<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 30, 1995
1940 ACT FILE NO. 811-5078
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 10 [X]
MFS GOVERNMENT MARKETS 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 Government Markets Income Trust
c/o Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
<PAGE>MFS GOVERNMENT MARKETS 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 March 27, 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. The Registrant
attempts to achieve this objective by investing at
least 65% of its assets in obligations issued or
guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities ("U.S. Government
Securities"). The Registrant does not intend to invest
a significant portion of its assets in any particular
type of U.S. Government Securities. In addition, the
Registrant may engage in transactions involving related
options. The Registrant may also invest up to 35% of
its total assets in obligations issued or guaranteed by
a foreign government or any of its political
subdivisions, authorities, agencies or
instrumentalities ("Foreign Government Securities")
when the Registrant's investment adviser, Massachusetts
Financial Services Company ("MFS" or the "Investment
Adviser"), believes that differences in yield are
sufficient to justify the risks of investing in such
securities. See "Special Considerations" below. In
pursuing this objective, the Registrant will consider
the preservation of capital by balancing the yields of
various fixed income securities against their attendant
risks. In addition, the Registrant intends to sell
futures contracts to hedge against the loss of capital.
However, the Registrant will not purchase securities
with the goal of seeking capital appreciation. There
can be no assurance that the Registrant will achieve
its investment objective.
<PAGE> U.S. Government Securities. The U.S.
Government Securities in which the Registrant intends
to invest include (i) U.S. Treasury obligations, which
differ only in their interest rates, maturities and
times of issuance: U.S. Treasury bills (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 or guaranteed by the U.S. Government or that are
backed by the full faith and credit of the U.S.
Government (such government securities may not be
included in the assets that satisfy the test that 65%
of the Registrant's assets must be invested in
government securities). 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.
Some U.S. Government Securities do not generally
involve the credit risks associated with other types of
interest bearing securities, although, as a result, the
yields available from U.S. Government Securities are
generally lower than the yields available from other
interest bearing securities. Like other interest
bearing securities, however, the values of U.S.
Government Securities change as interest rates
fluctuate.
Foreign Government Securities. The Registrant may
invest up to 35% of its total assets in Foreign
Government Securities of issuers considered stable by
the Investment Adviser. The Investment Adviser does
not believe that the credit risk inherent in the
obligations of such stable foreign governments is
significantly greater than that of U.S. Government
Securities. For a description of the risk
considerations involved, see "Special Considerations"
below. The percentage of the Registrant's assets
invested in Foreign Government Securities will vary
depending on the relative yields of such securities,
the economies of the countries in which the investments
are made and such countries' financial markets, the
interest rate climate of such countries and the
relationship of such countries' currencies to the U.S.
dollar. Investments in Foreign Government Securities
and currency are evaluated on the basis of fundamental
economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments
status, and economic policies) as well as technical and
political data. In addition to the foregoing, interest
rates are evaluated on the basis of <PAGE>differentials
or anomalies that may exist between different
countries. To the extent that the Registrant invests
in Foreign Government Securities, the Registrant's
portfolio, under normal conditions, will include
securities 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
regulated investment company. The Registrant may also
hold foreign currency for hedging purposes.
As a result of its investments in Foreign
Government 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. Alternatively, under certain circumstances, 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 to
receive delivery of the foreign currencies underlying
options on foreign currencies or Forward Contracts it
has entered into. This 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 Registrant may also hold foreign
currency in anticipation of purchasing Foreign
Government Securities. 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.
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, notes, U.S. Government Securities, Foreign
Government Securities and repurchase agreements.
The investment objective and policies described
above may be changed without shareholder approval,
except that, as a fundamental policy, at least 65% of
the Registrant's assets under <PAGE>normal
circumstances will be invested in U.S. Government
Securities. This fundamental policy may not be changed
without the approval of the holders of a majority of
the Registrant's shares (as defined below under
"Investment Restrictions").
INVESTMENT PRACTICES
The following investment practices apply to the
portfolio investments of the Registrant. These
practices may be changed without shareholder approval.
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.
Futures Contracts and Options on Futures
Contracts. The Registrant may enter into contracts for
the future delivery of fixed income securities or
foreign currencies, or contracts based on Eurodollar
deposits, 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").
