Trust. Mr. Brodkin is
the Chairman, President and a Trustee of each of the
funds in the MFS Family of Funds (the "MFS Funds"), MFS
Charter Income Trust, MFS Government Markets Income
Trust, MFS Special Value Trust and MFS Intermediate
Income Trust, and holds similar positions with certain
affiliates of MFS. Mr. Brodkin is also the Chairman,
President and a Trustee of MFS Institutional Trust, MFS
Variable Insurance Trust and MFS Union Standard Trust.
Messrs. Bailey, Scott and Shames are Trustees of each
of the MFS Funds and MFS Charter Income Trust, MFS
Government Markets Income Trust, MFS Special Value
Trust and MFS Intermediate Income Trust.
18.3. Inapplicable.
18.4.a. The following table lists all trustees of
the Registrant and each of the three highest paid
executive officers or any affiliated person of the
Registrant with aggregate compensation from the
Registrant for the most recently completed fiscal year
in excess of $60,000 ("Compensated Persons").
<TABLE>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Annual Benefits Compensation
Position From Fund (1)Benefits Upon Retirement From Fund and
(Estimated Accrued As (2) Fund Complex
Credited Part of Fund Paid to
Years Expenses (1) Directors (3)
of Service
(2)(5))
A. Keith None None None None
Brodkin,
Chairman,
President and
Trustee
Richard B. $18,000 $2,513 (4) $226,221
Bailey,
Trustee (8)
Peter G. $19,000 $800 (4) $105,812
Harwood,
Trustee (5)
J. Atwood $20,000 $2,625 (4) $106,482
Ives, Trustee
(17)
Lawrence T. $18,500 $7,422 (4) $96,592
Perera,
Trustee
(21)
William J. $20,000 $7,422 (4) $106,482
Poorvu,
Trustee
(21)
Charles W. $18,000 $7,022 (4) $98,397
Schmidt,
Trustee
(14)
Arnold D. None None None None
Scott,
Trustee
Jeffrey L. None None None None
Shames,
Trustee
Elaine R. $18,000 $2,513 (4) $98,397
Smith,
Trustee (27)
David B. $19,000 $4,389 (4) $104,007
Stone,
Trustee (11)
</?TABLE>
(1) For fiscal year ended October 31, 1994.
(2) Based on normal retirement age of 73.
(3) Information provided is provided for calendar
year 1994. All Trustees served as Trustees
of 20 funds within the MFS fund complex
(having aggregate net assets at December 31,
1994, of approximately 14,727,659,069) except
Mr. Bailey, who served as Trustee of 56 funds
within the MFS fund complex (having aggregate
net assets at December 31, 1994, of
approximately 24,474,119,823).
(4) See table set forth below under Item 18.4.b.
(5) Estimated credited years of service include
the total years of service plus the expected
years until retirement.
The Registrant pays each Trustee who is not an
officer of the Investment Adviser a fee of $12,000 per
year plus $500 per meeting and committee meeting
attended. For attendance at meetings as Trustees, the
Trustees of the Registrant as a group received 208,791
from the Registrant for the fiscal year ended October
31, 1994.
18.4.b. The Registrant has adopted a retirement
plan for non-interested Trustees. Under this plan, a
Trustee will retire upon reaching age 73 and if the
Trustee has completed at least 5 years of service, he
would be entitled to annual payments during his
lifetime of up to 50% of such Trustee's average annual
compensation (based on the three years prior to his
retirement) depending on his length of service. A
Trustee may also retire prior to age 73 and receive
reduced payments if he has completed at least 5 years
of service. Under the plan, a Trustee (or his
beneficiaries) will also receive benefits for a period
of time in the event the Trustee is disabled or dies.
These benefits will also be based on the Trustee's
average annual compensation and length of service.
There is no retirement plan provided by the Registrant
for the interested Trustees. However, Mr. Bailey, who
retired as Chairman of MFS as of September 30, 1991,
will eventually become eligible for retirement
benefits. The Registrant will accrue compensation
expenses each year to cover current year's service and
amortize past service cost.
The following table sets forth the estimated
annual benefits payable by the Registrant to the non-
interested Trustees and Mr. Bailey upon retirement.
<PAGE>
</TABLE>
<TABLE>
Estimated Annual Benefits Payable by Registrant upon
Retirement(1)
Average Years of Service
Trustee Fees 3 5 7 10 or more
<S> <C> <C> <C> <C>
$16,000 $2,400 $4,000 $5,600 $8,000
$17,200 $2,580 $4,300 $6,020 $8,600
$18,400 $2,760 $4,600 $6,440 $9,200
$19,600 $2,940 $4,900 $6,860 $9,800
$20,800 $3,120 $5,200 $7,280 $10,400
$22,000 $3,300 $5,500 $7,700 $11,000
(1) Other funds in the MFS fund complex provide
similar retirement benefits to the Trustee.
</TABLE>
Item 19. Control Persons and Principal Holders of
Securities:
As of February 1, 1995, Cede & Co., c/o The
Depository Trust Company, P.O. Box 20, Bowling Green
Station, New York, New York 10004, (as nominee for the
Depository Trust Company, 7 Hanover Square, New York,
New York, 10004), was the record owner of approximately
73.69% of the outstanding shares of the Registrant.
As of February 1, 1995, all Trustees and officers
of the Registrant as a group owned less than 1% of the
outstanding shares of the Registrant.
Item 20. Investment Advisory and Other Services:
Items 20.1.a. through 20.5. See Item 9.1.b. of
this Registration Statement. For the fiscal year ended
October 31, 1994, MFS received fees under the
Registrant's Investment Advisory Agreement of
$6,893,983. For the fiscal year ended October 31,
1993, MFS received fees under the Registrant's
Investment Advisory Agreement of $7,962,775. For the
fiscal year ended October 31, 1992, MFS received fees
under the Investment Advisory Agreement of $8,552,104.
20.6. See Item 9.1.e. The custodian has
contracted with the Investment Adviser for the
Investment Adviser to perform certain accounting
functions related to option transactions for which the
Investment Adviser receives remuneration on a cost
basis.
20.7. The principal business address of the
Registrant's independent auditors, Ernst & Young LLP,
is 200 Clarendon Street, Boston, MA 02116. Ernst &
Young LLP certifies financial statements of the
Registrant as required by any law or regulation to be
certified and provides other tax related services for
the Registrant (such as tax return preparation and
assistance and consultation with respect to the
preparation of filings with the SEC).
20.8. Pursuant to the Registrar, Transfer Agency and
Service Agreement between the Registrant and MFS
Service Center, Inc., MFS Service Center, Inc. ("MFSC")
acts as the Registrant's registrar and transfer agent
for the Registrant's authorized and issued shares of
beneficial interest, as well as dividend disbursing
agent for the Registrant, and agent in connection with
the Dividend Reinvestment and Cash Purchase Plan of the
Registrant. For account maintenance, the Registrant
currently pays MFSC a fee based on the total number of
accounts for all closed-end funds advised by MFS for
which MFSC acts as registrar and transfer agent. If
the total number of accounts is less than 75,000, the
annual account fee is $9.00. If the total number of
accounts is 75,000 or more, the annual account fee is
$8.00. For dividend services, MFSC charges $0.75 per
dividend reinvestment and $0.75 per cash infusion. If
the total amount of fees related to
<PAGE>
dividend services is less than $1,000 per month for all
closed-end funds advised by MFS for which MFSC acts as
registrar and transfer agent, the minimum fee for the
Registrant for these services will be $167 per month.
The Registrant will reimburse MFSC for reasonable out-
of-pocket expenses and advances incurred by MFSC and
for any other expenses incurred by MFSC at the request,
or with the consent, of the Registrant.
Item 21. Brokerage Allocation and Other Practices:
Specific decisions to purchase or sell securities for
the Registrant are made by employees of the Investment
Adviser who are appointed and supervised by its senior
officers. Changes in the Registrant's investments are
reviewed by the Board of Trustees. Such employees may
serve other clients of the Investment Adviser or any
subsidiary in a similar capacity.
The primary consideration in portfolio security
transactions is execution at the most favorable prices.
The Investment Adviser has complete freedom as to the
markets in and the broker-dealers through which it
seeks this result. Government Securities and, in the
United States and in certain other countries, debt
securities are traded principally in the over-the-
counter market on a net basis through dealers acting
for their own account and not as brokers. In other
countries, securities may be traded on exchanges at
fixed commission rates. The cost of securities
purchased from underwriters includes an underwriter's
commission or concession, and the prices at which
securities are purchased and sold from and to dealers
include a dealer's mark-up or mark-down. The
Investment Adviser normally seeks to deal directly with
the primary market maker or on major exchanges, unless
in its opinion, better execution is available
elsewhere. Securities firms may receive brokerage
commissions on transactions involving options, futures
and options on futures and the purchase and sale of
underlying securities upon exercise of options. The
brokerage commissions associated with buying and
selling options may be proportionately higher than
those associated with general securities transactions.
Subject to the requirement of seeking execution at the
most favorable price, securities may, as authorized by
the Advisory Agreement, be bought from or sold to
dealers who have furnished statistical, research and
other information or services to the Investment Adviser
or who have sold shares of funds for which MFS or any
subsidiary serves as investment adviser. At present no
arrangements to recapture commission payments are in
effect. For the fiscal year ended October 31, 1994,
the Registrant did not pay any brokerage commissions.
For the fiscal year ended October 31, 1993, the
Registrant paid brokerage commissions of $2,353.19 on
total transactions, excluding purchased option
transactions and short-term obligations, of
$7,299,207,300. For the fiscal year ended October 31,
1992, the Registrant did not pay any brokerage
commissions.
The Trustees of the Registrant (together with the
Trustees of the other MFS Funds) have directed the
Investment Adviser to allocate a total of $20,000 of
commission business from the MFS Funds to the Pershing
Division of Donaldson, Lufkin & Jenrette as
consideration for the annual renewal of the Lipper
Directors' Analytical Data Service (which provides
information useful to the Trustees in reviewing the
relationship between the Registrant and the Investment
Adviser).
Item 22. Tax Status: None.
Item 23. Financial Statements: The following are
incorporated herein by reference from the Registrant's
Annual Report to its shareholders, for its fiscal year
ended October 31, 1994, copies of which have been filed
with the SEC:
Portfolio of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31,
1994
Statement of Operations for the year ended October
31, 1994
Statement of Changes in Net Assets for the years
ended October 31, 1994 and 1993
Per Share and Other Data for the period from the
commencement operations, March 12, 1987, to
October 31, 1987 and for the years ended October
31, 1988, 1989, 1990, 1991, 1992, 1993 and 1994.
Notes to Financial Statements
Independent Auditors' Report
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
1. Financial Statements:
The following have been incorporated by
reference in Item 23:
Portfolio of Investments at October 31, 1994
Statement of Assets and Liabilities at
October 31, 1994
Statement of Operations for year ended
October 31, 1994
Statement of Changes in Net Assets for
the years ended October 31, 1994 and
1993
Per Share and Other Data for the period
from the commencement of operations,
March 12, 1987, 1988, to October 31,
1987 and for the years ended October
31, 1988, 1989, 1990, 1991, 1992,
1993 and 1994
Notes to Financial Statements
Independent Auditors' Report
2. Exhibits:
(a)(1) -- Declaration of Trust
(previously filed as
Exhibit (1) to the
Registrant's
Registration
Statement on Form N-2
(Investment Company
Act File No. 811-
4975), filed with the
SEC on January 9,
1987 (the
"Registration
Statement"))
incorporated herein
by reference.
(a)(2) -- Amendment of
Declaration of Trust
(previously filed as
Exhibit (1)(A)(1) to
Amendment No. 1 to
the Registrant's
Registration
Statement on Form N-2
(Investment Company
Act File No. 811-
4975), filed with the
SEC on February 2,
1987 ("Amendment No.
1")) incorporated
herein by reference.
(a)(3) -- Certification of
Amendment to
Declaration of Trust
(previously filed as
Exhibit (1)(A)(2) to
Amendment No. 1)
incorporated herein
by reference.
(a)(4) -- Amendment of
Declaration of Trust
dated April 19, 1989,
(previously filed as
Exhibit (1)(A)(3) to
Amendment No. 6 to
the Registrant's
Registration
Statement on Form N-
2, filed with the SEC
on February 28, 1990
("Amendment No. 6"))
incorporated herein
by reference.
(b)(1) -- Amended and Restated
By-Laws (previously
filed as Exhibit (2)
to Amendment No. 2 to
the Registrant's
Registration
Statement on Form N-2
(Investment Company
Act File No. 811-
4975), filed with the
SEC
<PAGE>
on February 24, 1987
("Amendment No. 2"))
incorporated herein
by reference.
(b)(2) -- Amended and Restated
By-laws dated
February 24, 1987, as
amended and restated
November 25, 1991
(previously filed as
Exhibit (2)(A)(1) to
Amendment No. 8) to
the Registrant's
Registration
Statement on Form N-2
("Amendment No. 8"))
incorporated herein
by reference.
(b)(3) -- Amended and Restated
By-Laws dated
December 21, 1994
filed herewith.
(c) -- Inapplicable.
(d) -- Specimen certificate
for Shares of
Beneficial Interest,
without par value
(previously filed as
Exhibit (4) to
Amendment No. 2)
incorporated herein
by reference.
(e) -- The section "Dividend
Reinvestment and Cash
Purchase Plan" on
page 4 of the
Registrant's Annual
Report to its
Shareholders, for its
fiscal year ended
October 31, 1994,
incorporated herein
by reference.
(f) -- Inapplicable.
(g) -- Investment Advisory
Agreement (previously
filed as Exhibit (6)
to Amendment No. 3 to
the Registrant's
Registration
Statement on Form N-2
(Investment Company
Act File No. 811-
4975) filed with the
SEC on March 5, 1987
("Amendment No. 3"))
incorporated herein
by reference.
(h) -- Omitted pursuant to
General Instruction
G.3. to Form N-2.
(i) -- Form of Retirement
Plan for Non-
Interested Person
Trustees, dated
January 1, 1991
(previously filed as
Exhibit (8) to
Amendment No. 8)
incorporated herein
by reference.
(j)(1) -- Form of Custodian
Agreement (previously
filed as Exhibit (9)
to the Registration
Statement)
incorporated herein
by reference.
(j)(2) -- Amendment to Custodian
Agreement (previously
filed as Exhibit
(9)(A)(1) to
Amendment No. 6)
incorporated herein
by reference.
<PAGE>
(j)(3) -- Form of Amendment to
the Custodian
Contract, dated
September 11, 1991
(previously filed as
Exhibit (9)(A)(2) to
Amendment No. 8)
incorporated herein
by reference.
(k)(1) -- Credit Agreement dated
as of November 8,
1989 between the
Registrant, the banks
listed therein and
Morgan Guaranty Trust
Company of New York,
as Agent, (previously
filed as Exhibit (10)
to Amendment No. 6)
incorporated herein
by reference.
(k)(2) -- Registrar, Transfer
Agency and Service
Agreement between
Registrant and MFS
Service Center, Inc.
dated August 15, 1994
filed herewith.
(k)(3) -- Credit Agreement dated
as of November 10,
1992 between
Registrant and Chase
Manhattan Bank, N.A.
filed herewith.
(l) -- Omitted pursuant to
General Instruction
G.3 to Form N-2.
(m) -- Inapplicable.
(n) -- Omitted pursuant to
General Instruction
G.3 to Form N-2.
(o) -- Inapplicable.
(p) -- Form of Purchase
Agreement (previously
filed as Exhibit (14)
to Amendment No. 3)
incorporated herein
by reference.
(q) -- Inapplicable.
Item 25. Marketing Arrangements: Inapplicable.
Item 26. Other Expenses of Issuance and Distribution:
Inapplicable.
Item 27. Persons Controlled by or Under Common Control
with Registrant: Inapplicable.
Item 28. Number of Holders of Securities:
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial 24,420
Interest
(without par value) (as at February
1, 1995)
<PAGE>
Item 29. Indemnification: Article V of the
Registrant's Declaration of Trust provides that the
Registrant will indemnify its Trustees and officers
against liabilities and expenses incurred in connection
with litigation in which they may be involved because
of their offices with the Registrant, unless as to
liabilities to the Registrant or its shareholders, it
is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or
with respect to any matter unless it is adjudicated
that they did not act in good faith in the reasonable
belief that their actions were in the best interest of
the Registrant. In the case of a settlement, such
indemnification will not be provided unless it has been
determined in accordance with the Declaration of Trust
that such officers or Trustees have not engaged in
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices.
The Trustees and officers of the Registrant and
the personnel of the Registrant's investment adviser
are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule
17g-1 under the Investment Company Act of 1940.
Item 30. Business and Other Connections of Investment
Adviser: Massachusetts Financial Services Company
("MFS") serves as investment adviser to the following
open-end funds comprising the MFS Family of Funds:
Massachusetts Investors Trust, Massachusetts Investors
Growth Stock Fund, MFS Growth Opportunities Fund, MFS
Government Securities Fund, MFS Government Mortgage
Fund, MFS Government Limited Maturity Fund, MFS Series
Trust I (which has three series: MFS Managed Sectors
Fund, MFS Cash Reserve Fund and MFS World Asset
Allocation Fund), MFS Series Trust II (which has four
series: MFS Emerging Growth Fund, MFS Capital Growth
Fund, MFS Intermediate Income Fund and MFS Gold &
Natural Resources Fund), MFS Series Trust III (which
has two series: MFS High Income Fund and MFS Municipal
High Income Fund), MFS Series Trust IV (which has four
series: MFS Money Market Fund, MFS Government Money
Market Fund, MFS Municipal Bond Fund and MFS OTC Fund),
MFS Series Trust V (which has two series: MFS Total
Return Fund and MFS Research Fund), MFS Series Trust VI
(which has three series: MFS World Total Return Fund,
MFS Utilities Fund and MFS World Equity Fund), MFS
Series Trust VII (which has two series: MFS World
Governments Fund and MFS Value Fund), MFS Series Trust
VIII (which has two series: MFS Strategic Income Fund
and MFS World Growth Fund), MFS Municipal Series Trust
(which has 19 series: MFS Alabama Municipal Bond Fund,
MFS Arkansas Municipal Bond Fund, MFS California
Municipal Bond Fund, MFS Florida Municipal Bond Fund,
MFS Georgia Municipal Bond Fund, MFS Louisiana
Municipal Bond Fund, MFS Maryland Municipal Bond Fund,
MFS Massachusetts Municipal Bond Fund, MFS Mississippi
Municipal Bond Fund, MFS New York Municipal Bond Fund,
MFS North Carolina Municipal Bond Fund, MFS
Pennsylvania Municipal Bond Fund, MFS South Carolina
Municipal Bond Fund, MFS Tennessee Municipal Bond Fund,
MFS Texas Municipal Bond Fund, MFS Virginia Municipal
Bond Fund, MFS Washington Municipal Bond Fund, MFS West
Virginia Municipal Bond Fund and MFS Municipal Income
Fund) and MFS Fixed Income Trust (which has three
series: MFS Bond Fund, MFS Limited Maturity Fund and
MFS Municipal Limited Maturity Fund) (collectively the
"MFS Funds"). The principal business address of each
of the aforementioned funds is 500 Boylston Street,
Boston, Massachusetts 02116.
MFS also serves as investment adviser of the
following no-load, open-end funds: MFS Institutional
Trust ("MFSIT") (which has two series), MFS Variable
Insurance Trust ("MVI") (which has twelve series) and
MFS Union Standard Trust ("UST") (which has two
series). The principal business address of each of the
aforementioned funds is 500 Boylston Street, Boston,
Massachusetts 02116.
In addition, MFS serves as investment adviser to
the following closed-end funds: MFS Municipal Income
Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust and
MFS Special Value Trust (the "MFS Closed-End Funds").
The principal business address of each of the
aforementioned funds is 500 Boylston Street, Boston,
Massachusetts 02116.
<PAGE>
Lastly, MFS serves as investment adviser to
MFS/Sun Life Series Trust ("MFS/SL"), Sun Growth
Variable Annuity Fund, Inc. ("SGVAF"), Money Market
Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities
Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors
Variable Account. The principal business address of
each is One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited
liability company organized under the laws of the
Republic of Ireland and a subsidiary of MFS, whose
principal business address is 41-45 St. Stephen's
Green, Dublin 2, Ireland, serves as investment adviser
to and distributor for MFS International Funds (which
has four portfolios: MFS International Funds-U.S.
Equity Fund, MFS International Funds-U.S. Emerging
Growth Fund, MFS International Funds-International
Governments Fund and MFS International Fund-Charter
Income Fund) (the "MIL Funds"). The MIL Funds are
organized in Luxembourg and qualify as an undertaking
for collective investments in transferable securities
(UCITS). The principal business address of the MIL
Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and
distributor for MFS Meridian U.S. Government Bond Fund,
MFS Meridian Charter Income Fund, MFS Meridian Global
Government Fund, MFS Meridian U.S. Emerging Growth
Fund, MFS Meridian Global Equity Fund, MFS Meridian
Limited Maturity Fund, MFS Meridian World Growth Fund,
MFS Meridian Money Market Fund and MFS Meridian U.S.
Equity Fund (collectively the "MFS Meridian Funds").
Each of the MFS Meridian Funds is organized as an
exempt company under the laws of the Cayman Islands.
The principal business address of each of the MFS
Meridian Funds is P.O. Box 309, Grand Cayman, Cayman
Islands, British West Indies.
MFS Fund Distributors, Inc. ("MFD"), a wholly
owned subsidiary of MFS, serves as distributor for the
MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a
wholly owned subsidiary of MFS, serves as distributor
for certain life insurance and annuity contracts issued
by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned
subsidiary of MFS, serves as shareholder servicing
agent to the MFS Funds, the MFS Closed-End Funds, MFS
Institutional Trust, MFS Variable Insurance Trust and
MFS Union Standard Trust.
MFS Asset Management, Inc. ("AMI"), a wholly owned
subsidiary of MFS, provides investment advice to
substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly
owned subsidiary of MFS, markets MFS products to
retirement plans and provides administrative and record
keeping services for retirement plans.
The Directors of MFS are A. Keith Brodkin, Jeffrey
L. Shames, Arnold D. Scott, John R. Gardner and John D.
McNeil. Mr. Brodkin is the Chairman, Mr. Shames is the
President, Mr. Scott is a Senior Executive Vice
President and Secretary, James E. Russell is a Senior
Vice President and the Treasurer, Stephen E. Cavan is a
Senior Vice President, General Counsel and an Assistant
Secretary, Robert T. Burns is a Vice President and an
Assistant Secretary, and W. Thomas London is a Senior
Vice President and an Assistant Treasurer of MFS.
In addition, the following persons, Directors or
officers of MFS, have the affiliations indicated:
<PAGE>
A. Keith Brodkin Director, Sun Life Assurance
Company of Canada (U.S.), One
Sun Life Executive Park,
Wellesley Hills, Massachusetts
Director, Sun Life
Insurance and Annuity
Company of New York, 67 Broad
Street, New York, New York
John R. Gardner President and a Director, Sun
Life Assurance Company of
Canada, Sun Life Centre, 150
King Street West, Toronto,
Ontario, Canada (Mr. Gardner
is also an officer and/or
Director of various
subsidiaries and affiliates of
Sun Life)
John D. McNeil Chairman, Sun Life Assurance
Company of Canada, Sun Life
Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr.
McNeil is also an officer
and/or Director of various
subsidiaries and affiliates of
Sun Life)
Item 31. Location of Accounts and Records:
The accounts and records of the Registrant
are located, in whole or in part, at the
office of the Registrant and the following
locations:
NAME ADDRESS
Massachusetts Financial 500 Boylston Street
Services Company Boston, Massachusetts 02116
State Street Bank and State Street South, 5-West
Trust Company North Quincy, Massachusetts 02171
Item 32. Management Services: Inapplicable.
Item 33. Undertakings: Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment
Company Act of 1940, the Registrant has duly caused
this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of
Massachusetts on the day of February, 1995.
MFS MULTIMARKET INCOME
TRUST
By:
A. Keith Brodkin
Chairman and President
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page
(b)(3) -- Amended and Restated By-Laws of
Registrant dated December 21,
1994.
(k)(2) -- Registrar, Transfer Agency and
Service Agreement between
Registrant and MFS Service
Center, Inc.
dated August 15, 1994.
(k)(3) -- Credit Agreement dated as of
November 10, 1992
between Registrant and Chase
Manhattan Bank, N.A.
27 -- Financial Data Schedule
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS MULTIMARKET INCOME TRUST
DECEMBER 21, 1994
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS MULTIMARKET INCOME TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration",
"Distributor", "Investment Adviser", "Majority
Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property" and
"Trustees" have the respective meanings given them in
the Declaration of Trust of MFS Multimarket Income
Trust, dated January 9, 1987 as amended from time to
time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by
the Trustees, the principal office of the Trust in The
Commonwealth of Massachusetts shall be in the City of
Boston, County of Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have
offices in such other places without as well as within
the Commonwealth as the Trustees may from time to time
determine.
<PAGE>
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the
Shareholders may be called at any time by a majority of
the Trustees and shall be called by any Trustee upon
written request of Shareholders holding in the
aggregate not less than ten percent (10%) of the
outstanding Shares of the Trust having voting rights,
if shareholders of all series are required under the
Declaration to vote in the aggregate and not by
individual series at such meeting, or of any series or
class if shareholders of such series or class are
entitled under the Declaration to vote by individual
series or class, such request specifying the purpose or
purposes for which such meeting is to be called. Any
such meeting shall be held within or without The
Commonwealth of Massachusetts on such day and at such
time as the Trustees shall designate.
SECTION 2. NOTICE OF MEETINGS. Notice of all
meetings of Shareholders, stating the time, place and
purposes of the meeting, shall be given by the Trustees
by mail to each Shareholder entitled to vote at such
meeting at his address as recorded on the register of
the Trust, mailed at least (ten) 10 days and not more
than (sixty) 60 days before the meeting. Only the
business stated in the notice of the meeting shall be
considered at such meeting. Any adjourned meeting may
be held as adjourned without further notice. No notice
need be given to any Shareholder who shall have failed
to inform the Trust of his current address or if a
written waiver of notice, executed before or after the
meeting by the Shareholder or his attorney thereunto
authorized, is filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS. For the
purpose of determining the Shareholders who are
entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of
any other action, the Trustees may from time to time
close the transfer books for such period, not exceeding
thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix
a date not more than sixty (60) days prior to the date
of any meeting of Shareholders or distribution or other
action as a record date for the determination of the
persons to be treated as Shareholders of record for
such purpose.
SECTION 4. PROXIES. At any meeting of
Shareholders, any holder of Shares entitled to vote
thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been
placed on file with the Clerk, or with such other
officer or agent of the Trust as the Clerk may direct,
for verification prior to the time at which such vote
shall be taken. Pursuant to a vote of a majority of
the Trustees, proxies may be solicited in the name of
one or more Trustees or one or more of the officers of
the Trust. When any Share is held jointly by several
persons, any one of them may vote at any meeting in
person or by proxy in respect of such Share, but if
more than one of them shall be present at such meeting
in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast,
such vote shall not be received in respect of such
Share. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger.
The placing of a Shareholder's name on a proxy pursuant
to telephonic or electronically transmitted
instructions obtained pursuant to procedures reasonably
designed to verify that such instructions have been
authorized by such Shareholder shall constitute
execution of such proxy by or on behalf of such
Shareholder. If the holder of any such Share is a
minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other
person as regards the charge or management of such
Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be
given in person or by proxy. Any copy, facsimile
telecommunication or other reliable reproduction of a
proxy may be substituted for or used in lieu of the
original proxy for any and all purposes for which the
original proxy could be used, provided that such copy,
facsimile telecommunication or other reproduction shall
be a complete reproduction of the entire original proxy
or the portion thereof to be returned by the
Shareholder.
<PAGE>
SECTION 5. QUORUM, ADJOURNMENT AND REQUIRED VOTE.
A majority of outstanding Shares entitled to vote shall
constitute a quorum at any meeting of Shareholders,
except that where any provision of law, the Declaration
or these By-laws permits or requires that holders of
any series or class shall vote as a series or class,
then a majority of the aggregate number of Shares of
that series or class entitled to vote shall be
necessary to constitute a quorum for the transaction of
business by that series or class. In the absence of a
quorum, a majority of outstanding Shares entitled to
vote present in person or by proxy, or, where any
provision of law, the Declaration or these By-laws
permits or requires that holders of any series or class
shall vote as a series or class, a majority of
outstanding Shares of that series or class entitled to
vote present in person or by proxy, may adjourn the
meeting from time to time until a quorum shall be
present. Only Shareholders of record shall be entitled
to vote on any matter. Each full Share shall be
entitled to one vote and fractional Shares shall be
entitled to a vote of such fraction. Except as
otherwise provided any provision of law, the
Declaration or these By-laws, Shares representing a
majority of the votes cast shall decide any matter
(i.e., abstentions and broker non-votes shall not be
counted) and a plurality shall elect a Trustee,
provided that where any provision of law, the
Declaration or these By-Laws permits or requires that
holders of any series or class shall vote as a series
or class, then a majority of the Shares of that series
or class cast on the matter shall decide the matter
(i.e., abstentions and broker non-votes shall not be
counted) insofar as that series or class is concerned.
SECTION 6. INSPECTION OF RECORDS. The records of
the Trust shall be open to inspection by Shareholders
to the same extent as is permitted shareholders of a
Massachusetts business corporation.
SECTION 7. ACTION WITHOUT MEETING. Any action
which may be taken by Shareholders may be taken without
a meeting if a majority of Shareholders entitled to
vote on the matter (or such larger proportion thereof
as shall be required by law, the Declaration or these
By-Laws for approval of such matter) consent to the
action in writing and the written consents are filed
with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
<PAGE>
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The
Trustees may in their discretion provide for regular or
stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the
Trustees other than regular or stated meetings shall be
held whenever called by the Chairman or by any one of
the Trustees at the time being in office. Notice of
the time and place of each meeting other than regular
or stated meetings shall be given by the Secretary or
an Assistant Secretary, or the Clerk or an Assistant
Clerk or by the officer or Trustee calling the meeting
and shall be mailed to each Trustee at least two days
before the meeting, or shall be telegraphed, cabled, or
wirelessed or sent by facsimile or other electronic
means to each Trustee at his business address, or
personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any
Trustee. Notice of a meeting need not be given to any
Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records
of the meeting, or to any Trustee who attends the
meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or
waiver of notice need not specify the purpose of any
meeting. Except as provided by law the Trustees may
meet by means of a telephone conference circuit or
similar communications equipment by means of which all
persons participating in the meeting can hear each
other, which telephone conference meeting shall be
deemed to have been held at a place designated by the
Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person
at such meeting. Any action required or permitted to
be taken at any meeting of the Trustees may be taken by
the Trustees without a meeting if all the Trustees
consent to the action in writing and the written
consents are filed with the records of the Trustees'
meetings. Such consents shall be treated as a vote for
all purposes.
<PAGE>
SECTION 2. QUORUM AND MANNER OF ACTING. A
majority of the Trustees shall be present at any
regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at
such meeting and (except as otherwise required by law,
the Declaration or these By-Laws) the act of a majority
of the Trustees present at any such meeting, at which a
quorum is present, shall be the act of the Trustees.
In the absence of a quorum, a majority of the Trustees
present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned
meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The
Trustees by vote of a majority of all the Trustees may
elect from their own number an Executive Committee to
consist of not less than three (3) Trustees to hold
office at the pleasure of the Trustees which shall have
the power to conduct the current and ordinary business
of the Trust while the Trustees are not in session,
including the purchase and sale of securities and the
designation of securities to be delivered upon
redemption of Shares of the Trust, and such other
powers of the Trustees as the Trustees may, from time
to time, delegate to the Executive Committee except
those powers which by law, the Declaration or these By-
Laws they are prohibited from delegating. The Trustees
may also elect from their own number other Committees
from time to time, the number composing such
Committees, the powers conferred upon the same (subject
to the same limitations as with respect to the
Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The
Trustees may designate a chairman of any such
Committee. In the absence of such designation a
Committee may elect its own Chairman.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING.
The Trustees may:
(i) provide for stated meetings of any Committee,
(ii) specify the manner of calling and notice required
for special meetings of any Committee,
(iii) specify the number of members of a Committee
rquired to constitute a quorum and the number of
members of a Committee required to exercise
specified powers delegated to such Committee,
<PAGE>
(iv) authorize the making of decisions to exercise
specified powers by written assent of the
requisite number of members of a Committee
without a meeting, and
(v) authorize the members of a Committee to meet by
means of a telephone conference circuit.
Each Committee shall keep regular minutes of its
meetings and records of decisions taken without a
meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of
the Trust.
SECTION 3. ADVISORY BOARD. The Trustees may
appoint an Advisory Board to consist in the first
instance of not less than three (3) members. Members
of such Advisory Board shall not be Trustees or
officers and need not be Shareholders. A member of
such Advisory Board shall hold office for such period
as the Trustees may by resolution provide. Any member
of such board may resign therefrom by a written
instrument signed by him which shall take effect upon
delivery to the Trustees. The Advisory Board shall
have no legal powers and shall not perform the
functions of Trustees in any manner, such Advisory
Board being intended merely to act in an advisory
capacity. Such Advisory Board shall meet at such times
and upon such notice as the Trustees may by resolution
provide.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of
the Trust shall be a Chairman, a President, a Treasurer
and a Clerk, who shall be elected by the Trustees. The
Trustees may elect or appoint such other officers or
agents as the business of the Trust may require,
including one or more Vice Presidents, a Secretary and
one or more Assistant Secretaries, one or more
Assistant Treasurers, and one or more Assistant Clerks.
The Trustees may delegate to any officer or Committee
the power to appoint any subordinate officers or
agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS.
Except as otherwise provided by law, the Declaration or
these By-Laws, the Chairman, the President, the
Treasurer and the Clerk shall hold office until his
resignation has been accepted by the Trustees or until
his respective successor shall have been duly elected
and qualified, and all other officers shall hold office
at the pleasure of the Trustees. Any two or more
offices may be held by the same person. Any officer
may be, but none need be, a Trustee or Shareholder.
<PAGE>
SECTION 3. REMOVAL. The Trustees, at any regular
or special meeting of the Trustees, may remove any
officer with or without cause by a vote of a majority
of the Trustees. Any officer or agent appointed by any
officer or Committee may be removed with or without
cause by such appointing officer or Committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN.
The Chairman may call meetings of the Trustees and of
any Committee thereof when he deems it necessary and
shall preside at all meetings of the Shareholders.
Subject to the control of the Trustees and any
Committees of the Trustees, the Chairman shall at all
times exercise a general supervision and direction over
the affairs of the Trust. The Chairman shall have the
power to employ attorneys and counsel for the Trust and
to employ such subordinate officers, agents, clerks and
employees as he may find necessary to transact the
business of the Trust. The Chairman shall also have
the power to grant, issue, execute or sign such powers
of attorney, proxies or other documents as may be
deemed advisable or necessary in furtherance of the
interests of the Trust. The Chairman shall have such
other powers and duties as, from time to time, may be
conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT.
In the absence or disability of the Chairman, the
President shall perform all the duties and may exercise
any of the powers of the Chairman, subject to the
control of the Trustees. The President shall perform
such other duties as may be assigned to him from time
to time by the Trustees or the Chairman.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS.
In the absence or disability of the President, the Vice
President or, if there be more than one Vice President,
any Vice President designated by the Trustees shall
perform all the duties and may exercise any of the
powers of the President, subject to the control of the
Trustees. Each Vice President shall perform such other
duties as may be assigned to him from time to time by
the Trustees or the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER.
The Treasurer shall be the principal financial and
accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his
hands to such custodian as the Trustees may employ
pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the
Trust to the Trustees as often as they shall require
the same and shall in general perform all the duties
incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by
the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so
by the Trustees, in such sum and with such surety or
sureties as the Trustees shall require.
<PAGE>
SECTION 8. POWERS AND DUTIES OF THE CLERK. The
Clerk shall keep the minutes of all meetings of the
Shareholders in proper books provided for that purpose;
he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists
and records unless the same are in the charge of the
Transfer Agent. He or the Secretary shall attend to
the giving and serving of all notices by the Trust in
accordance with the provisions of these By-Laws and as
required by law; and subject to these By-Laws, he
shall in general perform all duties incident to the
office of Clerk and such other duties as from time to
time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF THE SECRETARY.
The Secretary, if any, shall keep the minutes of all
meetings of the Trustees. He shall perform such other
duties and have such other powers in addition to those
specified in these By-Laws as the Trustees shall from
time to time designate. If there be no Secretary or
Assistant Secretary, the Clerk shall perform the duties
of Secretary.
SECTION 10. POWERS AND DUTIES OF ASSISTANT
TREASURERS. In the absence or disability of the
Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise
any of the powers, of the Treasurer. Each Assistant
Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each
Assistant Treasurer shall give a bond for the faithful
discharge of his duties, if required to do so by the
Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
SECTION 11. POWERS AND DUTIES OF ASSISTANT
CLERKS. In the absence or disability of the Clerk, any
Assistant Clerk designated by the Trustees shall
perform all the duties, and may exercise any of the
powers, of the Clerk. The Assistant Clerks shall
perform such other duties as from time to time may be
assigned to them by the Trustees.
SECTION 12. POWERS AND DUTIES OF ASSISTANT
SECRETARIES. In the absence or disability of the
Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may
exercise any of the powers, of the Secretary. The
Assistant Secretaries shall perform such other duties
as from time to time may be assigned to them by the
Trustees.
SECTION 13. COMPENSATION OF OFFICERS AND TRUSTEES
AND MEMBERS OF THE ADVISORY BOARD. Subject to any
applicable law or provision of the Declaration, the
compensation of the officers and Trustees and members
of the Advisory Board shall be fixed from time to time
by the Trustees or, in the case of officers, by any
Committee or officer upon whom such power may be
conferred by the Trustees. No officer shall be
prevented from receiving such compensation as such
officer by reason of the fact that he is also a
Trustee.
<PAGE>
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the
first day of November in each year and shall end on the
last day of October in that year, provided, however,
that the Trustees may from time to time change the
fiscal year.
ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in
such form and shall have such inscription thereon as
the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by
law, the Declaration or these By-Laws, a waiver thereof
in writing, signed by the person or persons entitled to
such notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice
shall be deemed to have been telegraphed, cabled or
wirelessed or sent by facsimile or other electronic
means for the purposes of these By-Laws when it has
been delivered to a representative of any telegraph,
cable or wireless company with instruction that it be
telegraphed, cabled or wirelessed or when a
confirmation of such facsimile having been sent, or a
confirmation that such electronic means has sent the
notice being transmitted, is generated. Any notice
shall be deemed to be given at the time when the same
shall be mailed, telegraphed, cabled or wirelessed or
when sent by facsimile or other electronic means.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees
shall at all times employ a bank or trust company
having a capital, surplus and undivided profits of at
least five million dollars ($5,000,000.00) as custodian
with authority as its agent, but subject to such
restrictions, limitations and other requirements, if
any, as may be contained in the Declaration, these By-
Laws and the 1940 Act:
<PAGE>
(i) to hold the securities owned by the Trust and
deliver the same upon written order;
(ii) to receive and issue receipts for any monies due
to the Trust and deposit the same in its own
banking department or elsewhere as the Trustees
may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books
and accounts of the Trust and furnish clerical
and accounting services; and
(v) if authorized to do so by the Trustees, to compute
the net income of the Trust;
all upon such basis of compensation as may be agreed
upon between the Trustees and the custodian. If so
directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all Trust Property held by
it as specified in such vote.