Futures Contracts and Options on Futures Contracts to
be written or purchased by the Registrant will be
traded on U.S. or foreign exchanges. These investment
techniques may be used to hedge against anticipated
future changes in interest or exchange 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
or exchange 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. Futures Contracts may also be
entered into for non-hedging purposes, to the extent
permitted by applicable law, which involves greater
risk and could result in losses. 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
<PAGE>Registrant. The second restriction is that the
aggregate market value of the Futures Contracts held by
the Registrant will not exceed 50% of the market 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 transaction costs. Options
on foreign currencies to be written or purchased by the
Registrant will be traded on U.S. or 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. In addition, where the
Registrant enters into Forward Contracts as a "cross
hedge", the Registrant incurs the risk of imperfect
correlation between changes in the values of the two
currencies, which could result in losses. 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. 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, <PAGE>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 statements by 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. While these contracts are not presently
regulated by the Commodity Futures Trading Commission
(the "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.
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 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 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 a fund agreed to exchange
payments in dollars for payments in foreign currency,
in each case based on a fixed rate, the swap
<PAGE>agreement would tend to decrease the fund's
exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps
and floors have an effect similar to buying or writing
options. Depending on how they are used, swap
agreements may increase or decrease the overall
volatility of a fund's investments and its share price
and yield.
Swap agreements are sophisticated hedging
instruments that typically involve a small investment
of cash relative to the magnitude of risks assumed. As
a result, swaps can be highly volatile and may have a
considerable impact on 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 the Investment
Adviser 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 Registrant'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 the Investment Adviser 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 investment techniques had
not been <PAGE>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 Registrant'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.
Restricted Securities. The Registrant may also
purchase securities that are not registered under the
Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and
sold to "qualified institutional buyers" under Rule
144A under the 1933 Act ("Rule 144A securities"). The
Trust's Board of Trustees determines, based upon a
continuing review of the trading markets for a specific
Rule 144A security, whether such security is illiquid
and thus subject to the Registrant's limitation on
investing not more than 10% of its net assets in
illiquid investments, or liquid and thus not subject to
such limitation. The Board of Trustees has adopted
guidelines and delegated to MFS the daily function of
determining and monitoring the liquidity of Rule 144A
securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the
determinations. The Board will carefully monitor the
Registrant's investments in Rule 144A securities,
focusing on such important factors, among others, as
valuation, liquidity and availability of information.
This investment practice could have the effect of
increasing the level of illiquidity in the Registrant
to the extent that qualified institutional buyers
become for a time uninterested in purchasing Rule 144A
securities held in the Registrant's portfolio. Subject
to the Registrant's 10% limitation on investments in
illiquid investments, and subject to the
diversification requirements of the Internal Revenue
Code of 1986, as amended, the Registrant may also
invest in restricted securities that may not be sold
under Rule 144A, which presents certain risks. As a
result, the Registrant might not be able to sell these
securities when the Adviser wishes to do so, or might
have to sell them at less than fair value. In
addition, market quotations are less readily available.
Therefore, judgment may at times play a greater role in
valuing these securities than in the case of
unrestricted securities.
Lending of Portfolio Securities. The Registrant
may seek to increase its income by lending portfolio
securities to the extent consistent with 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 firms of
a national securities exchange (the "Exchange") (or
subsidiaries thereof) and member banks of the Federal
Reserve System, and would be required to be secured
continuously by collateral, including cash, cash
equivalents or U.S. Treasury securities maintained on a
current <PAGE>basis at 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 (which will usually not exceed five
days). 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 any cash 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 firms 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 justified 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
total 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 to the Registrant 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
total assets to such purchases. The Registrant does
not pay for the securities until received or start
earning interest on the securities 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.
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 specific 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).
<PAGE>The Registrant may enter into repurchase
agreements with sellers who are member firms (or a
subsidiary thereof) of the Exchange, members of the
Federal Reserve System, nor recognized primary U.S.
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 U.S.
Government Securities, the values of which are equal to
or greater than the repurchase price agreed to be paid
by the seller. The repurchase price may be higher than
the purchase price, the difference being income to the
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
U.S. 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 and result in certain losses
and costs to the Registrant. 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 that seller's creditworthiness on an
ongoing basis. Moreover, under such agreements, the
value of the securities (which are marked to market
every business day) is required to be greater than the
repurchase price, and the Registrant has the right to
make margin calls at any time if the value of the
securities falls below the agreed upon margin.