The Trustees may also authorize the custodian to
employ one or more sub-custodians from time to time to
perform such of the acts and services of the custodian
and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and
approved by the Trustees, provided that in every case
such sub-custodian shall be a bank or trust company
organized under the laws of the United States or one of
the states thereof and having capital, surplus and
undivided profits of at least five million dollars
($5,000,000.00) or such foreign banks and securities
depositories as meet the requirements of applicable
provisions of the 1940 Act or the rules and regulations
thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject
to such rules, regulations and orders as the Commission
may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the
Trust in a system for the central handling of
securities established by a national securities
exchange or a national securities association
registered with the Commission under the Securities
Exchange Act of 1934, or such other person as may be
permitted by the Commission, or otherwise in accordance
with the 1940 Act, pursuant to which system all
securities of any particular class or series of any
issuer deposited within the system are treated as
fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust
or its custodian.
<PAGE>
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF
CERTIFICATES. Subject to such rules, regulations and
orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or
other written evidences indicating purchases of
securities held in book-entry form in the Federal
Reserve System in accordance with regulations
promulgated by the Board of Governors of the Federal
Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such
securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The
substance of the following provisions shall apply to
the employment of a custodian pursuant to this Article
X and to any contract entered into with the custodian
so employed:
(i) The Trustees shall cause to be delivered
to the custodian all securities owned by
the Trust or to which it may become
entitled, and shall order the same to be
delivered by the custodian only upon
completion of a sale, exchange,
transfer, pledge, or other disposition
thereof, and upon receipt by the
custodian of the consideration therefor
or a certificate of deposit or a receipt
of an issuer or of its Transfer Agent,
all as the Trustees may generally or
from time to time require or approve, or
to a successor custodian; and the
Trustees shall cause all funds owned by
the Trust or to which it may become
entitled to be paid to the custodian,
and shall order the same disbursed only
for investment against delivery of the
securities acquired, or in payment of
expenses, including management
compensation, and liabilities of the
Trust, including distributions to
Shareholders, or to a successor
custodian; provided, however, that
nothing herein shall prevent the
custodian from paying for securities
before such securities are received by
the custodian or the custodian from
delivering securities prior to receiving
payment therefor in accordance with the
payment and delivery customs of the
market in which such securities are
being purchased or sold .
(ii) In case of the resignation, removal or
inability to serve of any such
custodian, the Trust shall promptly
appoint another bank or trust company
meeting the requirements of this Article
X as successor custodian. The agreement
with the custodian shall provide that
the retiring custodian shall, upon
receipt of notice of such appointment,
deliver the funds and property of the
Trust in its possession to and only to
such successor, and that pending
appointment of a successor custodian, or
a vote of the Shareholders to function
without a custodian, the custodian shall
not deliver funds and property of the
Trust to the Trust, but may deliver all
or any part of them to a bank or trust
company doing business in Boston,
Massachusetts, of its own selection,
having an aggregate capital, surplus and
undivided profits (as shown in its last
published report) of at least
$5,000,000, as the property of the Trust
to be held under terms similar to those
on which they were held by the retiring
custodian.
<PAGE>
ARTICLE XI
SALE OF SHARES OF THE TRUST
The Trustees may from time to time issue and sell
or cause to be issued and sold Shares for cash or other
property, which shall in every case be paid or
delivered to the Custodian as agent of the Trust before
the delivery of any certificate for such shares. The
Shares, including additional Shares which may have been
repurchased by the Trust (herein sometimes referred to
as "treasury shares"), may not be sold at a price less
than the net asset value thereof (as defined in Article
XII hereof) determined by or on behalf of the Trustees
next after the sale is made or at some later time after
such sale.
No Shares need be offered to existing Shareholders
before being offered to others. No Shares shall be
sold by the Trust (although Shares previously
contracted to be sold may be issued upon payment
therefor) during any period when the determination of
net asset value is suspended by declaration of the
Trustees pursuant to the provisions of Article XII
hereof. In connection with the acquisition by merger
or otherwise of all or substantially all the assets of
an investment company (whether a regulated or private
investment company or a personal holding company), the
Trustees may issue or cause to be issued Shares and
accept in payment therefor such assets valued at not
more than market value thereof in lieu of cash,
notwithstanding that the federal income tax basis to
the Trust of any assets so acquired may be less than
the market value, provided that such assets are of the
character in which the Trustees are permitted to invest
the funds of the Trust.
The Trustees, in their sole discretion, may cause
the Trust to redeem all of the Shares of the Trust held
by any Shareholder if the value of such Shares is less
than a minimum amount established from time to time by
the Trustees.
<PAGE>
ARTICLE XII
NET ASSET VALUE OF SHARES
The term "net asset value" per Share of any class
or series of Shares shall mean: (i) the value of all
assets of that series or class; (ii) less total
liabilities of such series or class; (iii) divided by
the number of Shares of such series or class
outstanding, in each case at the time of such
determination, all as determine by or under the
direction of the Trustees. Such value shall be
determined on such days and at such time as the
Trustees may determine. Such determination shall be
made with respect to securities for which market
quotations are readily available, at the market value
of such securities; and with respect to other
securities and assets, at the fair value as determined
in good faith by or pursuant to the direction of the
Trustees, provided, however, that the Trustees, without
shareholder approval, may alter the method of
appraising portfolio securities insofar as permitted
under the 1940 Act, and the rules, regulations and
interpretations thereof promulgated or issued by the
Securities and Exchange Commission or insofar as
permitted by any order of the Securities and Exchange
commission. The Trustees may delegate any powers and
duties under this Article XII with respect to appraisal
of assets and liabilities. At any time the Trustees
may cause the value per share last determined to be
determined again in a similar manner and may fix the
time when such predetermined value shall become
effective.
ARTICLE XIII
DIVIDENDS AND DISTRIBUTIONS
SECTION 1. LIMITATIONS ON DISTRIBUTIONS. The
total of distributions to Shareholders of a particular
series or class paid in respect of any one fiscal year,
subject to the exceptions noted below, shall, when and
as declared by the Trustees, be approximately equal to
the sum of:
(i) the net income, exclusive of the profits
or losses realized upon the sale of
securities or other property, of such
series or class for such fiscal year,
determined in accordance with generally
accepted accounting principles (which,
if the Trustees so determine, may be
adjusted for net amounts included as
such accrued net income in the price of
Shares of such series or class issued or
repurchased), but if the net income of
such series or class exceeds the amount
distributed by less than one cent per
share outstanding at the record date for
the final dividend, the excess shall be
treated as distributable income of such
series or class for the following fiscal
year; and
<PAGE>
(ii) in the discretion of the Trustees, an
additional amount which shall not
substantially exceed the excess of
profits over losses on sales of
securities or other property allocated
or belonging to such series or class for
such fiscal year.
The decision of the Trustees as to what, in accordance
with generally accepted accounting principles, is
income and what is principal shall be final, and except
as specifically provided herein the decision of the
Trustees as to what expenses and charges of the Trust
shall be charged against principal and what against
income shall be final, all subject to any applicable
provisions of the 1940 Act and rules, regulations and
orders of the Commission promulgated thereunder. For
the purposes of the limitation imposed by this Section
1, Shares issued pursuant to Section 2 of this Article
XIII shall be valued at the amount of cash which the
Shareholders would have received if they had elected to
receive cash in lieu of such Shares.
Inasmuch as the computation of net income and
gains for federal income tax purposes may vary from the
computation thereof on the books, the above provisions
shall be interpreted to give to the Trustees the power
in their discretion to distribute for any fiscal year
as ordinary dividends and as capital gains
distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce
liability for taxes. Any payment made to Shareholders
pursuant to clause (ii) of this Section 1 shall be
accompanied by a written statement showing the source
or sources of such payment, and the basis of
computation thereof.
SECTION 2. DISTRIBUTIONS PAYABLE IN CASH OR
SHARES. The Trustees shall have power, to the fullest
extent permitted by the laws of The Commonwealth of
Massachusetts but subject to the limitation as to cash
distributions imposed by Section 1 of this Article
XIII, at any time or from time to time to declare and
cause to be paid distributions payable at the election
of any Shareholder of any series or class (whether
exercised before or after the declaration of the
distribution) either in cash or in Shares of such
series, provided that the sum of:
(i) the cash distribution actually paid to
any Shareholder, and
(ii) the net asset value of the Shares which
that Shareholder elects to receive, in
effect at such time at or after the
election as the Trustees may specify,
shall not exceed the full amount of cash
to which that Shareholder would be
entitled if he elected to receive only
cash.
<PAGE>
In the case of a distribution payable in cash or Shares
at the election of a Shareholder, the Trustees may
prescribe whether a Shareholder, failing to express his
election before a given time shall be deemed to have
elected to take Shares rather than cash, or to take
cash rather then Shares, or to take Shares with cash
adjustment of fractions.
The Trustees, in their sole discretion, may cause
the Trust to require that all distributions payable to
a shareholder in amounts less than such amount or
amounts determined from time to time by the Trustees be
reinvested in additional shares of the Trust rather
than paid in cash, unless a shareholder who, after
notification that his distributions will be reinvested
in additional shares in accordance with the preceding
phrase, elects to receive such distributions in cash.
Where a shareholder has elected to receive
distributions in cash and the postal or other delivery
service is unable to deliver checks to the
shareholder's address of record, the Trustees, in their
sole discretion, may cause the Trust to require that
such Shareholder's distribution option will be
converted to having all distributions reinvested in
additional shares.
SECTION 3. STOCK DIVIDENDS. Anything in these By-
Laws to the contrary notwithstanding, the Trustees may
at any time declare and distribute pro rata among the
Shareholders of any series or class a "stock dividend"
out of either authorized but unissued Shares of such
series or class or treasury Shares of such series or
class or both.
ARTICLE XIV
DERIVATIVE CLAIMS
No Shareholder shall have the right to bring or
maintain any court action, proceeding or claim on
behalf of the Trust or any series or class thereof
without first making demand on the Trustees requesting
the Trustees to bring or maintain such action,
proceeding or claim. Such demand shall be excused only
when the plaintiff makes a specific showing that
irreparable injury to the Trust or any series or class
thereof would otherwise result. Such demand shall be
mailed to the Clerk of the Trust at the Trust's
principal office and shall set forth in reasonable
detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon
by the Shareholder to support the allegations made in
the demand. The Trustees shall consider such demand
within 45 days of its receipt by the Trust. In their
sole discretion, the Trustees may submit the matter to
a vote of Shareholders of the Trust or any series or
class thereof, as appropriate. Any decision by the
Trustees to bring, maintain or settle (or not to bring,
maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of
Shareholders, shall be made by the Trustees in their
business judgment and shall be binding upon the
Shareholders. Any decision by the Trustees to bring or
maintain a court action, proceeding or suit on behalf
of the Trust or any series or class thereof shall be
subject to the right of the Shareholders under Article
VI, Section 6.8 of the Declaration to vote on whether
or not such court action, proceeding or suit should or
should not be brought or maintained.
<PAGE>
ARTICLE XV
AMENDMENTS
These By-Laws, or any of them, may be altered,
amended or repealed, restated, or new By-Laws may be
adopted:
(i) by Majority Shareholder Vote, or
(ii) by the Trustees,
provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment,
adoption or repeal requires, pursuant to law, the
Declaration or these By-Laws, a vote of the
Shareholders.
<PAGE>
REGISTRAR,
TRANSFER AGENCY AND SERVICE AGREEMENT
Between
MFS MULTIMARKET INCOME TRUST
and
MFS SERVICE CENTER, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
Article 1 Terms of Appointment; Duties of MFSC 2
Article 2 Fees and Expenses 4
Article 3 Representations and Warranties of
MFSC 5
Article 4 Representations and Warranties of the
Fund 6
Article 5 Duty of Care and Indemnification 7
Article 6 Covenants of MFSC 9
Article 7 Notice 10
Article 8 Use of Sub- or Co-Transfer Agent 11
Article 9 Termination of Agreement 11
Article 10 Assignment 13
Article 11 Applicable Law 13
Article 12 Merger of Agreement 13
Article 13 Trust Only 14
<PAGE>
REGISTRAR, TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 15th day of August ,
1994, by and between MFS MULTIMARKET INCOME TRUST, a
Massachusetts business trust, having its principal
office and place of business at 500 Boylston Street,
Boston, Massachusetts 02116 (the "Fund"), and MFS
Service Center, Inc., a Delaware corporation, having
its principal office and place of business at 500
Boylston Street, Boston, Massachusetts 02116 ("MFSC").
WHEREAS, the Fund is registered as a closed-end
management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") and
its shares of beneficial interest are registered under
the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Fund's shares of beneficial interest
are listed on the New York Stock Exchange, Inc. (the
"NYSE");
WHEREAS, MFSC is registered as a transfer agent
under the Securities Exchange Act of 1934, as amended
(the "1934 Act");
WHEREAS, MFSC is a wholly-owned subsidiary of
Massachusetts Financial Services Company ("MFS") and
MFS is the investment adviser of the Fund;
WHEREAS, the Fund desires to appoint MFSC as its
registrar, transfer agent, dividend disbursing agent
and agent in connection with certain other activities,
and MFSC desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, the parties hereto agree as
follows:
ARTICLE 1. TERMS OP APPOINTMENT; DUTIES OF MFSC
1.01. Subject to the terms and conditions set
forth in this Agreement, the Fund hereby employs and
appoints MFSC to act as, and MFSC agrees to act as,
registrar and transfer agent for the Fund's authorized
and issued shares of beneficial interest ("Shares") as
well as dividend disbursing agent for the Fund and
agent in connection with any dividend reinvestment and
cash purchase plan of the Fund.
1.02. MFSC agrees that it will perform the
following services:
(a) In accordance with procedures established
from time
to time by agreement between the Fund and
MFSC, MFSC shall:
(i) issue and record the appropriate number of
Shares and hold such Shares in the appropriate
shareholder account;
<PAGE>
(ii) effect transfers on the books of the Fund of
Shares by the registered owners thereof upon
receipt of appropriate documentation;
(iii) prepare and transmit payments for dividends
and distributions declared by the Fund; and
(iv) act as agent, or arrange for an independent
party to act as agent, for shareholders
pursuant to the dividend reinvestment and cash
purchase plan as amended from time to time.
(b) In addition to and not in lieu of the services set
forth in the above Article l.02.(a), MFSC agrees
that it will perform all of the customary services
of a registrar, transfer agent, dividend disbursing
agent and agent of a dividend reinvestment and cash
purchase plan. Such services shall include, but
are not limited to: maintaining all shareholder
accounts, preparing shareholder meeting lists,
mailing proxies, receiving and tabulating proxies,
mailing shareholder reports and other material to
current shareholders, withholding taxes on U.S.
resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms
required with respect to dividends and
distributions by federal authorities for all
registered shareholders, preparing and mailing
confirmation forms and statements of account to
shareholders for all confirmable transactions in
shareholder accounts, and providing shareholder
account information.
<PAGE>
ARTICLE 2. FEES AND EXPENSES
2.01. For the performance by MFSC of services
pursuant to this Agreement, the Fund agrees to pay MFSC
a fee as set out in the fee schedule attached hereto.
Such fee may be changed from time to time subject to
mutual written agreement between the Fund and MFSC.
2.02(a). In addition to the fee paid under
Article 2.01 above, the Fund agrees to reimburse MFSC
for reasonable out-of-pocket expenses and advances
incurred by MFSC on behalf of the Fund. In addition,
any other expenses incurred by MFSC at the request, or
with the consent, of the Fund will be reimbursed by the
Fund.
(b) The Fund agrees to pay all fees and
reimbursable expenses within thirty (30) days following
the receipt of the relevant billing notice. Postage
and the cost of materials for mailing of dividends,
proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to MFSC by the
Fund at least seven (7) days prior to the mailing date
of such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MFSC
MFSC represents and warrants to the Fund that:
<PAGE>
3.01. It is a corporation duly organized and
in good standing under the laws of the State of
Delaware.
3.02. It is duly qualified to carry on its
business in The Commonwealth of Massachusetts.
3.03. All requisite corporate proceedings have
been taken to authorize it to enter into and perform
this Agreement.
3.04. It is a transfer agent registered under
the 1934 Act.
3.05. It has access to the necessary
facilities, equipment and personnel to perform its
duties and obligations under this Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MFSC that:
4.01. It is a business trust duly organized
and in good standing under the laws of The Commonwealth
of Massachusetts.
4.02. All requisite proceedings have been
taken to authorize it to enter into and perform this
Agreement.
<PAGE>
4.03. It is a closed-end investment company
registered under the 1940 Act.
4.04. It shall make all required filings under
federal and state securities law.
ARTICLE 5. DUTY OF CARE AND INDEMNIFICATION
5.01. MFSC will at all times act in good faith
in performing its duties hereunder. Except as
otherwise provided in Section 12 of MFSC's Transfer
Agent - Registrar Agreement with the NYSE, MFSC will
not be liable or responsible for delays or errors by
reason of circumstances beyond its control, including
acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical
breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots or failure beyond
its control of transportation, communication or power
supply. The Fund will indemnify MFSC against and hold
MFSC harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand,
action or suit not resulting from MFSC's bad faith or
negligence, and arising out of, or in connection with,
MFSC's duties on behalf of the Fund hereunder. In
addition, the Fund will indemnify MFSC against and hold
MFSC harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any claim, demand,
action or suit as a result of MFSC's acting in
accordance with any instructions reasonably believed by
MFSC to
<PAGE>
have been executed or orally communicated by any person
duly authorized by the Fund, or as a result of acting
in accordance with written or oral advice reasonably
believed by MFSC to have been given by counsel for the
Fund (including in-house counsel), or as a result of
acting in accordance with any instrument or share
certificate reasonably believed by MFSC to have been
genuine and signed, countersigned or executed by any
person or persons authorized to sign, countersign or
execute the same (unless contributed to by MFSC's
negligence or bad faith). In any case in which the Fund
may be asked to indemnify MFSC or hold MFSC harmless,
the Fund shall be advised of all pertinent facts
concerning the situation in question and MFSC will use
reasonable care to identify and notify the Fund
promptly concerning any situation which presents or
appears likely to present a claim for indemnification
against the Fund. The Fund shall have the option to
defend MFSC against any claim which may be the subject
of this indemnification, and in the event that the Fund
so elects such defense shall be conducted by counsel
chosen by the Fund and satisfactory to MFSC. The Fund
will so notify MFSC and thereupon the Fund shall take
over complete defense of the claim and MFSC shall
sustain no further legal or other expenses in such
situation for which MFSC seeks indemnification under
this Article, except the expense of any additional
counsel retained by MFSC. MFSC will in no case confess
any claim or make any compromise in any case in which
the Fund will be asked to indemnify MFSC except with
the Fund's prior written consent. The obligations of
the parties hereto under this Article shall survive the
termination of this Agreement.
<PAGE>
5.02. If any officer of the Fund shall no
longer be vested with authority to execute any
instrument or share certificate of the Fund, written
notice thereof shall forthwith be given to MFSC by the
Fund and until receipt of such notice by MFSC, MFSC
shall be fully indemnified and held harmless by the
Fund in recognizing and acting upon certificates or
other instruments bearing the signatures or facsimile
signatures of such officer.
ARTICLE 6. COVENANTS OF MFSC
6.01. MFSC hereby agrees to establish and
maintain facilities and procedures reasonably
acceptable to the Fund for safekeeping of share
certificates, check forms and facsimile signature
imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates,
forms and devices.
6.02. MFSC will maintain records in a form
acceptable to the Fund and in compliance with the rules
and regulations of the Securities and Exchange
Commission, including but not limited to records
required to be maintained by Section 31 of the 1940
Act, and the rules thereunder, which at all times will
be the property of the Fund and will be available for
inspection and use by the Fund.
6.03. All records, data, files, input
materials, reports, forms and other data received,
computed or stored in the performance of this Agreement
are the exclusive property of the Fund and all such
records and other data shall be furnished by
<PAGE>
MFSC, without additional charge except for actual
processing costs, to the Fund in machine readable as
well as printed form immediately upon termination of
this Agreement or at the Fund's request. MFSC shall
safeguard and maintain the confidentiality of the
Fund's data and information supplied to MFSC by the
Fund and MFSC shall not transfer or disclose the Fund's
data to any third party without the Fund's prior
written consent unless compelled to do so by order of a
court or regulatory authority of competent
jurisdiction.
ARTICLE 7. NOTICES
All notices or other communications hereunder
shall be in writing and shall be deemed sufficient if
mailed to either party at the addresses set forth in
this Agreement, or at such other addresses as the
parties hereto may designate by notice to each other.
ARTICLE 8. USE OF A SUB- OR CO-TRANSFER AGENT
Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that
MFSC is authorized in the performance of its duties
hereunder to employ, from time to time, one or more sub-
transfer agents, co-transfer agents and/or other agents
to perform any of its duties hereunder, including,
without limitation, preparing shareholder meeting
lists, mailing proxies, and receiving and tabulating
proxies; provided, however, that MFSC shall be as fully
responsible to the Fund for the acts and omissions of
any such agent as it is for its own acts and omissions.
ARTICLE 9. TERMINATION OF AGREEMENT
9.01. Termination. Neither this Agreement nor
any provision hereof may be changed, waived, discharged
or terminated orally, but only by an instrument in
writing, which, except in the case of termination,
shall be signed by the party against which enforcement
of such change, waiver or discharge is sought. This
Agreement shall continue indefinitely until terminated
by 90 days' written notice given by either party to the
other party. Upon termination hereof, the Fund shall
pay MFSC such compensation as may be due to MFSC as 6f
the date of such termination, and shall likewise
reimburse MFSC for any costs, expenses, and
disbursements reasonably incurred by MFSC to such date
in the performance of its duties hereunder. MFSC
agrees to cooperate with the Fund and provide all
necessary assistance in effectuating an orderly
transition upon termination of this Agreement.
<PAGE>
9.02. Successor. In the event that in
connection with termination a successor to any of
MFSC's duties or responsibilities hereunder is
designated by the Fund by written notice to MFSC, MFSC
will, promptly upon such termination and at the expense
of the Fund, transfer to such successor a certified
list of shareholders of the Fund (with name, address
and tax -identification or Social Security number) and
all other relevant books, records, correspondence, and
other data established or maintained by MFSC under this
Agreement in form reasonably acceptable to the Fund (if
such form differs from the form in which MFSC has
maintained the same, the Fund shall pay any expenses
associated with transferring the same to such form),
and will cooperate in the transfer of such duties and
responsibilities.
ARTICLE 10. ASSIGNMENT
10.01. Neither this Agreement nor any rights or
obligations hereunder may be assigned by either party
without the prior written consent of the other party.
10.02. This Agreement shall insure to the
benefit of and be binding upon the parties and their
respective permitted successors and assigns.
ARTICLE 11. APPLICABLE LAW
11.01. This Agreement shall be construed and
the provisions thereof interpreted under and in
accordance with the internal laws of The Commonwealth
of Massachusetts except to the extent governed by the
1933 Act, the 1934 Act or the 1940 Act and the rules
and regulations thereunder.
<PAGE>
ARTICLE 12. MERGER OF AGREEMENT
12.01. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any
prior agreement with respect to the subject hereof
whether oral or written.
ARTICLE 13. TRUST ONLY
13.01. A copy of the Declaration of Trust of
the Fund is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby
given that this instrument has been executed on behalf
of the Fund by an officer of the Fund as an officer of
the Fund and not individually. MFSC acknowledges that
the obligations of or arising out of this instrument
are not binding upon any of the Fund's trustees,
officers, employees, agents or shareholders
individually, but are binding solely upon the assets
and property of the Fund. If this instrument is
executed by the Fund on behalf of one or more series of
the Fund, MFSC further acknowledges that the
obligations of or arising out of this instrument are
binding upon the assets or property of the series on
whose behalf the Fund has executed this instrument and
that, with respect to each such series if more than
one, such obligations are several but not joint.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed in their names and on
their behalf under their seals by and through their
duly authorized officers, as of the day and year first
above written.
MFS MULTIMARKET INCOME TRUST
By:
Name: A. Keith Brodkin Address: 500 Boylston Street
Title: Chairman Boston, MA 02116
MFS SERVICE CENTER, INC.
By:
Name: Joseph A. Recomendes Address: 500 Boylston Street
Title: President, MFS Service Boston, MA 02116
Center, Inc.
<PAGE>
FEE SCHEDULE
1. ACCOUNT MAINTENANCE
Total number of accounts for
all closed-end funds advised
by MFS for which MFSC acts as
Registrar and Transfer Agent: Annual Account Fee:
Less than 75,000 $9.00
75,000 and over $8.00
2. DIVIDEND SERVICES
Dividend Services include: calculation,
preparation and
mailing of monthly dividend checks; establishing
and
funding dividend accounts; paying and reconciling
the
paid checks; and the filing of Forms 1099 with the
Internal Revenue Service.
Fee Charged Will Be As Follows:
$ .75 per Dividend Reinvestment
$ .75 per Cash Infusion
If the fees charged in this Section 2 are less than
$1,000 per month for all closed-end funds advised by MFS
for which MFSC acts as Registrar and Transfer Agent, then
the minimum fee for the Fund for these services will be
$167 per month.
<PAGE>
CREDIT AGREEMENT
dated as of November 10, 1992
between
MFS MULTIMARKET INCOME TRUST
and
THE CHASE MANHATTAN BANK, N.A.
Document Number: A0A02625
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS; ACCOUNTING TERMS.
Section 1.01 Definitions 1
Section 1.02 Accounting Terms 9
ARTICLE 2 THE CREDIT.
Section 2.01 The Loans 9
Section 2.02 The Note 10
Section 2.03 Purpose 10
Section 2.04 Borrowing Procedures 10
Section 2.05 Prepayments 10
Section 2.06 Interest Periods 10
Section 2.07 Changes of Commitment 11
Section 2.08 Certain Notices 11
Section 2.09 Minimum Amounts 11
Section 2.10 Interest 11
Section 2.11 Fees 12
Section 2.12 Payments Generally 12
ARTICLE 3 YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01 Additional Costs 13
Section 3.02 Basis For Determining Interest
Rate Inadequate or Unfair 15
Section 3.03 Illegality 15
Section 3.04 Certain Compensation 16
ARTICLE 4 CONDITIONS PRECEDENT.
Section 4.01 Documentary Conditions
precedent 16
Section 4.02 Additional Conditions Precedent 17
Section 4.03 Deemed Representations 18
ARTICLE 5 REPRESENTATIONS AND WARRANTIES.
Section 5.01 Organization, Good Standing and
Due Qualification 18
Section 5.02 Trust Power and Authority; No
Conflicts 18
Section 5.03 Legally Enforceable Agreements 19
<PAGE>
Section 5.04 Litigation 19
Section 5.05 Financial Statements 19
Section 5.06 Ownership and Liens 19
Section 5.07 Taxes 20
Section 5.08 Subsidiaries 20
Section 5.09 Credit Arrangements 20
Section 5.10 Operation of Business 20
Section 5.11 Hazardous Materials 20
Section 5.12 No Default on Outstanding
Judgments or Orders 21
Section 5.13 No Defaults on Other Agreements 21
Section 5.14 Labor Disputes and Acts of Gods 21
Section 5.15 Governmental Regulation
Trust Document 21
Section 5.16 Affiliation 22
Section 5.17 Investment Advisor 22
ARTICLE 6 AFFIRMATIVE COVENANTS.
Section 6.01 Maintenance of Existence 22
Section 6.02 Conduct of Business 22
Section 6.03 Maintenance of Properties 22
Section 6.04 Maintenance of Records 22
Section 6.05 Maintenance of Insurance 23
Section 6.06 Compliance with Laws 23
Section 6.07 Right of Inspection
23
Section 6.08 Reporting Requirements 23
Section 6.09 Compliance with Investment
Restrictions 25
Section 6.10 Investment Company
Act of 1940 25
ARTICLE 7 NEGATIVE COVENANTS.
Section 7.01 Liens 26
Section 7.02 Mergers, Etc 27
Section 7.03 Amendment of Investment
Practices 27
Section 7.04 Use of Proceeds 28
ARTICLE 8 FINANCIAL COVENANTS.
Section 8.01 Asset Coverage Test 28
<PAGE>
ARTICLE 9 EVENTS OF DEFAULT.
Section 9.01 Events of Default 28
Section 9.02 Remedies 30
ARTICLE 10 MISCELLANEOUS.
Section 10.01 Amendments and Waivers 30
Section 10.02 Usury 31
Section 10.03 Expenses 31
Section 10.04 Survival 31
Section 10.05 Assignment; Participations 31
Section 10.06 Notices 33
Section 10.07 Setoff 33
Section 10.08 Jurisdiction; Immunities 33
Section 10.09 Table of Contents; Headings 34
Section 10.10 Severability 34
Section 10.11 Counterparts 34
Section 10.12 Integration 34
Section 10.13 Governing Law 34
Section 10.14 Confidentiality 34
Section 10.15 Treatment of Certain
Information 34
Section 10.16 Limitation of Shareholder
Liability, Etc 35
EXHIBITS
Exhibit A Promissory Note
Exhibit B Opinion of Counsel for Borrower
Exhibit C Form of Borrower's Asset Coverage
Statement
Exhibit D Additional Fair Market Value Methodology
SCHEDULES
Schedule I Credit Arrangements
<PAGE>
CREDIT AGREEMENT dated as of November 10,
1992 between MFS MULTIMARKET INCOME TRUST, a
business trust organized under the laws of the
Commonwealth of Massachusetts (the "Borrower")
and THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION), a national banking association
organized under the laws of the United States
of America (the "Bank")
The Borrower desires that the Bank extend
credit as provided herein and the Bank is
prepared to extend such credit. Accordingly,
the Borrower and the Bank agree as, follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.01. Definitions. As used in this
Agreement the following terms have the
following meanings (terms defined in the
singular to have a correlative meaning when
used in the plural and vice versa)
"Advisers Act" means the Investment
Advisers Act of 1940, as amended.
"Affiliate" means any Person: (a) which
directly or indirectly controls, or is
controlled by, or is under common control with,
the Borrower; (b) which directly or indirectly
beneficially owns or holds 5% or more of any
class of voting stock of the Borrower; (c) 5%
or more of the voting stock of which is
directly or indirectly beneficially owned or
held by the Borrower; or (d) which is a
partnership in which the Borrower is a general
partner. The term "control" means the
possession, directly or indirectly, of the
power to direct or cause the direction of the
management and policies of a Person, whether
through the ownership of voting securities, by
contract, or otherwise.
"Affiliated Person" means "affiliated
person" as defined in the 1940 Act.
"Agreement" means this Credit Agreement
and all Exhibits and Schedules hereto, as
amended or supplemented from time to time.
References to Articles, Sections, Exhibits,
Schedules and the like refer to the Articles,
Sections, Exhibits, Schedules and the like of
this Agreement unless otherwise indicated.
"Assessment Rate" means, for any Interest
Period for any CD Loan, the average rate
(rounded upwards, if necessary, to the nearest
1/100 of 1%) at which premiums for deposit
insurance are then charged to the Bank by the
Federal Deposit Insurance Corporation (or any
successor) during such Interest
<PAGE>
Period for Dollar time deposits with the Bank
at the Principal Office, as estimated by the
Bank in good faith.
"Asset Coverage Statement" means the
monthly statement substantially in the form
attached hereto as Exhibit C which is to be
provided by the Borrower to the Bank pursuant
to Section 6.08(c) hereof.
"Banking Day" means any day on which
commercial banks are not authorized or required
to close in New York City and whenever such day
relates to a Eurodollar Loan or notice with
respect to any Eurodollar Loan, a day on which
dealings in Dollar deposits are also carried
out in the London interbank market.
"CD Loan" means any Loan when and to the
extent the interest rate therefor is determined
on the basis of clause (b) or (d) of the
definition "Fixed Base Rate."
"Closing Date" means the date of this
Agreement.
"Code" means the Internal Revenue Code of
1986, as amended from time to time.
"Commission" means the Securities and
Exchange Commission.
"Commitment" means the obligation of the
Bank to make Loans under this Agreement in the
aggregate principal amount of $150,000,000, as
such amount may be reduced or otherwise
modified from time to time in accordance with
the terms of this Agreement.
"Custodian" means State Street Bank &
Trust Company or any other duly appointed
custodian for the Borrower.
"Default" means the occurrence and
continuance of any event which with the giving
of notice or lapse of time, or both, would
become an Event of Default.
"Default Rate" means, with respect to the
principal of any Loan and, to the extent
permitted by law, any other amount payable by
the Borrower under this Agreement or the Note
that is not paid when due (whether at stated
maturity, by acceleration or otherwise), a rate
per annum during the period from and including
the due date, to, but excluding the date on
which such amount is paid in full equal to 1%
above the Variable Rate as in effect from time
to time plus the Margin (if any) (provided
that, if the amount so in default is principal
of a Fixed Rate Loan and the due date thereof
is a
<PAGE>
day other than the last day of the Interest
Period therefor, the "Default Rate" for such
principal shall be, for the period from and
including the due date and to but excluding the
last day of the Interest Period therefor, 2%
above the interest rate for such Loan as
provided in Section 2.10 hereof and,
thereafter, the rate provided for above in this
definition).
"Dollars" and the sign "$" mean lawful
money of the United States of America.
"Domestic Government Securities" means
obligations (a) which are owned by the Borrower
free and clear of any Lien, and (b) which are
(i) direct obligations of, or obligations the
principal of and interest on which are
unconditionally guaranteed by, the United
States of America or by any agency thereof to
the extent such obligations are backed by the
full faith and credit of the United States of
America, or (ii) direct obligations of any
agency of the United States of America which
are rated no lower than "AA+" by Standard
Poor's Corporation ("S&P") or "Aal" by Moody's
Investor Service, Inc. ("Moody's") provided
that such obligations were rated "AAA" by S&P
or "Aaa" by Moody's at the time of their
purchase or acquisition by the Borrower, or
(iii) direct obligations of the Federal
National Mortgage Association, the Federal Home
Loan Mortgage Corporation or the Government
National Mortgage Association. It is understood
that a call option, written by the Borrower, on
any type of security held by the Borrower shall
not be deemed to create a Lien on any such
security provided that the terms of such call
option or any agreement relating thereto do not
create or grant any security interest in such
security and Borrower retains complete
beneficial ownership of and control over such
security; provided, that the Borrower may
exercise such control through its Custodian and
subcustodians. It is further understood that an
escrow receipt (an "Escrow Receipt") issued by
the Custodian pursuant to the terms of any such
call option issued solely on any obligations of
the type described in clauses (i), (ii) and
(iii) of the first sentence of this definition
shall not be deemed a Lien if (i) the Escrow
Receipt limits the rights of the holder of the
Escrow Receipt to the receipt of the securities
specified therein upon payment by such holder
to the Custodian of the purchase price for such
securities specified in the call option for
which such Escrow Receipt was issued, plus
accrued interest, on the exercise date (or
during the exercise period) specified in such
call option, and (ii) the Borrower has an
agreement with the holder Of the call option in
respect of which the Escrow Receipt was issued,
pursuant to which agreement the Borrower has
the right to repurchase such call option upon
notice.
"Environmental Laws" means any and all
federal, state, local and foreign statutes,
laws, regulations, ordinances,
<PAGE>
rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses,
agreements or other governmental restrictions
relating to the environment or to emissions,
discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or
wastes into the environment including, without
limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the
manufacture, processing distribution, use,
treatment, storage, disposal, transport, or
handling of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous
substances or wastes.
"Eurodollar Loan" means any Loan when and
to the extent the interest rate therefor is
determined on the basis of clause (a) or (c) of
the definition "Fixed Base Rate."
"Event of Default" has the meaning given
such term in Section 9.01.
"Facility Documents" means this Agreement
and the Note.
"Fair Market Value" of a security shall be
the value assigned to a given security in the
most recent calculation by the Borrower of its
Net Asset Value. Fair Market Value shall be
determined on each day that the New York Stock
Exchange is open for trading and shall be in
accordance with the applicable requirements of
the 1940 Act and the provisions of Exhibit D
hereto, which Exhibit D may be amended by the
Borrower from time to time provided that (i)
any such amendment is in accordance with the
1940 Act and (ii) the Borrower provides notice
to the Bank of any amendment in the first
Portfolio Report provided to the Bank after the
effectiveness of such amendment.
"Federal Funds Rate" means, for any day,
the rate per annum (expressed on a 365/366 day
basis of calculation, if the rate on Variable
Rate Loans is so calculated) equal to the
weighted average of the rates on overnight
federal funds transactions as published by the
Federal Reserve Bank of New York for such day
(or for any day that is not a Banking Day, for
the immediately preceding Banking Day).
"Final Maturity Date" means (i) with
respect to Variable Rate and CD Loans, the date
180 days after the Termination Date and (ii)
with respect to Eurodollar Loans, the
numerically corresponding date in the sixth
calendar month after the Termination Date.
"Financial Contracts" means option
contracts, options on futures contracts,
futures contracts, forward foreign currency
exchange contracts, options on foreign
currencies, repurchase
<PAGE>
agreements, reverse repurchase agreements,
securities lending agreements, when-issued
securities and other similar arrangements
entered into by the Borrower in the ordinary
course of its business in accordance with its
Investment Practices.
"Fixed Base Rate" means with respect to
any Fixed Rate Loan:
(a) for a Eurodollar Loan having an
Interest Period of one, two, three or six
calendar months, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of
1%) quoted at approximately 11:00 a.m. London
time by the principal London branch of the Bank
two Banking Days prior to the first day of the
Interest Period for such Loan for the offering
to leading banks in the London interbank market
of Dollar deposits in immediately available
funds, for a period equal to the Interest
Period of such Loan and in an amount
substantially equal to the principal amount of
such Loan;
(b) for a CD Loan having an Interest
Period of 30, 60, 90 or 180 days, the rate per
annum (rounded upwards, if necessary, to the
nearest 1/20 of 1%) determined by the Bank to
be the average of the bid rates quoted to it at
the Principal Office at approximately 10:00
a.m. New York City time (or as soon thereafter
as (practicable) on the first day of the
Interest Period for such Loan by New York
certificate of deposit dealers of recognized
standing selected by the Bank for the purchase
at face value of certificates of deposit of the
Bank having a maturity equal to the Interest
Period of such CD Loan and in an amount
substantially equal to the principal amount of
such CD Loan; provided that, if such quotations
from such dealers are not available to the
Bank, it shall determine a reasonably
equivalent rate on the basis of another source
or sources selected by it in good faith;
(c) for a Eurodollar Loan having an
Interest Period of other than one, two, three
or six calendar months, the rate per annum
(rounded upwards, if necessary, to the nearest
1/16 of 1%) quoted at approximately 11:00 a.m.
London time by the principal London branch of
the Bank two Banking Days prior to the first
day of the Interest Period for such Loan for
the offering to leading banks in the London
interbank market of Dollar deposits in
immediately available funds for a period, and
in an amount, comparable to such Interest
Period and principal amount of the Eurodollar
Loan which shall be made by the Bank and
outstanding during such Interest Period; and
(d) for a CD Loan having an Interest
Period of other than 30, 60, 90 or 180 days,
the rate per annum (rounded upwards, if
necessary, to the nearest 1/20 of 1%)
determined by the Bank to be the average of the
bid rates quoted to it at the Principal Office
at approximately 10:00 a.m. New York City time
<PAGE>
(or as soon thereafter as practicable) on the
first day of the Interest Period for such Loan
by New York certificate of deposit dealers of
recognized standing selected by the Bank for
the purchase at face value of certificates of
deposit of the Bank having a maturity, and in
an amount, comparable to such Interest Period
and the principal amount of the CD Loan which
shall be made by the Bank and outstanding
during such Interest Period; provided that, if
such quotations from such dealers are not
available to the Bank, it shall determine a
reasonably equivalent rate on the basis of
another source or sources selected by it in
good faith.