Securities Purchased at a Discount. When and if
available, fixed income securities may be purchased at
a market discount from face value. However, the
Registrant does not intend to hold such securities to
maturity for the purpose of achieving potential capital
gains, unless current yields on these securities remain
attractive.
"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 <PAGE>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
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.
Mortgage Pass-Through Securities. The Registrant
may invest in mortgage pass-through 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 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.
Payment of principal and interest on some mortgage
pass-through securities (but not the market value of
the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the
case of securities guaranteed by GNMA); or guaranteed
by agencies or instrumentalities of the U.S. Government
(such as the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), which are supported only by the
discretionary authority of the U.S Government to
purchase the agency's obligations). Mortgage pass-
through securities may also be issued by non-
governmental issuers (such as commercial banks, savings
and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary
<PAGE>market issuers). Some of these mortgage pass-
through securities may be supported by various forms of
insurance or guarantees.
Interests in pools of mortgage-related securities
differ from other forms of debt securities, which
normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or
specified call dates. Instead, these securities
provide a monthly payment which consists of both
interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments
made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor
of such securities. Additional payments are caused by
prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property,
net of fees or costs which may be incurred. Some
mortgage pass-through securities (such as securities
issued by the GNMA) are described as "modified pass-
through." These securities entitle the holder to
receive all interests and principal payments owed on
the mortgages in the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of
whether the mortgagor actually makes the payment.
The principal government guarantor of mortgage
pass-through securities is the 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 FNMA and FHLMC. FNMA
is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban
Development. FNMA purchases conventional residential
mortgages (i.e., mortgages not insured or guaranteed by
any governmental agency) from a list of approved
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 by FNMA of principal
and interest.
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 <PAGE>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.
Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers
and other secondary market issuers also create pass-
through pools of mortgage loans. Such issuers may also
be the originators and/or servicers of the underlying
mortgage-related securities. Pools created by such non-
governmental issuers generally offer a higher rate of
interest than government and government-related pools
because there are no direct or indirect government or
agency guarantees of payments in the former pools.
However, timely payment of interest and principal of
mortgage loans in these pools may be supported by
various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are
issued by government entities, private insurers and the
mortgage poolers. There can be no assurance that the
private insurers or guarantors can meet their
obligations under the insurance policies or guarantee
arrangements. The Registrant may also buy mortgage-
related securities without insurance or guarantees.
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
foregoes 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.
Zero Coupon Bonds. Securities in which the
Registrant may invest also include zero coupon bonds.
Zero coupon bonds are debt obligations which are issued
at a significant discount from face value. The
discount approximates the total amount of interest the
bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate
of interest reflecting the market rate of the security
at the time of issuance. Zero coupon bonds do not
require the periodic payment of interest. Such
investments benefit the issuer by mitigating its need
for cash to meet debt service, but also require a
higher rate of return to attract investors who are
willing to defer receipt of <PAGE>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, which is distributable to shareholders for
tax and accounting purposes prior to the receipt of
cash payments. The Registrant may have to dispose of
portfolio securities under disadvantageous
circumstances, or may have to leverage itself, to raise
cash to satisfy such distribution requirement.
Yield Curve Options. The Registrant may also
enter into options on the yield "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 for
hedging purposes. For example, the Registrant may
purchase a call option on the spread between two
securities if it owns one of the securities and
anticipates purchasing the other security and wants to
hedge against an adverse change in the yield spread
between the two securities. The Registrant may also
purchase or write yield curve options for other than
hedging purposes (i.e., in an effort to increase its
current income) if, in the judgment of the 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 when the yield of one of the
underlying securities remains constant, if the yield
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 yield 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. Therefore, the Registrant's maximum liability
for such a covered option is the difference between the
amount of the Registrant's liability under the option
written by the Registrant less the value of the option
held by the Registrant. Yield curve options may also
be covered in any 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 <PAGE>been only recently
introduced, established trading markets for these
securities have not yet developed.