"Fixed Rate" means, for any Fixed Rate
Loan, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%)
determined by the Bank to be equal to the sum
of (a) the quotient of (i) the Fixed Base Rate
for such Loan for the Interest Period therefor,
divided by (ii) one minus the Reserve
Requirement for such Loan for such Interest
Period plus (b) if such Loan is a CD Loan, the
Assessment Rate in effect at the commencement
of such Interest Period.
"Fixed Rate Loan" means any Eurodollar or
CD Loan.
"GAAP" means generally accepted accounting
principles in the United States of America as
in effect from time to time, applied on a basis
consistent with those used in the preparation
of the financial statements referred to in
Section 5.05 (except for changes concurred in
by the Borrower's independent public
accountants)
"Interest Period" means the period
commencing on the date a Loan is made and
ending, as the Borrower may select pursuant to
Section 2.06: (a) in the case of Variable Rate
Loans, on any day less than 180 days
thereafter; (b) in the case of Eurodollar
Loans, on the numerically corresponding day in
the first, second, third or sixth calendar
month thereafter (or on such other day prior to
the numerically corresponding day in the sixth
calendar month thereafter as the Borrower may
request) provided that each such Interest
Period which commences on the last Banking Day
of a calendar month (or on any day for which
there is no numerically corresponding day in
the appropriate subsequent calendar month)
shall end on the last Banking Day of the
appropriate calendar month; and (c) in the case
of CD Loans, on the day 30, 60, 90 or 180 days
thereafter (or on such other day less than 180
days thereafter as the Borrower may request).
"International Government Securities"
means debt securities issued by any country
which is a member of OECD (other than the
United States of America) which are (x) rated
"AA-" or better by S&P or "Aa3" or better by
Moody's and (y) owned by the Borrower free and
clear of any Lien. It is
<PAGE>
understood that a call option, written by the
Borrower, on any type of security held by the
Borrower shall not be deemed to create a Lien
on any security held by the Borrower provided
that the terms of such call option or any
agreement relating thereto do not create or
grant any security interest in such security
and Borrower retains complete beneficial
ownership of and control over such security;
provided that the Borrower may exercise such
control through its Custodian and
subcustodians.
"Investment Adviser" means Massachusetts
Financial Services Company.
"Investment Practices" means the
investment objectives and fundamental
investment policies and restrictions in effect
with respect to the Borrower, as may be set
forth either in the Registration Statement or
in a vote adopted by the shareholders of the
Borrower.
"Lending Office" means, for each type of
Loan, the lending office of the Bank (or of an
affiliate of the Bank) designated as such for
such type of Loan on its signature page hereof
or such other office of the Bank (or of an
affiliate of the Bank) as the Bank may from
time to time specify to the Borrower as the
office by which its Loans of such type are to
be made and maintained.
"Lien" means any lien (statutory or
otherwise), security interest, mortgage, deed
of trust, priority, pledge, charge, conditional
sale, title retention agreement, financing
lease or other encumbrance or similar right of
others, or any agreement to give any of the
foregoing.
"Loan" means any loan made by the Bank
pursuant to Section 2.01.
"Margin" means (a) for a Variable Rate
Loan, 0%; (b) for a Eurodollar Loan, 3/8 of 1%;
and (c) for a CD Loan, 3/8 of 1%.
"Net Asset Coverage" means, as at any date
of determination thereof, an amount equal to
the sum of:
(a) the product of (x) the sum of: (i)
the aggregate Fair Market Value of Domestic
Government Securities (other than securities
subject to call options) on such date of
determination and (ii) with respect to each
Domestic Government Security subject to a call
option, the lower of the Fair Market Value of
such security on such date of determination and
the exercise price for such security specified
in the related call option, and (y) 66-2/3%;
and
(b) the product of (x) the sum of: (i)
the aggregate Fair Market Value of
International Government Securities (other than
securities subject to call options) on such
date of
<PAGE>
determination and (ii) with respect to each
International Government Security subject to a
call option, the lower of the Fair Market Value
of such security on such date of determination
and the exercise price for such security
specified in the related call option, and (y)
50%.
"Net Asset Value" means the aggregate net
asset value of the Borrower as determined on
each day that the New York Stock Exchange is
open for trading and in accordance with the
requirements of the 1940 Act, and the terms of
Exhibit D hereto as such Exhibit may be amended
by the Borrower in accordance with the terms
hereof.
"Note" means the promissory note of the
Borrower in the form of Exhibit A hereto
evidencing the Loans made by the Bank
hereunder.
"OECD" means the Organization for Economic
Cooperation and Development.
"Person" means an individual, partnership,
corporation, business trust, joint stock
company, trust, unincorporated association,
joint venture, governmental authority or other
entity of whatever nature.
"Portfolio Report" means the monthly
portfolio valuation report to be provided by
the Borrower to the Bank pursuant to Section
6.08(c) hereof.
"Prime Rate" means that rate of interest
from time to time announced by the Bank at the
Principal Office as its prime commercial
lending rate.
"Principal Office" means the principal
office of the Bank, presently located at 1
Chase Manhattan Plaza, New York, New York
10081.
"Public Accountants" means the independent
certified public accountants of recognized
standing, acting as auditors for the Borrower.
"Registration Statement" means as of any
date of determination the currently effective
Registration Statement of the Borrower on Form
N-2 or any successor form as amended by
amendment most recently filed with the
Commission.
"Regulation D" means Regulation D of the
Board of Governors of the Federal Reserve
System as the same may be amended or
supplemented from time to time.
<PAGE>
"Regulation U" means Regulation U of the
Board of Governors of the Federal Reserve
System as the same may be amended or
supplemented from time to time.
"Regulatory Change" means any change after
the date of this Agreement in United States
federal, state, municipal or foreign laws or
regulations (including without limitation
Regulation D) or the adoption or making after
such date of any interpretations, directives or
requests applying to a class of banks including
the Bank of or under any United States,
federal, state, municipal or foreign laws or
regulations (whether or not having the force of
law) by any court or governmental or monetary
authority charged with the interpretation or
administration thereof.
"Reserve Requirement" means, for any
Interest Period for any Fixed Rate Loan, the
average maximum rate at which reserves
(including any marginal, supplemental or
emergency reserves) are required to be
maintained during the Interest Period for such
Loan under Regulation D by member banks of the
Federal Reserve System in New York City with
deposits exceeding $1,000,000,000 against (a)
in the case of Eurodollar Loans, "Eurocurrency
liabilities" (as such term is used in
Regulation D) or (b) in the case of CD Loans,
non-personal Dollar time deposits in an amount
of $100,000 or more. Without limiting the
effect of the foregoing, the Reserve
Requirement shall also reflect any other
reserves required to be maintained by such
member banks by reason of any Regulatory Change
against (i) any category of liabilities which
includes deposits by reference to which the
Fixed Base Rate for Eurodollar or CD Loans (as
the case may be) is to be determined as
provided in the definition of "Fixed Base Rate"
in this Section 1.01 or (ii) any category of
extensions of credit or other assets which
include Eurodollar or CD Loans (as the case may
be)
"Subsidiary" means, with respect to any
Person, any corporation or other entity of
which at least a majority of the securities or
other ownership interests having ordinary
voting power (absolutely or contingently) for
the election of directors or other persons
performing similar functions are at the time
owned directly or indirectly by such Person.
"Termination Date" means the later of (a)
November 9, 1993 and (b) if the Termination
Date has been extended pursuant to Section
2.01(c), the date to which the Termination Date
has been so extended; provided that if such
date is not a Banking Day, the Termination Date
shall be the immediately preceding Banking Day.
"Variable Rate" means, for any day, the
higher of (a) the Federal Funds Rate for such
day plus 3/8 of 1% and (b) the Prime Rate for
such day.
<PAGE>
"Variable Rate Loan" means any Loan when
and to the extent the interest rate for such
Loan is determined in relation to the Variable
Rate.
"1940 Act" means the Investment Company
Act of 1940, as amended.
Section 1.02. Accounting Terms. All
accounting terms not specifically defined
herein shall be construed in accordance with
GAAP, and all financial data required to be
delivered hereunder shall be prepared in
accordance with GAAP.
ARTICLE 2. THE CREDIT.
Section 2.01. The Loans. (a) Subject to
the terms and conditions of this Agreement, the
Bank agrees to make loans (the "Loans") to the
Borrower from time to time, from and including,
the date hereof to, but excluding, the
Termination Date up to, but not exceeding, the
amount of the Commitment. The Loans may be
outstanding as Variable Rate Loans or
Eurodollar Loans or CD Loans (each a "type" of
Loan). Loans of each type shall be made and
maintained at the Bank's Lending Office for
such type of Loans.
(b) Each Loan shall be due and payable on
the last day of the Interest Period therefor.
(c) The Borrower may request, in a notice
given as herein provided not less than 110 days
and not more than 150 days prior to the
Termination Date then in effect (the "Existing
Termination Date"), that the Termination Date
be extended, which notice shall specify a date
(which shall be no later than the ninetieth day
before the Existing Termination Date) as of
which the requested extension is to be
effective (the "Requested Effective Date"), and
the new Termination Date to be in effect
following such extension (the "Requested
Termination Date"), which date shall be no more
than 360 days after the Requested Effective
Date of such extension (with the Effective Date
being counted as the first day). The Bank
shall, not later than a date 90 days prior to
the Existing Termination Date, send by
facsimile transmission a notice to the Borrower
(the "Bank Notice") of its election to extend
or not to extend the Termination Date and shall
mail a copy of the Bank Notice to the Borrower;
provided, however, that the failure by the Bank
to give the Bank Notice shall be deemed to be
an election not to extend the Termination Date.
A Bank Notice hereunder notifying the Borrower
of the Bank's election to extend the
Termination Date shall specify the extended
Termination Date which shall be a date 360 days
after the date of the Bank Notice (with the
date of the Bank Notice counted as
<PAGE>
the first day) and the date of the Bank Notice
shall be the date on which the extension is to
be effective (the "Effective Date").
Section 2.02. The Note. The Loans shall
be evidenced by a single promissory note in
favor of the Bank in the form of Exhibit A,
dated the date of this Agreement, duly
completed and executed by the Borrower.
Section 2.03. Purpose. The Borrower
shall use the proceeds of the Loans for such
purposes, including without limitation the
purchase of securities, as are in accordance
with the Investment Practices; provided,
however, that such proceeds shall not be used
for the purpose, whether immediate, incidental
or ultimate, of buying or carrying "margin
stock" within the meaning of Regulation U.
Section 2.04. Borrowing Procedures. The
Borrower shall give the Bank notice of each
borrowing to be made hereunder as provided in
Section 2.08. Not later than 1:00 p.m. New
York City time on the date of such borrowing,
the Bank shall, through its Lending Office and
subject to the conditions of this Agreement,
make the amount of the Loan to be made by it on
such day available to the Borrower, in
immediately available funds, at the Principal
Office and shall promptly transfer such funds
pursuant to the Borrower's instructions.
Section 2.05. Prepayments. The Borrower
shall have the right to prepay Loans at any
time or from time to time; provided that: (a)
the Borrower shall give the Bank notice of each
such prepayment as provided in Section 2.08;
and (b) any prepayment of a Fixed Rate Loan on
a day other than the last day of the Interest
Period for such Loan shall include any amounts
payable pursuant to Section 3.04 in connection
therewith.
Section 2.06. Interest Periods. In the
case of each Loan, the Borrower shall select an
Interest Period of any duration in accordance
with the definition of Interest Period in
Section 1.01, subject to the following
limitations: (a) no Interest Period may extend
beyond the Final Maturity Date; and (b) if an
Interest Period would end on a day which is not
a Banking Day, such Interest Period shall be
extended to the next Banking Day, unless, in
the case of a Eurodollar Loan, such Banking Day
would fall in the next calendar month in which
event such Interest Period shall end on the
immediately preceding Banking Day.
Section 2.07. Changes of Commitment. (a)
The Borrower shall have the right to reduce or
terminate the amount of unused Commitment at
any time or from time to time, provided that:
(i) the Borrower shall give notice of each such
reduction or termination to the Bank as
provided in Section 2.08; and
<PAGE>
(ii) each partial reduction shall be in an
aggregate amount at least equal to $10,000,000.
(b) The Commitment once reduced or
terminated may not be reinstated.
Section 2.08. Certain Notices. Notices
by the Borrower to the Bank of each borrowing
pursuant to Section 2.04, each prepayment
pursuant to Section 2.05 and each reduction or
termination of the Commitment pursuant to
Section 2.07 shall be irrevocable and shall be
effective only if received by the Bank not
later than 12:00 noon New York City time, and
(a) in the case of borrowings (i) of Variable
Rate Loans, given on the Banking Day therefor;
(ii) Eurodollar Loans, given three Banking Days
prior thereto; and (iii) CD Loans, given two
Banking Days prior thereto; (b) in the case of
prepayments of Loans, given one Banking Day
prior thereto; and (c) in the case of
reductions or termination of the Commitment,
given three Banking Days prior thereto. Each
such notice shall specify the Loans to be
borrowed or prepaid and the amount (subject to
Section 2.09) and type of the Loans to be
borrowed or prepaid and the date of borrowing
or prepayment (which shall be a Banking Day).
Each such notice of reduction or termination
shall specify the amount of the Commitment to
be reduced or terminated.
Section 2.09. Minimum Amounts. Except
for borrowings which exhaust the full remaining
amount of the Commitment, and prepayments which
result in the prepayment of all Loans, each
borrowing and prepayment of principal of Loans
shall be in an amount at least equal to
$10,000,000.
Section 2.10. Interest. (a) Interest
shall accrue on the outstanding and unpaid
principal amount of each Loan for the period
from and including the date of making such Loan
to but excluding the date such Loan is due at
the following rates per annum: (i) for a
Variable Rate Loan, at a variable rate per
annum equal to the Variable Rate plus any
Margin and (ii) for a Fixed Rate Loan, at a
fixed rate equal to the Fixed Rate plus the
Margin. If the principal amount of any Loan
and any other amount payable by the Borrower
hereunder or under the Note shall not be paid
when due (at stated maturity, by acceleration
or otherwise), interest shall accrue on such
amount to the fullest extent permitted by law
from and including such due date to but
excluding the date such amount is paid in full
at the Default Rate.
(b) The interest rate on each Variable
Rate Loan shall change when the Variable Rate
changes and interest on each such Loan shall be
calculated on the basis of a year of 365 (or in
the case of a leap year, 366) days for the
actual number of days elapsed. Interest on each
Fixed Rate Loan shall be
<PAGE>
calculated on the basis of a year of 360 days
for the actual number of days elapsed.
(c) Accrued interest with respect to a
Loan shall be due and payable in arrears upon
any payment of principal of the Loan and on the
last day of the Interest Period with respect
thereto and, in the case of an Interest Period
greater than three months or 90 days, at three-
month (in the case of a Eurodollar Loan) or 90-
day (in the case of a CD Loan or a Variable
Rate Loan) intervals after the first day of
such Interest Period; provided that interest
accruing at the Default Rate shall be due and
payable from time to time on demand of the
Bank.
Section 2.11. Fees. The Borrower shall
pay to the Bank a commitment fee on the daily
average unused Commitment for the period from
and including the date hereof to the earlier of
the date the Commitment is terminated and the
Termination Date at a rate per annum equal to
1/8 of 1%, calculated on the basis of a year to
365 (or, in a leap year, 366) days for the
actual number of days elapsed. The accrued
commitment fee shall be due and payable in
arrears upon the date of any reduction or
termination of the Commitment with respect to
the amount of the Commitment so reduced or
terminated, and otherwise on the last day of
each March, June, September and December,
commencing on the first such date after the
Closing Date, and on the Termination Date.
Section 2.12. Payments Generally. All
payments under this Agreement or the Note shall
be made in Dollars in immediately available
funds not later than 1:00 p.m. New York City
time on the relevant dates specified above
(each such payment made after such time on such
due date to be deemed to have been made on the
next succeeding Banking Day) at the Principal
Office for the account of the applicable
Lending Office of the Bank; provided that, when
a new Loan is to be made by the Bank on a date
the Borrower is to repay any principal of an
outstanding Loan, the Bank shall apply the
proceeds thereof to the payment of the
principal to be repaid and only an amount equal
to the difference between the principal to be
borrowed and the principal to be repaid shall
be made available by the Bank to the Borrower
as provided in Section 2.04 or paid by the
Borrower to the Bank pursuant to this Section
2.12, as the case may be. The Borrower shall,
at the time of making each payment under this
Agreement or the Note, specify to the Bank the
principal or other amount payable by the
Borrower under this Agreement or the Note to
which such payment is to be applied (and in the
event that it fails to so specify, or if a
Default or Event of Default has occurred and is
continuing, the Bank may apply such payment as
it may elect in its sole discretion). If the
due date of any payment under this Agreement or
the Note would otherwise fall on a day which
<PAGE>
is not a Banking Day, such date shall be
extended to the next succeeding Banking Day and
interest shall be payable for any principal so
extended for the period of such extension.
ARTICLE 3. YIELD PROTECTION; ILLEGALITY;
ETC.
Section 3.01. Additional Costs. (a) If
the Bank shall determine an additional amount
to be necessary to compensate it for any costs
which the Bank determines are attributable to
its making or maintaining any Fixed Rate Loans
under this Agreement or the Note or its
obligation to make any such Loans hereunder, or
any reduction in any amount receivable by the
Bank hereunder in respect of any such Loans or
such obligation (such increases in costs and
reductions in amounts receivable being herein
called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis
of taxation of any amounts payable to the Bank
under this Agreement or the Note in respect of
any of such Loans (other than taxes imposed on
the overall net income of the Bank or of its
Lending Office for any of such Loans by the
jurisdiction in which the Principal Office or
such Lending Office is located); or (ii)
imposes or modifies any reserve, special
deposit, deposit insurance or assessment,
minimum capital, capital ratio or similar
requirements relating to any extensions of
credit or other assets of, or any deposits with
or other liabilities of, the Bank (including
any of such Loans or any deposits referred to
in the definition of "Fixed Base Rate" in
Section 1.01); or (iii) imposes any other
condition affecting this Agreement or the Note
(or any of such extensions of credit or
liabilities), the Bank will notify the Borrower
of the occurrence of such event occurring after
the date of this Agreement which will entitle
the Bank to compensation pursuant to this
Section 3.01 (a) as promptly as practicable
after it obtains knowledge thereof and
determines to request such compensation. The
additional amounts payable hereunder by the
Borrower will be such amounts as, in the Bank's
reasonable determination, will compensate the
Bank for such Additional Costs and, subject to
the further terms of this paragraph, such
amount shall be due and payable by the Borrower
to the Bank at the time of such notice. If at
the time of notice to the Borrower that amounts
are due under this Section 3.01(a), the
Borrower and the Bank disagree as to the
amounts payable, then the Borrower and the Bank
shall thereafter attempt to negotiate in good
faith an adjustment to the compensation payable
hereunder which will adequately compensate the
Bank for such Additional Costs. If the
Borrower and the Bank are unable to agree to
such adjustment within thirty days of the day
on which the Borrower receives such notice,
then commencing as of the date of such notice,
the fees payable hereunder shall increase by an
amount which will, in the Bank's reasonable
determination, compensate the Bank for such
Additional Costs, the Bank's determination of
such amount to be conclusive and binding on the
Borrower absent manifest error.
<PAGE>
(b) Without limiting the effect of the
foregoing provisions of this Section 3.01, in
the event that, by reason of any Regulatory
Change, the Bank either (i) incurs Additional
Costs based on or measured by the excess above
a specified level of the amount of a category
of deposits or other liabilities of the Bank
which includes deposits by reference to which
the interest rate on Eurodollar or CD Loans is
determined as provided in this Agreement or a
category of extensions of credit or other
assets of the Bank which includes Eurodollar or
CD Loans or (ii) becomes subject to
restrictions on the amount of such a category
of liabilities or assets which it may hold,
then, if the Bank so elects by notice to the
Borrower, the obligation of the Bank to make
Loans of such type hereunder shall be suspended
until the date such Regulatory Change ceases to
be in effect.
(c) Without limiting the effect of the
foregoing provisions of this Section 3.01 (but
without duplication), the Borrower shall pay to
the Bank from time to time on request such
amounts as the Bank may determine to be
necessary to compensate the Bank for any costs
which it determines are attributable to the
maintenance by it or any of its affiliates
pursuant to any law or regulation of any
jurisdiction or any interpretation, directive
or request (whether or not having the force of
law and whether in effect on the date of this
Agreement or thereafter) of any court or
governmental or monetary authority of capital
in respect of its Loans hereunder or its
obligation to make Loans hereunder (such
compensation to include, without limitation, an
amount equal to any reduction in return on
assets or equity of the Bank to a level below
that which it could have achieved but for such
law, regulation, interpretation, directive or
request). The Bank will notify the Borrower if
it is entitled to compensation pursuant to this
Section 3.01(c) as promptly as practicable
after it determines to request such
compensation. If at the time of notice to the
Borrower that amounts are due under this
Section 3.01(c) the Borrower and the Bank
disagree as to the amounts payable, then the
Borrower and the Bank shall thereafter attempt
to negotiate in good faith an adjustment to the
compensation payable hereunder which will
adequately compensate the Bank for such costs.
If the Borrower and the Bank are unable to
agree to such adjustment within thirty days of
the day on which the Borrower receives such
notice, then commencing as of the date of such
notice, the fees payable hereunder shall
increase by an amount which will, in the Bank's
reasonable determination, compensate the Bank
for such costs, the Bank's determination of
such amount to be conclusive and binding on the
Borrower absent manifest error.
(d) Determinations and allocations by the
Bank for purposes of this Section 3.01 of the
effect of any Regulatory Change pursuant to
subsections (a) or (b), or of the effect of
capital maintained pursuant to subsection (c),
on its costs of making or maintaining Loans or
its obligation to make Loans, or
<PAGE>
on amounts receivable by, or the rate of return
to, it in respect of Loans or such obligation1
and of the additional amounts required to
compensate the Bank under this Section 3.01,
shall be conclusive, absent manifest error,
provided that such determinations and
allocations are made in good faith and
allocated among commercial customers of the
Bank on a fair and reasonable basis. The Bank
shall upon request provide to the Borrower in
reasonable detail a copy of calculations done
by the Bank in making such determinations.
Section 3.02. Basis For Determining
Interest Rate Inadequate or Unfair. Anything
herein to the contrary notwithstanding, if the
Bank determines in good faith (which
determination shall be conclusive) that:
(a) quotations of interest rates for the
relevant deposits referred to in the definition
of "Fixed Base Rate" in Section 1.01 are not
available in the relevant amounts or for the
relevant maturities for purposes of determining
the rate of interest for any type of Fixed Rate
Loans as provided in this Agreement; or
(b) the relevant rates of interest
referred to in the definition of "Fixed Base
Rate" in Section 1.01 upon the basis of which
the rate of interest for any type of Fixed Rate
Loans is to be determined do not adequately
cover the cost to the Bank of Making or
maintaining such Loans;
then the Bank shall give the Borrower prompt
notice thereof, and so long as such condition
remains in effect, the Bank shall be under no
obligation to make Loans of such type.
Section 3.03. Illegality.
Notwithstanding any other provision in this
Agreement, in the event that it becomes
unlawful for the Bank or its Lending Office to
honor its obligation to make or maintain
Eurodollar Loans hereunder, then the Bank shall
promptly notify the Borrower thereof and the
Bank's obligation to make or maintain
Eurodollar Loans hereunder shall be suspended
until such time as the Bank may again make and
maintain such affected Loans and the Borrower
shall, upon the request of the Bank on the date
specified, prepay any of such Loans then
outstanding together with accrued interest and
any amount due under Section 3.04. If the Bank
shall request prepayment of such Eurodollar
Loans in such notice, the Borrower shall
immediately prepay in full the then outstanding
principal amount of each such Eurodollar Loan,
together with accrued interest thereon.
Concurrently with prepaying each such
Eurodollar Loan, the Borrower shall borrow a
Variable Rate Loan in an equal principal
amount, plus, to the extent an adequate amount
of unused Commitment is available, an amount of
principal equal to interest accrued on each
such
<PAGE>
prepaid Eurodollar Loan from the Bank, and the
Bank shall make such a Variable Rate Loan with
an Interest Period equal to the remaining
portion of the Interest Period of the
Eurodollar Loan being repaid.
Section 3.04. Certain Compensation. The
Borrower shall pay to the Bank, upon the
request of the Bank, such amount or amounts as
shall be sufficient (in the reasonable opinion
of the Bank) to compensate it for any loss
(other than the lost Margin), cost or expense
which the Bank determines is attributable to:
(a) any payment of a Fixed Rate Loan on a
date other than the last day of an Interest
Period for such Loan (whether by reason of
acceleration or otherwise) ; or
(b) any failure by the Borrower to borrow
a Fixed Rate Loan to be made by the Bank on the
date specified therefor in the relevant notice
under Section 2.04.
Without limiting the foregoing, such
compensation shall include an amount equal to
the excess, if any, of: (i) the amount of
interest (excluding any Margin) which otherwise
would have accrued on the principal amount so
paid or not borrowed for the period from and
including the date of such payment or failure
to borrow to but excluding the last day of the
Interest Period for such Loan (or, in the case
of a failure to borrow, to but excluding the
last day of the Interest Period for such Loan
which would have commenced on the date
specified therefor in the relevant notice) at
the applicable rate of interest for such Loan
provided for herein; over (ii) the amount of
interest (as reasonably determined by the Bank)
the Bank would have bid in the London interbank
market (if such Loan is a Eurodollar Loan) or
the United States secondary certificate of
deposit market (if such Loan is a CD Loan) for
Dollar deposits for amounts comparable to such
principal amount and maturities comparable to
such period. A determination of the Bank as to
the amounts payable pursuant to this Section
3.04 shall be conclusive absent manifest error
and the Bank shall upon request provide to
Borrower a copy of calculations in reasonable
detail done by the Bank in making such
determination.
ARTICLE 4. CONDITIONS PRECEDENT.
Section 4.01. Documentary Conditions
Precedent. The obligation of the Bank to make
the Loan constituting the initial borrowing is
subject to the condition precedent that the
Bank shall have received on or before the date
of such Loan
<PAGE>
each of the following, in form and substance
satisfactory to the Bank and its counsel:
(a) the Note duly executed by the
Borrower;
(b) a certificate of the Secretary or
Assistant Secretary of the Borrower, dated the
Closing Date, attesting to all trust action
taken by the Borrower, including resolutions of
its Board of Trustees authorizing the
execution, delivery and performance of the
Facility Documents and each other document to
be delivered pursuant to this Agreement;
(c) a certificate of the Secretary or
Assistant Secretary of the Borrower, dated the
Closing Date, certifying the names and true
signatures of the officers of the Borrower and
such other persons authorized to sign the
Facility Documents and the other documents to
be delivered by the Borrower under this
Agreement;
(d) a certificate of a duly authorized
officer of the Borrower, dated the Closing
Date, stating that the representations and
warranties in Article 5 are true and correct on
such date as though made on and as of such date
and that no event has occurred and is
continuing which constitutes a Default or Event
of Default; and
(e) a favorable opinion of in-house
counsel for the Borrower, dated the Closing
Date, in substantially the form of Exhibit B
and as to such other matters as the Bank may
reasonably request.
Section 4.02. Additional Conditions
Precedent. The obligation of the Bank to make
any Loan (including the initial Loan) shall be
subject to the further conditions precedent
that on the date of such Loan:
(a) the following statements shall be
true:
(i) the representations and
warranties contained in Article 5 are true
and correct on and as of the date of such
Loan as though made on and as of such
date, provided that the representations
and warranties in Section 5.04 need not be
true and correct if after such Loan there
is no net increase in the aggregate
principal amount outstanding hereunder;
and
(ii) no Default or Event of Default
has occurred and is continuing, or would
result from such Loan.
<PAGE>
(b) immediately after giving effect to
such Loan, Net Asset Coverage shall equal or
exceed the aggregate outstanding amount of the
Loans;
(c) immediately after giving effect to
such Loan, no more than 25% of the assets of
the Borrower shall constitute "margin stock"
(as defined in Regulation U); and
(d) the Bank shall have received such
approvals, opinions or documents as the Bank
may reasonably request.
Section 4.03. Deemed Representations.
Each notice of a Loan and acceptance by the
Borrower of the proceeds thereof shall
constitute a representation and warranty that
the statements contained in Sections 4.02(a),
4.02(b) and 4. 2(c) are true and correct both
on the date of such notice and, unless the
Borrower otherwise notifies the Bank prior to
such borrowing, as of the date of such Loan.
ARTICLE 5. REPRESENTATIONS AND
WARRANTIES.
The Borrower hereby represents and warrants
that:
Section 5.01. Organization, Good Standing
and Due Qualification. The Borrower is a
business trust duly organized, validly existing
and in good standing under the laws of the
Commonwealth of Massachusetts, has the trust
power and authority to own its assets and to
transact the business in which it is now
engaged or proposed to be engaged in accordance
with its Investment Practices.
Section 5.02. Trust Power and Authority;
No Conflicts. The execution, delivery and
performance (including without limitation the
incurrence of indebtedness by the Borrower as
contemplated by the Facility Documents) by the
Borrower of the Facility Documents have been
duly authorized by all necessary trust action
and do not and will not: (a) require any
consent or approval of its shareholders; (b)
contravene its declaration of trust or by-laws
or any of its Investment Practices; (c) violate
any provision of, or require any filing (other
than routine filings where the failure to make
such filing would not have a material adverse
effect on the financial condition, operations,
properties or business of the Borrower or the
ability of the Borrower to perform its
obligations to pay principal and interest on
Loans made under the Facility Documents),
registration, consent or approval under, any
law (including, without limitation, the 1940
Act), rule, regulation, order, writ, judgment,
injunction, decree, determination or award
presently in effect having applicability to the
Borrower; (d) result in a breach of or
constitute a default or require any consent
under any indenture or loan or
<PAGE>
credit agreement or any other agreement, lease
or instrument to which the Borrower is a party
or by which it or its properties may be bound
or affected; (e) result in, or require, the
creation or imposition of any Lien, upon or
with respect to any of the properties now owned
or hereafter acquired by the Borrower; or (f)
cause the Borrower to be in default under any
such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or
award or any such indenture, agreement, lease
or instrument.
Section 5.03. Legally Enforceable
Agreements. Each Facility Document is, or when
delivered under this Agreement will be, a
legal, valid and binding obligation of the
Borrower enforceable against the Borrower in
accordance with its terms, except to the extent
that such enforcement may be limited by
applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights
generally.
Section 5.04. Litigation. There are no
actions, suits or formal legal proceedings
pending or, to the knowledge of the Borrower,
threatened, against or affecting the Borrower
before any court, governmental agency or
arbitrator, in which there is a reasonable
possibility, in any one case or in the
aggregate, of an adverse decision which would
materially adversely affect the financial
condition, operations, properties or business
of the Borrower or the ability of the Borrower
to perform its obligations to pay principal and
interest on Loans made under the Facility
Documents.
Section 5.05. Financial Statements. The
annual financial statements dated October 31,
1991 and the semi-annual financial statements
of the Borrower dated April 30, 1992, each
together with the opinion thereon, of the
independent certified public accountants
appointed as the auditors of the Borrower,
copies of which have been furnished to the
Bank, are complete and correct and fairly
present the financial condition of the Borrower
as at such dates and the results of the
operations of the Borrower for the periods
covered by such statements, all in accordance
with GAAP consistently applied (subject to year
end adjustments in the case of the interim
financial statements). There are no liabilities
of the Borrower, fixed or contingent, which are
material but are not reflected in the financial
statements or in the notes thereto, other than
liabilities arising in the ordinary course of
business since April 30, 1992 and liabilities
which are not otherwise prohibited by the terms
of this Agreement. No information, exhibit or
report furnished by the Borrower to the Bank in
connection with the negotiation of this
Agreement contained any material misstatement
of fact or omitted to state a material fact or
any fact necessary to make the statements
contained therein not materially misleading.
<PAGE>
Section 5.06. Ownership and Liens. The
Borrower has title to, or valid leasehold
interest in, all of its properties and assets,
real and personal, including the properties and
assets, and leasehold interests reflected in
the financial statements referred to in Section
5.05 (other than any properties or assets
disposed of in the ordinary course of
business), and none of the properties and
assets owned by the Borrower and none of its
leasehold interests is subject to any Lien,
except as disclosed in such financial
statements or as may be permitted hereunder.
Section 5.07. Taxes. The Borrower has
filed all federal income tax returns required
to be filed and has paid all taxes, assessments
and governmental charges and levies thereon to
be due, including interest and penalties,
except where Borrower is contesting in good
faith by appropriate proceedings such payment
and is maintaining in accordance with GAAP and
the 1940 Act appropriate reserves for the
accrual of the same, and has not received a
notice that any of such returns is under
examination except as disclosed by the Borrower
to the Bank in writing. The Borrower has filed
all other tax returns required to be filed
except where the failure to so file would not
have a material adverse effect on the financial
condition, operations, properties or business
of the Borrower or on the ability of the
Borrower to perform its obligations under the
Facility Documents.
Section 5.08. Subsidiaries. The Borrower
does not have any Subsidiaries.
Section 5.09. Credit Arrangements. As of
the date hereof, Schedule I is a complete and
correct list of all credit agreements,
indentures, purchase agreements, guaranties,
and other investments, agreements and
arrangements presently in effect providing for
or relating to extensions of credit in an
amount individually of $5,000,000 or more
(including agreements and arrangements for the
issuance of letters of credit or for acceptance
financing, but excluding Financial Contracts
entered into in the ordinary course of business
in accordance with the Investment Practices) in
respect of which the Borrower is in any manner
directly or contingently obligated; and the
maximum principal or face amounts of the credit
in question, outstanding and which can be
outstanding, are correctly stated, and all
Liens of any nature given or agreed to be given
as security therefor are correctly described or
indicated in such Schedule.
Section 5.10. Operation of Business. The
Borrower possesses all licenses, permits,
franchises, patents, copyrights, trademarks and
trade names, or rights thereto, to conduct its
business substantially as now conducted and as
presently proposed to be conducted, and the
Borrower is not in
<PAGE>
violation of any valid rights of others with
respect to any of the foregoing, except where
Borrower's violation would not have a material
adverse effect on the business, properties,
assets, operations or conditions, financial or
otherwise, of the Borrower, or the ability of
the Borrower to carry out its obligations to
pay the principal and interest on Loans made
under the Facility Documents.
Section 5.11. Hazardous Materials. The
Borrower is not required to obtain any permits,
licenses and other authorizations which are
required under all Environmental Laws, except
to the extent failure to have any such permit,
license or authorization would not have a
material adverse effect on the financial
condition, operations, business or prospects of
the Borrower.
Section 5.12. No Default on Outstanding
Judgments or Orders. The Borrower has
satisfied all judicial judgments and the
Borrower is not in default with respect to any
judgment, writ, injunction, decree, rule or
regulation of any court, arbitrator or federal,
state, municipal or other governmental
authority, commission, board, bureau, agency or
instrumentality, domestic or foreign, except
where Borrower's failure to satisfy such
judgment or default would not have a material
adverse effect on the business, properties,
assets, operations or conditions, financial or
otherwise, of the Borrower, or the ability of
the Borrower to carry out its obligations to
pay the principal and interest on Loans made
under the Facility Documents.
Section 5.13. No Defaults on Other
Agreements. The Borrower is not a party to any
indenture, loan or credit agreement or any
lease or other agreement or instrument or
subject to any charter or restriction under the
declaration of trust which would have a
material adverse effect on the financial
condition, operation, business, properties,
assets, operations or conditions, financial or
otherwise, of the Borrower, or the ability of
the Borrower to carry out its obligations to
pay the principal of and interest on Loans made
under the Facility Documents. The Borrower is
not in default in any material respect in the
performance, observance or fulfillment of any
of the obligations, covenants or conditions
contained in any agreement or instrument
material to its business to which it is a
party.
Section 5.14. Labor Disputes and Acts of
God. The business and the properties of the
Borrower are not affected by any fire,
explosion, accident, strike, lockout or other
labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the
public enemy or other casualty (whether or not
covered by insurance), materially and adversely
affecting such business or properties or the
operations of the Borrower.
<PAGE>
Section 5.15. Governmental Regulation;
Trust Documents. (a) The Borrower is a closed-
end investment company registered under the
1940 Act and has registered the sale of the
Borrower's shares of beneficial interest under
the Securities Act of 1933, as amended,
pursuant to the Registration Statement.
(b) The Borrower possesses all material
governmental licenses, authorizations, consents
and approvals required to carry on its business
in accordance with its Investment Practices.
(c) The Borrower is in material
compliance with all investment policies and
restrictions set forth in its declaration of
trust and by-laws or in its Investment
Practices, and with all laws, rules,
regulations, orders, agreements, undertakings,
judgments, injunctions, decrees or other
instruments applicable to the Borrower.
Section 5.16. Affiliation. To the best
of the knowledge of the Borrower without
independent investigation, neither the Borrower
nor any Affiliated Person of the Borrower is an
Affiliated Person of the Bank.
Section 5.17. Investment Adviser.
(a) The Investment Adviser is duly
registered as an investment adviser under the
Advisers Act and is the sole investment adviser
to the Borrower; and
(b) The Investment Adviser is a wholly-
owned subsidiary of Sun Life Assurance Company
of Canada (U.S.).
ARTICLE 6. AFFIRMATIVE COVENANTS.
So long as the Note shall remain unpaid or
the Bank shall have any Commitment under this
Agreement, the Borrower shall:
Section 6.01. Maintenance of Existence.
Preserve and maintain its trust existence and
all of its rights, privileges and franchises
necessary or desirable in the normal conduct of
its business. The Borrower will pay and
discharge at or before maturity all its
material obligations and liabilities,
including, without limitation, material tax
liabilities, except where the same may be
contested in good faith by appropriate
proceedings, and will maintain, in accordance
with generally accepted accounting principles,
appropriate reserves for the accrual of the
same.
<PAGE>
Section 6.02. Conduct of Business.
Continue to engage in a regular manner in a
business of the same general type as conducted
by it on the date of this Agreement.
Section 6.03. Maintenance of Properties.
Maintain, keep and preserve all of its
properties, (tangible and intangible) necessary
or useful in the proper conduct of its business
in good working order and condition, ordinary
wear and tear excepted.
Section 6.04. Maintenance of Records.
Keep adequate records and books of account, in
which complete entries will be made in
accordance with the 1940 Act and regulations
promulgated thereunder and GAAP (with the
exception of the practice whereby the Borrower
records the purchase or sale of any security on
the business day immediately following the
trade date for such purchase or sale in
accordance with accepted industry practice)
reflecting all financial transactions of the
Borrower.
Section 6.05. Maintenance of Insurance.
Maintain insurance with financially sound and
reputable insurance companies or associations
in such amounts and covering such risks as are
usually carried by companies engaged in the
same or a similar business and similarly
situated, which insurance may provide for
reasonable deductibility from coverage thereof.
Section 6.06. Compliance with Laws.
Comply in all respects with all applicable
laws, rules, regulations (including, without
limitation, the 1940 Act) and orders where the
failure to so comply would have a material
adverse effect on the financial condition or
operations of the Borrower and pay all material
taxes, assessments and governmental charges
imposed upon it or upon its property before the
same become delinquent, except where the same
may be contested in good faith by appropriate
proceedings, and for which the Borrower
maintains, in accordance with the 1940 Act and
GAAP, appropriate reserves after the accrual of
same.