Indexed Securities. The Registrant may invest in
securities whose prices are indexed to the prices of
other securities, securities indices, currencies,
precious metals or other commodities, or other
financial indicators. Most indexed securities are
short to intermediate term fixed-income securities
whose values at maturity or interest rates rise or fall
according to the change in one or more specified
underlying instruments. Indexed securities may include
securities that have embedded swaps (see "Swaps and
Related Transactions" above) and typically, but not
always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a
specific instrument or statistic. Gold-indexed
securities, for example, typically provide for a
maturity value that depends on the price of gold,
resulting in a security whose price tends to rise and
fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-
term debt securities whose maturity values or interest
rates are determined by references to the values of one
or more specified foreign currencies, and may offer
higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may
be positively or negatively indexed; that is, their
maturity value may increase when the specified currency
value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies
increase, resulting in a security whose price
characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have
prices that depend on the values of a number of
different foreign currencies relative to each other.
Indexed securities may be more volatile than the
underlying instrument itself.
The performance of indexed securities depends to a
great extent on the performance of the security,
currency or other instrument to which they are indexed,
and may also be influenced by interest rate changes in
the U.S. and abroad. At the same time, indexed
securities are subject to the credit risks associated
with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness
deteriorates. Recent issuers of indexed securities
have included banks, corporations and certain U.S.
government agencies.
Loan Participations and Other Direct Indebtedness.
The Registrant may invest a portion of its assets in
"loan participations." 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 buy-outs and
other corporate activities. Such loans may be in
default at the time of purchase. The Registrant may
also <PAGE>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 purchases 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 the fair market value.
Collateralized Mortgage Obligations and Multiclass
Pass-Through Certificates. 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. Typically, CMOs are collateralized
by certificates issued by the GNMA, FNMA or FHLMC but
also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage
Assets"). Such obligations also include investments in
trusts and other entities representing interests in
U.S. or Foreign Government Securities, or holding U.S.
or Foreign Government Securities in amounts sufficient
to cover all payments due from such entities. 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 reference
herein to CMOs include multiclass pass-through
securities. Payments of principal of and interest on
the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by
agencies or instrumentalities of the U.S. or a foreign
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 are
usually 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
<PAGE>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 description 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.
Stripped Mortgage-Backed Securities. In addition,
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. or a foreign
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 the interest and
principal distributions from a pool of mortgage assets.
A common type of SMBS will have one class receiving
some of the interest and most of the principal from the
mortgage assets, while the other class will receive
most of the interest and the remainder of the
principal. In the most extreme case, one class will
receive all of the interest (the interest only or "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 <PAGE>principal
payments generally is unusually volatile in response to
changes in interest rates.
OPTIONS AND FUTURES
Options on U.S. and Foreign Government Securities.
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 exchange and over-the-
counter.
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
security underlying 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 the
applicable laws and regulations. The premium paid by
the purchaser of an option will reflect, among other
things, the relationship of the exercise price to the
market price and volatility of the underlying security,
the remaining term of the option, supply and demand and
interest rates. Put and call options may also be
covered in any 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 rules and regulations.
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 <PAGE>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 current market value of the underlying
security. Even if an option is exercised, the writer
retains the amount of the premium.
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. The writer, however, has the right to
repurchase an option it has written in certain
situations.
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 price or expiration date or
both, or in the case of a written put option 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 Registrant
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 the
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 <PAGE>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 an
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 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 premiums received
from writing the call option plus the appreciation in
the market price of the underlying security up to the
exercise price will be greater than the appreciation in
the price of the underlying security alone. If the
call options are exercised in such transactions, the
Registrant's maximum gain will be the premium received
by it for writing the option, adjusted upwards or
downwards by the <PAGE>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 option 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 future delivery of fixed income
securities or foreign currencies or contracts based on
bond or other financial indices, including any index of
U.S. or Foreign Government Securities ("Futures
Contracts"). A "sale" of a Futures Contract means a
contractual obligation to deliver the securities or
foreign currencies called for by the contract at a
specified price in a fixed delivery month 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 or foreign
currencies called for by the contract at a specified
price in a fixed delivery month 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 <PAGE>market. Existing contract markets
include the Chicago Board of Trade and the
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, Government National Mortgage
Association modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. The
Registrant may also enter into Futures Contracts which
are based on Eurodollar deposits and non-U.S.
Government bonds, and foreign currency Futures
Contracts which currently are traded on the British
pound, Canadian dollar, Japanese yen, Swiss franc and
German mark.
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.