Section 6.07. Right of Inspection. At
any reasonable time and from time to time,
permit the Bank or any agent or representative
thereof, to examine and make copies and
abstracts from the records and books of account
of, and visit the properties of, the Borrower
and to discuss the affairs, finances and
accounts of the Borrower with any of its
officers and Chairman of the Board of Trustees
and the Borrower's independent accountants,
provided that the Bank shall pay the costs for
such access to the Borrower's independent
accountants, provided further that the Borrower
shall pay the costs for such access to the
Borrower's independent accountants if an Event
of Default has occurred and has not been cured
or
<PAGE>
the Bank requests such access to determine
whether such Event of Default has been cured.
Section 6.08. Reporting Requirements.
Furnish to the Bank:
(a) as soon as available and in any event
within 75 days after the end of each fiscal
year of the Borrower, a statement of assets and
liabilities as of the end of each fiscal year,
a statement of operations for such fiscal year,
a statement of changes in net assets for such
fiscal year and the preceding fiscal year, a
portfolio of investments as of the end of such
fiscal year and the per share and other data
for such fiscal year as well as for the four
preceding years (if applicable) prepared in
accordance with regulatory requirements,
setting forth in each case in comparative form
to the extent required by the Securities and
Exchange Commission corresponding figures from
the preceding fiscal year (except as to
portfolios of investments, statements of net
assets and statements of operations), all
reported on in a manner acceptable to the
Securities and Exchange Commission by
independent certified public accountants of
recognized standing, acting as auditors for the
Borrower (the "Public Accountants");
(b) as soon as available and in any event
within 75 days after the end of the first six
months of each fiscal year of the Borrower, a
statement of assets and liabilities as of the
end of such semi-annual semester, a statement
of operations for such semiannual semester, a
statement of changes in net assets for such
semi-annual semester, a portfolio of
investments as of the end of such semi-annual
semester, all prepared in accordance with
regulatory requirements and certified (subject
to normal year-end adjustments) as to fairness
of presentation, generally accepted accounting
principles and consistency by the Treasurer or
any Assistant Treasurer of the Borrower,
provided that such certification shall not be
required if the financial materials to be
provided hereunder are certified by the Public
Accountants;
(c) as soon as available and in any event
within 15 days after the end of each month of
each fiscal year of the Borrower, (i) a
Portfolio Report which shall include a list in
reasonable detail of all assets of the Borrower
as of the last day of such month, including,
without limitation, with respect to each
security, the issuer, issue, coupon rate,
maturity date, rating, total cost, and Fair
Market Value; and (ii) after the end of a month
in which a Loan was outstanding, a statement
(the "Asset Coverage Statement"), substantially
in the form attached as Exhibit C hereto,
certified by the Treasurer or any Assistant
Treasurer of the Borrower, setting forth the
calculations required to determine Net Asset
Coverage with computations demonstrating
compliance with the covenant contained in
Article 8 as of the last day of such month and
providing information as to the strike price of
any securities
<PAGE>
subject to call options which are included in
the Net Asset Coverage calculation, delivered
together with the Portfolio Report which shall
indicate which specific securities listed
therein are included by the Borrower in the Net
Asset Coverage calculation in the Asset
Coverage Statement;
(d) promptly upon receipt thereof, copies
of any material reports submitted to the
Borrower by independent certified public
accountants in connection with examination of
the financial statements of the Borrower made
by such accountants;
(e) simultaneously with the delivery of
the financial statements referred to in Section
6.08 (a) and (b), a certificate of the
Treasurer or any Assistant Treasurer of the
Borrower (i) certifying that to the best of his
knowledge no Default or Event of Default has
occurred and is continuing or, if a Default or
Event of Default has occurred and is
continuing, a statement as to the nature
thereof and the action which is proposed to be
taken with respect thereto;
(f) promptly after the commencement
thereof, notice of all actions, suits, and
formal legal proceedings before any court or
governmental department, commission, board,
bureau, agency or instrumentality, domestic or
foreign, affecting the Borrower which, if
determined adversely to the Borrower, would
have a material adverse effect on the financial
condition, properties, or operations of the
Borrower;
(g) as soon as possible and in any event
within 10 days after the occurrence of each
Default or Event of Default a written notice
setting forth the details of such Default or
Event of Default and the action which is
proposed to be taken by the Borrower with
respect thereto;
(h) promptly after the furnishing
thereof, copies of any material statement or
report furnished to any other party pursuant to
the terms of any indenture, loan or credit or
similar agreement, which shall not include
Financial Contracts entered into by the
Borrower in accordance with the Investment
Practices, and not otherwise required to be
furnished to the Bank pursuant to any other
clause of this Section 6.08;
(i) promptly after the sending or filing
thereof, copies of all proxy statements,
financial statements and material reports which
the Borrower sends to its shareholders, and
copies of all regular, periodic, and special
reports and all registration statements and
amendments thereto which the Borrower files
with the Securities and Exchange Commission
(including without limitation any amendments to
the Registration Statement) or any governmental
authority which may
<PAGE>
be substituted therefor, or with any national
securities exchange;
(j) if at any time the value of all
"margin stock" (as defined in Regulation U)
owned by the Borrower exceeds (or would,
following the application of the proceeds of
any Loan hereunder, exceed) 25% of the value of
the total assets of the Borrower, a statement
in conformity with the requirements of Federal
Reserve Form U-1 referred to in Regulation U;
the value of the total assets will be the Fair
Market Value of the assets; and
(k) such other information respecting the
condition or operations, financial or
otherwise, of the Borrower as the Bank may from
time to time reasonably request.
Section 6.09. Compliance with Investment
Restrictions. The Borrower will at all times
comply with the fundamental investment
restrictions set forth in its Investment
Practices, except where the failure to so
comply will not have a material adverse effect
on the business or financial condition of the
Borrower or impair its ability to satisfy its
obligations to pay principal and interest on
the Loans made under the Facility Documents.
Section 6.10. Investment Company Act of
1940. The Borrower will at all times be a
registered investment company under the 1940
Act.
ARTICLE 7. NEGATIVE COVENANTS.
So long as the Note shall remain unpaid or
the Bank shall have any Commitment under this
Agreement, the Borrower shall not:
Section 7.01. Liens. Create, incur,
assume or suffer to exist any Lien, upon or
with respect to any of its properties, now
owned or hereafter acquired, except:
(a) Liens securing the Loans hereunder;
(b) Liens arising in connection with
Financial Contracts entered into in accordance
with the Investment Practices in the ordinary
course of business;
(c) Liens imposed by law, such as
mechanic's materialmen's, landlord's,
warehousemen's and carrier's Liens, and other
similar Liens, securing obligations incurred in
the ordinary course of business which are not
past due for more than 30 days, or which are
being contested in good faith by
<PAGE>
appropriate proceedings and for which
appropriate reserves have been established;
(d) the Lien granted to the Custodian
pursuant to a custodian agreement between such
custodian and the Borrower, as in effect from
time to time, and any Liens securing
reimbursement obligations in respect of a
letter of credit issued or renewed (or
increased in connection with an increase in
coverage or premiums) for the benefit of ICI
Mutual Insurance Company;
(e) Liens for taxes or assessments or
other government charges or levies if not yet
due and payable or if due and payable if they
are being contested in good faith by
appropriate proceedings and for which
appropriate reserves are maintained;
(f) Liens, deposits or pledges to secure
the performance of bids, tenders, contracts
(other than contracts for the payment of
money), leases (permitted under the terms of
this Agreement), public or statutory
obligations, surety, stay, appeal, indemnity,
performance or other similar bonds, or other
similar obligations arising in the ordinary
course of business, provided, that no Liens may
be permitted against securities owned by the
Borrower pursuant to this subparagraph (f);
(g) Liens in respect of bonds posted in
the appeal of judgments, and judgement and
other similar Liens arising in connection with
court proceedings, provided that the execution
or other enforcement of such Liens is
effectively stayed and the claims secured
thereby are being actively contested in good
faith and by appropriate proceedings;
(h) purchase money Liens on any property
other than securities hereafter acquired or the
assumption of any Lien on property other than
securities existing at the time of such
acquisition, or a Lien incurred in connection
with any conditional sale or other title
retention agreement or a capital lease;
provided that:
(i) any property subject to any of
the foregoing is acquired by the Borrower
in the ordinary course of its business and
the Lien on any such property is created
contemporaneously with such acquisition;
(ii) each such Lien shall attach only
to the property so acquired and fixed
improvements thereon; and
(iii) the indebtedness secured by
all such Liens shall not exceed at any
time in the aggregate the lesser of
$20,000,000 or 2.5% of the Net Asset Value
of the Borrower; and
<PAGE>
(i) any Lien existing on any asset prior
to the date of acquisition thereof by the
Borrower provided that such asset was acquired
by the Borrower in respect of claims of the
Borrower against an issuer of securities held
by the Borrower, which assets are received by
the Borrower pursuant to bankruptcy,
insolvency, reorganization or similar
proceeding against such issuer; and provided
further that the indebtedness secured by all
such Liens shall not exceed at any time in the
aggregate 5% of the Net Asset Value of the
Borrower.
Section 7.02. Mergers Etc. The Borrower
shall not merge or consolidate with, or sell,
assign, lease or otherwise dispose of (whether
in one transaction or in a series of
transactions) all or substantially all of its
assets (whether now owned or hereafter
acquired) to, any Person (or enter into any
agreement to do any of the foregoing) except
that: (a) the Borrower may merge or
consolidate with another Person so long as the
Borrower is the survivor of such consolidation
or merger and (b) the Borrower may sell, lease
or otherwise transfer all or any substantial
part of its assets in the ordinary course of
its business in accordance with its Investment
Practices.
Section 7.03. Amendment of Investment
Practices.
The Borrower will not amend its
declaration of trust or by-laws or its
Investment Practices if such amendment would
have a material adverse effect on the business
or financial condition of the Borrower or
impair its ability to satisfy its obligations
to pay principal of and interest on Loans made
under the Facility Documents.
Section 7.04. Use of Proceeds. The
Borrower shall use the proceeds of the Loans
for such purposes, including without limitation
the purchase of securities, as are in
accordance with the Investment Practices;
provided, however, that such proceeds shall not
be used for the purpose, whether immediate,
incidental or ultimate, of buying or carrying
"margin stock" within the meaning of Regulation
U.
ARTICLE 8. FINANCIAL COVENANTS.
So long as the Note shall remain unpaid or
the Bank shall have any Commitment under this
Agreement:
Section 8.01. Asset Coverage Test. Net
Asset Coverage shall at all times equal or
exceed the aggregate principal amount of Loans
outstanding.
<PAGE>
ARTICLE 9. EVENTS OF DEFAULT.
Section 9.01. Events of Default. Any of
the following events shall be an "Event of
Default":
(a) the Borrower shall: (i) fail to pay
the principal of the Note as and when due and
payable; or (ii) fail to pay interest on the
Note or any fee or other amount due hereunder
as and when due and payable and such failure
shall continue for eight days;
(b) any representation or warranty made
or deemed made by the Borrower in this
Agreement or in any other Facility Document or
which is contained in any certificate,
document, opinion, financial or other statement
furnished at any time under or in connection
with any Facility Document shall prove to have
been incorrect in any material respect on or as
of the date made or deemed made and, only with
respect to any document delivered pursuant to
Section 6.08(i) and typographical errors
therein, shall not have been corrected within
ten days of discovery by the Borrower of the
incorrectness of such representation, warranty,
certification or statement;
(c) the Borrower shall: (i) fail to
perform or observe any term, covenant or
agreement contained in Section 2.03 or Articles
7 or S; or (ii) fail to perform or observe any
term, covenant or agreement on its part to be
performed or observed (other than the
obligations specifically referred to elsewhere
in this Section 9.01) in any Facility Document
and such failure shall continue for 20
consecutive days after notice from the Bank to
the Borrower of such failure;
(d) the Borrower shall: (i) fail to pay
any indebtedness in an aggregate principal
amount in excess of $5,000,000, including but
not limited to indebtedness for borrowed money
(other than the payment obligations described
in (a) above), of the Borrower, or any interest
or premium thereon, when due (whether by
scheduled maturity, required prepayment,
acceleration, demand or otherwise); or (ii)
fail to perform or observe any term, covenant
or condition on its part to be performed or
observed under any agreement or instrument
relating to any such indebtedness, when
required to be performed or observed, if the
effect of such failure to perform or observe is
to accelerate, or to permit the acceleration
of, after the giving of notice or passage of
time, or both, the maturity of such
indebtedness; or any such indebtedness shall be
declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated
maturity thereof;
<PAGE>
(e) the Borrower: (i) shall generally
not, or be unable to, or shall admit in writing
its inability to, pay its debts as such debts
become due; or (ii) shall make an assignment
for the benefit of creditors, petition or apply
to any tribunal for the appointment of a
custodian, receiver or trustee for it or a
substantial part of its assets; or (iii) shall
commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute
of any jurisdiction, whether now or hereafter
in effect; or (iv) shall have had any such
petition or application filed or any such
proceeding shall have been commenced, against
it, in which an adjudication or appointment is
made or order for relief is entered, or which
petition, application or proceeding remains
undismissed for a period of 60 days or more; or
shall be the subject of any proceeding under
which its assets may be subject to seizure,
forfeiture or divestiture; or (v) by any act or
omission shall indicate its consent to,
approval of or acquiescence in any such
petition, application or proceeding or order
for relief or the appointment of a custodian,
receiver or trustee for all or any substantial
part of its property; or (vi) shall suffer any
such custodianship, receivership or trusteeship
to continue undischarged for a period of 60
days or more;
(f) one or more judgments, decrees or
orders for the payment of money in excess of
$5,000,000 in the aggregate shall be rendered
against the Borrower and such judgments,
decrees or orders shall continue unsatisfied
and in effect for a period of 45 consecutive
days without being vacated, discharged,
satisfied or stayed or bonded pending appeal;
(g) (i) 40 days shall have elapsed since
an officer of the Borrower has actual knowledge
of the fact that any Person or two or more
Persons acting in concert shall have acquired
beneficial ownership (within the meaning of
Rule 13d-3 of the Commission under the
Securities Exchange Act of 1934) of 25% or more
of the outstanding shares of voting stock of
the Borrower; or (ii) during any period of 12
consecutive months, commencing before or after
the date of this Agreement, individuals who at
the beginning of such 12-month period were
trustees of the Borrower, or were trustees as
of November 1, 1992 of another investment
company advised by the Investment Adviser or
any wholly-owned subsidiary thereof, cease for
any reason to constitute a majority of the
trustees of the Borrower;
(h) the Investment Adviser or a wholly-
owned Subsidiary thereof cease to act as the
sole investment adviser to the Borrower;
(i) there shall be an "assignment" of the
investment advisory agreement between the
Borrower and the Investment Adviser as defined
in the Advisers Act;
<PAGE>
(j) the Borrower shall convert to an open-
end investment company;
(k) as of the last day of any calendar
month, the Net Asset Value of the Borrower
shall be less than 66%% of the Net Asset Value
of the Borrower as of the last day of the
immediately preceding calendar month; or
(1) the issuance by the Commission of a
stop order suspending the effectiveness of the
Registration Statement or the institution by
the commission of proceedings for that purpose.
Section 9.02. Remedies. If any Event of
Default shall occur and be continuing, the Bank
may, by notice to the Borrower, (a) declare the
Commitment to be terminated, whereupon the same
shall forthwith terminate, and (b) declare the
outstanding principal of the Note, all interest
thereon and all other amounts payable under
this Agreement and the Note to be forthwith due
and payable, whereupon the Note, all such
interest and all such amounts shall become and
be forthwith due and payable, without
presentment, demand, protest or further notice
of any kind, all of which are hereby expressly
waived by the Borrower; provided that, in the
case of an Event of Default referred to in
Section 9.01(e) above, the Commitment shall be
immediately terminated, and the Note, all
interest thereon and all other amounts payable
under this Agreement shall be immediately due
and payable without notice, presentment,
demand, protest or other formalities of any
kind, all of which are hereby expressly waived
by the Borrower.
ARTICLE 10. MISCELLANEOUS.
Section 10.01. Amendments and Waivers.
Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may
be amended or modified only by an instrument in
writing signed by the Borrower and the Bank,
and any provision of this Agreement may be
waived by the Borrower and the Bank. No failure
on the part of the Bank or the Borrower to
exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof or
preclude any other or further exercise thereof
or the exercise of any other right. The
remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
Section 10.02. Usury. Anything herein to
the contrary notwithstanding, the obligations
of the Borrower under this Agreement and the
Note shall be subject to the limitation that
payments of interest shall not be required to
the extent that receipt thereof would be
contrary to provisions of law applicable to the
Bank limiting rates of interest which may be
charged or collected by the Bank.
<PAGE>
Section 10.03. Expenses. The Borrower
shall reimburse the Bank on demand for all fees
and charges of external legal counsel for the
Bank incurred in connection with the
preparation of this Agreement or the Note;
provided, however, that the such legal fees and
charges shall not exceed $7,500 in the
aggregate. The Borrower shall reimburse the
Bank on demand for all costs, expenses and
charges (including, without limitation, fees
and charges of external legal counsel for the
Bank and costs allocated by its internal legal
counsel) incurred in connection with the
enforcement of this Agreement and the Note.
The Borrower agrees to indemnify the Bank and
its directors, officers, employees and agents
from, and hold each of them harmless against,
any and all losses, liabilities, claims,
damages or expenses incurred by any of them
arising out of or by reason of any
investigation or litigation or other
proceedings (including any threatened
investigation or litigation or other
proceedings) relating to any actual or proposed
use by the Borrower of the proceeds of the
Loans, including without limitation, the
reasonable fees and disbursements of counsel
reasonably incurred in connection with any such
investigation or litigation or other
proceedings (but excluding any such losses,
liabilities, claims, damages or expenses
incurred by reason of the gross negligence or
willful misconduct of the Person to be
indemnified)
Section 10.04. Survival. The obligations
of the Borrower under Sections 3.01, 3.04 and
10.03 shall survive the repayment of the Loans
and the termination of the Commitment.
Section 10.05. Assignment;
Participations. (a) This Agreement shall be
binding upon, and shall inure to the benefit
of, the Borrower, the Bank and their respective
successors and assigns, except that the
Borrower may not assign or transfer its rights
or obligations hereunder. Subject to Sections
10.05(b) and (c) hereof, the Bank may not
assign or transfer its rights under this
Agreement and the Note without the prior
written consent of the Borrower; provided,
however, that the Bank may, without such
consent or notice, sell participations in, all
or any part of any Loan to another bank or
other entity, in which event in the case of a
participation, the participant shall have no
rights under the Facility Documents and all
amounts payable by the Borrower under Article 3
shall be determined as if the Bank had not sold
such participation. The agreement executed by
the Bank in favor of the participant shall not
give the participant the right to require the
Bank to take or omit to take any action
hereunder except action directly relating to
(i) the extension of a payment date with
respect to any portion of the principal of or
interest on any amount outstanding hereunder
allocated to such participant, (ii) the
reduction of the principal amount outstanding
hereunder or (iii) the reduction of the rate of
interest payable on such amount or any amount
of fees payable hereunder
<PAGE>
to a rate or amount, as the case may be, below
that which the participant is entitled to
receive under its agreement with the Bank. The
Bank may furnish any information concerning the
Borrower in the possession of the Bank from
time to time to assignees and participants
(including prospective assignees and
participants); provided that the Bank shall
require any such prospective assignee or such
participant (prospective or otherwise) to agree
in writing to maintain the confidentiality of
such information. With respect to
participations and assignments of rights of the
Bank permitted under this paragraph (a), the
Bank shall remain solely responsible for the
performance of its obligations under this
Agreement and the Borrower shall continue to
deal solely and directly with the Bank in
connection with the Bank's rights and
obligations under the Agreement.
(b) In addition to the assignments and
participations permitted under paragraph (a)
and (c) hereof, the Bank may assign and pledge
all or any portion of its Loans and Note to any
affiliate of the Bank with prior notice to the
Borrower, provided that the Bank shall remain
solely responsible for the performance of its
obligations under this Agreement and the
Borrower shall continue to deal solely and
directly with the Bank in connection with the
Bank's rights (other than the right to receive
payments) and obligations under this Agreement.