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 a contract's face value. Daily thereafter, the
Futures Contract is valued on a marked-to-market basis
and the Registrant may be required to pay or receive
"variation margin," which reflects any decline or
increase in the contract's value.
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, in
most cases the contractual obligation is fulfilled
before the date of the contract without having to make
or take delivery of the securities. The offsetting of
a contractual obligation is accomplished by buying (or
selling, as the case may be) on a commodities exchange
an identical Futures Contract calling for delivery in
the same month. 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 <PAGE>futures market are made,
offset or fulfilled through a clearinghouse associated
with the exchange on which the contracts are traded,
the Registrant will incur brokerage fees when it
purchases or 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 hold or intends
to acquire long-term fixed income securities, is to
attempt to protect the Registrant from fluctuations in
interest or foreign exchange rates without actually
buying or selling long-term fixed income securities or
foreign currency. 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
attempt 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 assets in the segregated asset
account maintained to cover the Registrant's
obligations with respect to such Futures Contracts will
consist of cash, cash equivalents or government
securities from its portfolio in an amount equal to the
difference between 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.
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 <PAGE>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. 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
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 had 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 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 security or foreign currency which is 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 <PAGE>the security
or foreign currency which is 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 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.
The Registrant may cover the writing of call
options on Futures Contracts (a) through purchases of
the underlying Futures Contract, (b) through ownership
of the instrument, or instruments included in the
index, underlying the Futures Contract, or (c) through
the holding of a call on the same Futures Contract and
in the same principal amount as the call written where
the exercise price of the call held (i) is equal to or
less than the exercise price of the call written or
(ii) is greater than the exercise price of the call
written if the difference is maintained by the
Registrant in cash or cash equivalents in a segregated
account with its custodian. The Registrant may cover
the writing of put options on Futures Contracts (a)
through sales of the underlying Futures Contract, (b)
through segregation of cash or cash equivalents in an
amount equal to the value of the security or index
underlying the Futures Contracts, or (c) through the
holding of a put on the same Futures Contract and in
the same principal amount as the put written where the
exercise price of the put held is equal to or greater
than the exercise price of the put written or where the
exercise price of the put held is less than the
exercise price of the put written if the difference is
maintained by the Registrant in cash or cash
equivalents in a segregated account with its custodian.
Put and call options on Futures Contracts may also be
covered in such other manner as may be in accordance
with the rules of the exchange on which they are traded
and applicable laws and regulations.
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. For
example, the Registrant may 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.
<PAGE>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. It is impossible to predict the amount of
trading interest that may exist in various types of
options on 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.
Forward Contracts on Foreign Currency. 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.
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. For
example, if the Investment Adviser believes 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.
The Registrant has established procedures
consistent with the General Statement of Policy of the
SEC concurring such commitments. Since that policy
currently recommends that an amount of the Registrant's
assets equal to the amount of the commitment be held
aside or segregated to be used to pay for the
commitment, the Registrant will always have cash or
cash equivalents available sufficient to cover any
commitments under these contracts to purchase or sell
foreign currencies or to limit any potential risk. The
segregated account will be marked to market on a daily
basis. While these contracts are not presently
regulated by the 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. Forward Contracts may limit potential gain
from a positive change in the relationship between the
U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall
performance for the Registrant than if it had not
engaged in such transactions.
<PAGE> 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 exchange 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 received.
Similarly, instead of purchasing a call option to
hedge against an anticipated increase in the dollar
cost of securities to be acquired, the Registrant could
write a put option on the relevant currency which, if
rates move in the manner projected, will expire
unexercised and allow the Registrant to hedge such
increased cost up to the amount of the premium. As in
the case of other types of options, however, the
writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium,
and only if rates move in the expected direction. If
this does not occur, the option may be exercised and
the 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 <PAGE>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 consideration
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 purchased 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.
A put option on foreign currencies written by the
Registrant is "covered" if the Registrant has
segregated cash, cash equivalent or government
securities in an amount equal to the exercise price or
has purchased a put on the same foreign currency and in
the same principal amount as the call 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. Call and put
options on foreign currencies may also be covered in
any other manner as may be in accordance with the
requirements of the exchange on which, or the
counterparty with which, they are traded and applicable
rules and regulations.
Call and put options and Options on Futures
Contracts may be covered in any other manner as may be
in accordance with the requirements of the exchange on
which, or the counterparty with which, they are traded
and applicable rules and regulations.
Additional Risks of Options on U.S. and Foreign
Government Securities, Futures Contracts, 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 <PAGE>therefore continue to an
unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount
of the premium plus related transaction costs, this
entire amount could be lost. Moreover, the option
writer and 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 an
Exchange 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 an 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 economic events. In addition, exchange-
traded options on foreign currencies involve certain
risks not presented by the over-the counter market.
For example, exercise and settlement of such options
must be made exclusively through the OCC, which has
established banking relationships in applicable foreign
countries for this purpose. As a result, the OCC may,
if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as
technical changes in the mechanics of delivery of
currency, or the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, options on U.S. and Foreign
Government 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)
lesser availability than in the United States 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
exercise and <PAGE>settlement terms and procedures and
margin requirements than in the Untied States, and (v)
lesser trading volume.
Future Developments. The Registrant proposes to
take advantage of 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 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) changing from one U.S. Government Security to
an essentially similar U.S. Government Security when
their respective yields are distorted due to market
factors;
(2) changing from U.S. Government Securities to
Foreign Government Securities or from Foreign
Government Securities to U.S. Government Securities
when disparities arise in their relative yields;
(3) selling one kind of U.S. Government Security
(e.g., Treasury bonds) and buying another (e.g., GNMA
direct pass-through certificates) when disparities
arise in the relative values of each;
(4) shortening the average maturity of its
portfolio in anticipation of a rise in interest rates
so as to minimize depreciation of principal; and
(5) lengthening the average maturity of its
portfolio in anticipation of a decline in interest
rates so as to maximize appreciation of principal.
The Registrant may also use the techniques
described above in "Investment Practices" to manage its
portfolio.
While these strategies are designed to increase
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.
SPECIAL CONSIDERATIONS
The value of shares of the Registrant will vary as
the aggregate value of the Registrant's portfolio
securities increases <PAGE>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, the value of a portfolio
invested at lower yields can be expected to decline.
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.
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.
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" above.
Investing in Foreign Government Securities
involves considerations and possible risks not
typically associated with investing in U.S. Government
Securities. The value of Foreign Government Securities
investments will be affected by changes in currency
rates or exchange control regulations, application of
foreign tax laws, including withholding taxes, 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. Foreign brokerage commissions are
generally higher than in the United States, and foreign
securities markets may 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.
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 one or more issuers, 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.
<PAGE>
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.
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 borrowings, 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, except as a temporary
measure for extraordinary or emergency purposes or
for a repurchase of its shares and in no event in
excess of 33 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;
(4) 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), if
more than 10% of the Registrant's assets (taken at
market value) would be invested in such
securities;
(5) 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
currencies, currency futures, Forward Contracts or
contracts for the future acquisition or delivery
of fixed income securities and related options) in
the ordinary course of <PAGE>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);
(6) 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;
(7) issue any senior security (as that term
is defined in the 1940 Act), if such issuance is
specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder (for
the purpose 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);
(8) 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;
or
(9) 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 for, without
payment of any further consideration, 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 made of
securities subject to outstanding options).
Except for investment restriction number (1), the
Registrant's investment limitations, policies and
rating standards are adhered to at the time of purchase
or utilization of assets; a subsequent change in
circumstances will not be considered to result in a
violation of policy.
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit Banks Consolidated Systemwide
Notes and Bonds - are bonds issued and guaranteed by a
cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit
Administration.
<PAGE> Maritime Administration Bonds - are
bonds issued by the Department of Transportation of the
U.S. Government.
GNMA Certificates - are mortgage-backed
securities, with timely payment guaranteed by the full
faith and credit of the U.S. Government, which
represent partial ownership interests in a pool of
mortgage loans issued by lenders such as mortgage
bankers, commercial banks and savings and loan
associations. Each mortgage loan included in the pool
is also insured or guaranteed by the Federal Housing
Administration, the Veterans Administration or the
Farmers Home Administration.
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.
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 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 Trusts in the MFS Family of Funds (the "MFS
Funds"), MFS Municipal Income Trust, MFS Intermediate
Income Trust, MFS Multimarket Income <PAGE>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., MFS/Sun Life Series Trust 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 $34.5 billion on behalf
of approximately 1.6 million investors as of February
28, 1995. As of such date, the MFS organization
managed approximately $19.5 billion of securities in
fixed income portfolios, including approximately $7.0
billion in U.S. Government Securities and approximately
$3.1 billion in securities of foreign issuers and non-
U.S. dollar denominated 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.