No such assignment shall release the Bank from
its obligations hereunder.
(c) In addition to the assignments and
participations permitted under paragraphs (a)
and (b) above, the Bank may assign and pledge
all or any portion of its Loans and Note to any
Federal Reserve Bank without notice to the
Borrower as collateral security pursuant to
Regulation A of the Board of Governors of the
Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank,
provided that the Bank shall remain solely
responsible for the performance of its
obligations under this Agreement and the
Borrower shall continue to deal solely and
directly with the Bank in connection with the
Bank's obligations under this Agreement. No
such assignment shall release the Bank from its
obligations hereunder.
Section 10.06. Notices. Unless the party
to be notified otherwise notifies the other
party in writing as provided in this Section,
and except as otherwise provided in this
Agreement, notices shall be given to the Bank
and to the Borrower by ordinary mail or
facsimile transmission addressed to such party
at its address on the signature page of this
Agreement. Notices shall be effective upon
receipt.
Section 10.07. Setoff. The Borrower
agrees that, in addition to (and without
limitation of) any right of setoff, banker's
lien or counterclaim the Bank may otherwise
have, the Bank shall be entitled, at its
option, to offset balances (general or special,
time or demand, provisional or final) held
<PAGE>
by it for the account of the Borrower at any of
the Bank's offices, in Dollars or in any other
currency, against any amount payable by the
Borrower under this Agreement or the Note which
is not paid when due (regardless of whether
such balances are then due to the Borrower), in
which case it shall promptly notify the
Borrower thereof; provided that the Bank's
failure to give such notice shall not affect
the validity thereof.
SECTION 10.05. JURISDICTION; IMMUNITIES.
(a) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY MEW YORK STATE OR
UNITED STATES FEDERAL COURT SITTING IN NEW YORK
COUNTY OVER ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE
NOTE, AND THE BORROWER HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE OR FEDERAL
COURT. THE BORROWER IRREVOCABLY CONSENTS TO
THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES
OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS
SPECIFIED IN SECTION 10.06. THE BORROWER
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW. THE BORROWER FURTHER WAIVES ANY OBJECTION
TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN
ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS
OF FORUM NON CONVENIENS. THE BORROWER WAIVES
ANY RIGHT IT MAY HAVE TO JURY TRIAL.
(b) Nothing in this Section 10.08 shall
affect the right of the Bank to serve legal
process in any other manner permitted by law or
affect the right of the Bank to bring any
action or proceeding against the Borrower or
its property in the courts of any other
jurisdictions.
(c) To the extent that the Borrower has
or hereafter may acquire any immunity from
jurisdiction of any court or from any legal
process (whether from service or notice,
attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with
respect to itself or its property, the Borrower
hereby irrevocably waives such immunity in
respect of its obligations under this Agreement
and the Note.
Section 10.09. Table of Contents;
Headings. Any table of contents and the
headings and captions hereunder are for
convenience only and shall not affect the
interpretation or construction of this
Agreement.
<PAGE>
Section 10.10. Severability. The
provisions of this Agreement are intended to be
severable. If for any reason any provision of
this Agreement shall be held invalid or
unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in
any manner affecting the validity or
enforceability thereof in any other
jurisdiction or the remaining provisions hereof
in any jurisdiction.
Section 10.11. Counterparts. This
Agreement may be executed in any number of
counterparts, all of which taken together shall
constitute one and the same instrument, and any
party hereto may execute this Agreement by
signing any such counterpart.
Section 10.12. Integration. The Facility
Documents set forth the entire agreement
between the parties hereto relating to the
transactions contemplated thereby and supersede
any prior oral or written statements or
agreements with respect to such transactions.
SECTION 10.13. GOVERNING LAW. THIS
AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
Section 10.14. Confidentiality. The Bank
agrees (on behalf of itself and each of its
affiliates, directors, officers, employees and
representatives) to use reasonable precautions
to keep confidential, in accordance with safe
and sound banking practices, any non-public
information supplied to it by the Borrower
pursuant to this Agreement which is identified
by the Borrower as being confidential at the
time the same is delivered to the Bank,
provided that nothing herein shall limit the
disclosure of any such information (i) to the
extent required by statute, rule, regulation or
judicial process, (ii) to counsel for the Bank,
(iii) to bank examiners, auditors or
accountants, (iv) in connection with any
litigation to which the Bank is a party or (v)
to any assignee or participant (or prospective
assignee or participant); provided, however,
that to the extent reasonably practicable, the
Bank will provide prior notice of such
disclosure to the Borrower.
Section 10.15. Treatment of Certain
Information. The Borrower (a) acknowledges
that services may be offered or provided to it
(in connection with this Agreement or
otherwise) by the Bank or by one or more of
their respective subsidiaries or affiliates and
(b) acknowledges that any information delivered
to the Bank or to its subsidiaries or
affiliates regarding the Borrower may be shared
among the Bank and each
<PAGE>
such subsidiary and affiliate to the extent
necessary for the performance of the Bank's
obligations to the Borrower hereunder.
Section 10.16. Limitation of Shareholder
Liability, Etc. A copy of the Declaration of
Trust of the Borrower is on file with the
Secretary of State of the Commonwealth of
Massachusetts. The Bank acknowledges that the
obligations of or arising out of the Facility
Documents are not binding upon any of the
Borrower's trustees, officers or shareholders
individually, but are binding only upon the
assets and property of the Borrower.
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be duly executed
as of the day and year first above written.
MFS MULTIMARKET INCOME
TRUST
By
Name: Mr. James T. Swanson
Title: Vice President
Address for Notices:
Mr. W. Thomas London
Senior Vice President
Massachusetts Financial Services
Company
500 Boylston Street-22nd Floor
Boston, MA 02116
Tel. No.: (617) 954-5251
Fax No.: (617) 954-6614
cc: Mr. James O. Yost
Vice President
Massachusetts Financial Services
Company
500 Boylston Street-22nd Floor
Boston, MA 02116
Tel. No.: (617) 954-5275
Fax No.: (617) 954-6614
<PAGE>
THE CHASE MANHATTAN
BANK
(NATIONAL ASSOCIATION)
By
Name: Patricia Gardner
Title: Vice President
Lending Office and Address for Notices:
The Chase Manhattan Bank, N.A. New York
Agency
4 Chase MetroTech Center-l3th Fl.
Brooklyn, New York 11245
Tel. No.: 718/242-7945
Fax. No.: 718/242-6909
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$150,000,000 New York, New York
November 10, 1992
For value received, MFS MULTIMARKET INCOME
TRUST, a corporation organized under the laws
of the Commonwealth of Massachusetts (the
"Borrower"), hereby promises to pay to the
order of THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION) (the "Bank") at the principal
office of the Bank, at 1 Chase Manhattan Plaza,
New York, New York 10081, for the account of
the appropriate Lending Office of the Bank, the
principal sum of $150,000,000 or, if less, the
amount loaned by the Bank to the Borrower
pursuant to the Credit Agreement referred to
below, In lawful money of the United States of
America and in immediately available funds, on
the date(s) and in the manner provided in said
Credit Agreement. The Borrower also promises
to pay interest on the unpaid principal balance
hereof, for the period such balance is
outstanding, at said principal office for the
account of said Lending Office, in like money,
rates of interest as provided in the Credit
Agreement referred to below, on the date(s) and
in the manner provided in said Credit
Agreement.
The date and amount of each Loan made by
the Bank to the Borrower under the Credit
Agreement referred below, maturity date and
each payment of principal thereof, shall be
recorded by the Bank on its books and, prior to
any transfer of this Note or, at the discretion
of the Bank, at any other time), endorsed by
the Bank on the schedule attached hereto or any
continuation thereof.
This is the Note referred to in that
certain Credit Agreement (as amended from time
to time the Credit Agreement") dated as of
November 10, 1992 between the Borrower and the
Bank and evidences the Loans made or remade by
the Bank thereunder. All terms not defined
herein shall have the meanings given to them in
the Credit Agreement.
The Credit Agreement provides for the
acceleration of the maturity of this Note upon
the occurrence of certain Events of Default and
for prepayments on the terms and conditions
specified therein.
The Borrower waives presentment, notice of
dishonor, protest and any other notice or
formality with respect to this Note.
<PAGE>
This Note shall be governed by, and
interpreted and construed in accordance with,
the laws of the State of New York.
MFS MULTIMARKET INCOME
TRUST
By
Name:
Title:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Amount Interest Rate Amount of Balance Notation
Date of Loan or Type Payment Outstanding By
</TABLE>
<PAGE>
Exhibit B
MFS
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02116
(617) 954-500
LINDA J. HOARD
Vice President and Assistant General Counsel
November 10, 1992
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York, New York 10081
Re: MFS Multimarket Income Trust
Gentlemen:
I have acted as counsel for MFS Multimarket Income
Trust, a Massachusetts business trust (the "Borrower")
in connection with the execution and delivery of the
Credit Agreement (the "Credit Agreement") dated as of
November 10, 1992 between the Borrower and The Chase
Manhattan Bank, N.A. (the "Bank"). Except as otherwise
defined herein, all terms used herein and defined in
the Credit Agreement shall have the meanings assigned
to them therein.
This opinion is furnished to you pursuant to
4.0l(e) of the Credit Agreement in connection with
your financing of the Borrower pursuant to the Facility
Documents of even date herewith providing for loans by
the Bank to the Borrower in the aggregate principal
amount of $150,000,000. In connection with the
preparation of this opinion, I have examined the
Borrower's Declaration of Trust and By-Laws, the
Facility Documents and the most recent Registration
Statement. In addition, I have reviewed such
resolutions of the Borrower's Board of Trustees,
<PAGE>
records, certificates, documents and instruments as I
have deemed appropriate for the purpose of this
opinion.
For purposes of this opinion, I am assuming that
the Bank has all requisite power and authority and has
taken all necessary corporate and other actions to
enter into the Facility Documents and to effect the
transactions contemplated thereby. I have assumed the
genuineness of all signatures, the conformity to the
originals of all documents that I have reviewed as
copies, the authenticity and completeness of all
original documents that I have reviewed in original or
copy form and the legal competence of each individual
executing any document.
I understand that all of the foregoing assumptions
and limitations are acceptable to you.
Each opinion set forth below relating to the
enforceability of any agreement or instrument against
the Borrower is subject to the following general
qualifications:
(i) as to any agreement to which the Borrower is
a party, I assume that such agreement is the
binding obligation of each other party
thereto;
(ii) the enforceability of any obligation of the
Borrower may be limited by bankruptcy,
insolvency, fraudulent conveyance,
reorganization, moratorium, marshalling or
other laws and rules or law affecting the
enforcement generally of creditors' rights
and remedies (including such as may deny
giving effect to waivers of debtor's or
guarantors' rights);
(iii) no opinion is given herein as to the
availability of any specific equitable relief
of any kind; and
(iv) the enforcement of any of your rights may in
all cases be subject to an implied duty of
good faith and to general principles of
equity (regardless of whether such
enforceability is considered in a proceeding
at law or in equity).
Subject to the limitations I set forth below, I
have made such examination of law as I have deemed
necessary for the purposes of this opinion. This
opinion is limited solely to the laws of The
Commonwealth of Massachusetts as applied by courts
located in Massachusetts, and the Federal laws of the
United States of America, to the extent that same may
apply to or govern such transactions. I express no
opinion herein
<PAGE>
concerning the laws of any other jurisdiction. In this
regard, I note that the Facility Documents contain
provisions to the effect that the laws of jurisdictions
other than those recited in the second sentence of this
paragraph are intended to be governing. For purposes
of my opinions herein, I have, with your permission,
assumed with no independent investigation that the laws
of all jurisdictions which may govern the Facility
Documents, other than those specifically recited above,
are identical in all relevant respects to the
substantive laws of The Commonwealth of Massachusetts,
without regard to conflict of law principles. Except
as specifically set forth above, no opinion is given
herein as to the choice of law or Internal substantive
rules of law which any tribunal may apply to the
transactions referred to herein.
Based on the foregoing, I am of the opinion that:
1. The Borrower is a business trust duly
organized and validly existing and in good
standing under the laws of The Commonwealth
of Massachusetts, and has all trust powers
and all material governmental licenses,
authorizations, consents and approvals
required to carry on its business as now
conducted.
2. The execution, delivery and performance
(including without limitation the incurrence
of indebtedness by the Borrower as
contemplated by the Facility Documents) by
the Borrower of the Facility Documents are
within the Borrower's trust powers and have
been duly authorized by all necessary trust
action and do not and will not: (a) require
any consent or approval of its shareholders;
(b) contravene its declaration of trust or by-
laws or any of its Investment Practices; (c)
violate any provision of, or require any
filing (other than routine filings where the
failure to make such filing would not have a
material adverse effect on the financial
condition, operations, properties or business
of the Borrower or the ability of the
Borrower to perform its obligations to pay
principal and interest on loans made under
the Facility Documents), registration,
consent or approval under any law, rule or
regulation (including, without limitation,
the 1940 Act) presently in effect and having
applicability to the Borrower, or any order,
writ, judgment, injunction, decree,
determination or award presently in effect
and having applicability to the Borrower; (d)
result in a breach of or constitute a default
or require any consent under an indenture or
loan or credit agreement or any other
agreement, lease or instrument to which the
Borrower is a party or by which it or its
properties may be bound or affected; (e)
result in, or require, the creation or
imposition of any Lien (other than any Lien
<PAGE>
which may be created pursuant to the terms of
Section 10.07 of the Credit Agreement), upon
or with respect to any of the properties now
owned or hereafter acquired by the Borrower;
or (f) cause the Borrower to be in default
under any such law, rule, regulation, order,
writ, judgment, injunction, decree,
determination or award or any such indenture,
agreement, lease or instrument.
3. Each Facility Document is, or when delivered
under the Credit agreement will be, a legal,
valid and binding obligation of the Borrower,
enforceable against the Borrower in
accordance with its terms.
4. The Borrower has been duly registered under
the 1940 Act.
5. The Registration Statement relating to the
offer and sale of the shares of beneficial
interest in the Borrower has been filed under
the Securities Act of 1933, as amended, and
remains in effect and to my knowledge no stop
order suspending the effectiveness of the
Registration Statement is in effect and no
proceedings for such purpose are pending
before or threatened by the Commission.
6. The Investment Adviser is duly registered as
an investment adviser under the Advisers Act.
7. To the best of my knowledge (after due inquiry),
there are no pending or threatened actions, suits
or proceedings against or affecting the Borrower
or Investment Adviser before any court,
governmental agency or arbitrator, which may, in
any one case or in the aggregate, materially
adversely affect the financial condition,
operations, properties or business of the Borrower
or the ability of the Borrower to perform its
obligations under the Facility Documents.
Very truly yours,
Linda J. Hoard
JLH/aes
<PAGE>
Exhibit C
Form of Borrower's Asset Coverage Statement
under Section 6.08(c)
[Form is Attached]
<PAGE>
EXHIBIT C
ASSET COVERAGE REPORT
As of: Total loan commitment outstanding
(A):
US Government & Eligible US Government Agency
Securities:
Indicated as * from attached portfolio report Fair market value (B)
Non-US OECD Government Securities (Rated AA - or Aa3 or
better):
Indicated as ** from attached portfolio report Fair market value (C)
Net asset coverage test (must be equal to or greater
than 100% to pass coverage test)
((B) x 0.6667) + ((C) x 0.5) x 100 =
(A)
Certified by:
Treasurer or
Assistant Treasurer
Notes:
Securities noted above are required to be included
in this report and appropriately marked in the
attached Portfolio Report only to the extent
necessary to satisfy the Net Asset Coverage test.
Any security identified above subject to a written
option shall be reported at the lower of the
security's Fair Market Value or the strike price
of the written option.
<PAGE>
EXHIBIT D
The assets of the Borrower below are valued as follows:
Bonds and other fixed income securities (other than
short-term obligations, but including listed issues),
are valued on the basis of valuations furnished by
dealers or by a pricing service which utilizes both
dealer-supplied valuations and electronic data
processing techniques which take into account
appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon
exchange or over-the-counter prices, since such
valuations are believed by Massachusetts Financial
Services Company ("Investment Adviser"), the Borrower's
Investment Adviser, to reflect the fair value of such
securities. Forward Contracts will be valued on the
basis of valuations provided by a pricing service. Use
of pricing services has been approved by the Borrower's
Board of Trustees. The Borrower's Board of Trustees has
determined that short-term obligations are to be valued
at amortized cost unless this method no longer produces
fair valuations. Short-term obligations with a
remaining maturity in excess of 60 days will be valued
upon dealer supplied valuations. All other securities
and commodities in the Borrower's portfolio (other than
short-term obligations) for which the principal market
is one or more securities or commodities exchanges
(whether domestic or foreign) will be valued at the
last reported sale price or at the settlement price
prior to the determination ( or if there has been no
current sale, at the closing bid price) on the primary
exchange on which such securities or commodities are
traded; but if a securities exchange is not the
principal market for securities, such securities will,
if market quotations are readily available, be valued
at current bid prices, unless such securities are
reported on the NASDAQ system, in which case they are
valued at the last sale price or, if no sales occurred
during the day, at the last quoted bid price. Positions
in futures contracts, options and options on futures
contracts will normally be valued at the settlement
price on the exchange on which they are primarily
traded. Over-the-counter options are valued by
brokers, which may be the brokers with whom the
transactions were entered into, and/or through the use
of a pricing model which takes into account closing
bond valuations, implied volatility and short-term
repurchase rates. If acquired, preferred stocks,
common stocks and warrants will be valued at the last
sale price on an exchange or at the last quoted bid
price for unlisted securities. Portfolio securities for
which there are no such valuations are valued at fair
value as determined in good faith by or at the
direction of the Borrower's Board of Trustees.
<PAGE>
SCHEDULE I
Credit Arrangements
None.
<TABLE> <S> <C>
<ARTICLE> 6
<PAGE>
<LEGEND>
This schedule contains summary information extracted
from the financial statements of MFS Multimarket Income
Trust for the year ended October 31, 1994, and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 956,260,053
<INVESTMENTS-AT-VALUE> 924,530,392
<RECEIVABLES> 29,857,392
<ASSETS-OTHER> 11,177
<OTHER-ITEMS-ASSETS> 545,033
<TOTAL-ASSETS> 954,943,994
<PAYABLE-FOR-SECURITIES> 24,967,412
<SENIOR-LONG-TERM-DEBT> 90,000,000
<OTHER-ITEMS-LIABILITIES> 10,620,855
<TOTAL-LIABILITIES> 125,588,267
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 879,521,385
<SHARES-COMMON-STOCK> 117,540,252
<SHARES-COMMON-PRIOR> 119,912,252
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,856,119)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (13,418,420)
<ACCUM-APPREC-OR-DEPREC> (34,891,119)
<NET-ASSETS> 829,355,727
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 74,858,015
<OTHER-INCOME> 0
<EXPENSES-NET> 9,855,339
<NET-INVESTMENT-INCOME> 65,002,676
<REALIZED-GAINS-CURRENT> (52,796,297)
<APPREC-INCREASE-CURRENT> (46,045,322)
<NET-CHANGE-FROM-OPS> (33,838,943)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,947,555)
<PAGE>
<DISTRIBUTIONS-OF-GAINS> (1,144,064)
<DISTRIBUTIONS-OTHER> (41,080,548)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (2,372,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (117,957,832)
<ACCUMULATED-NII-PRIOR> 3,523,341
<ACCUMULATED-GAINS-PRIOR> 2,465,951
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,893,983
<INTEREST-EXPENSE> 689,933
<GROSS-EXPENSE> 9,855,339
<AVERAGE-NET-ASSETS> 865,994,904
<PER-SHARE-NAV-BEGIN> 7.90
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (0.82)
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> (0.35)
<PER-SHARE-NAV-END> 7.06
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 9,616,000
<AVG-DEBT-PER-SHARE> 0.08
</TABLE>