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, administering its affairs.
The Advisory Agreement also provides that neither
MFS nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the
execution and management of the 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.
<PAGE>
Advisory Fee. For the services provided by MFS
under the Advisory Agreement, the Registrant pays MFS
an annual fee computed and paid monthly in an amount
equal to the sum of .32% of the average daily net
assets of the Registrant and 5.33% 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 for the Registrant's then-
current fiscal year. This advisory fee is greater than
that paid by most funds.
Payment of Expenses. MFS has voluntarily agreed
to reduce its right to the fee set forth in the
Advisory Agreement to a maximum of 0.85% in the event
that such fees exceed 0.85% of the average daily net
assets of the Registrant, on an annual basis for the
then-current fiscal year. This temporary advisory fee
reduction may be rescinded at any time.
The Registrant pays the compensation of the
Trustees who are not officers of 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 Purchase Plan and SEC
registration 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 fund 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 <PAGE>outstanding voting
securities or by either party on not more than 60 days'
nor less than 30 days' written notice.
9.1.c. General - Portfolio Management: Steven
E. Nothern, a Senior Vice President of MFS, joined MFS
in 1986. 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 Service 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: While the Registrant
is a Massachusetts business trust, Sir J. David
Gibbons, a trustee of the Registrant, is not a resident
of the United States, and substantially all of his
assets may be located outside the United States. As a
result, it may be difficult for investors to effect
service of process upon him within the United States,
to enforce in United States courts, or to realize
outside the United States, judgments of courts in the
United States predicated upon civil liabilities, if
any, of his under the Federal securities laws of the
United States. The Registrant has been advised that
there is substantial doubt as to the enforceability in
Bermuda, where he resides, of such civil remedies as
are afforded by the Federal securities laws of the
United States.
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. Shares 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."
<PAGE> 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 Registrant's Dividend
Reinvestment and Cash Purchase 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
1940 Act 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.
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 repurchase 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% or more from the net asset value of the
shares. Shares repurchased by the Registrant will be
held in treasury. The Registrant may incur debt to
finance share repurchase transactions. See the section
"Investment Restrictions" in the response to Items 8.2,
8.3 and 8.4.
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 <PAGE>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 Page: 29
2/3% of the shares of the Registrant (a greater vote
than that required by the 1940 Act and, in some cases,
greater than the required vote applicable to business
corporations under state law) 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;
<PAGE>(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
(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
5% 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
intends to distribute monthly to shareholders
substantially all of its net investment income in
accordance with the timing requirements imposed by the
Code, and thereby to be relieved of any federal income
taxes thereon. Premiums from options and short-term
capital gains may be distributed monthly. Shareholders
will be informed of the tax consequences of such
distributions, including whether any portion represents
a return of capital, after the end of each calendar
year. Long-term capital gains, if any, net of capital
losses, will be distributed at least annually. See
Item 10.4.
<PAGE> Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested by State Street Bank and Trust
Company ("State Street"). Pursuant to the Registrant's
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.
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 Registrant shares at such time or if the Registrant
should declare a dividend or other distribution payable
only in cash, State Street will, as agents for the
participants, buy Registrant 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.
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 monies received from
participants (as well as any dividend and distributions
received in cash) to purchase Registrant 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 <PAGE>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. A service fee of $0.75 is charged for each
cash purchase as well as a pro rata share of the
brokerage commissions, if any. 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. 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 trust 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: Inapplicable.
10.3. General: Inapplicable.
10.4. Taxes: The Registrant has elected and
intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the <PAGE>"Code"), by meeting
all applicable requirements of Subchapter M, including
requirements as to the nature of the Registrant's gross
income, the amount of its 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 the 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. If the
Registrant should fail to qualify as a "regulated
investment company" in any year, the Registrant would
incur a regular corporate federal income tax upon its
taxable income and its distributions would be taxable
as ordinary income to shareholders.
Shareholders of the Registrant will have to
pay federal income taxes, and any state or local taxes,
on the dividends and capital gain distributions they
receive from the Registrant. Dividends from ordinary
income and distributions from net short-term capital
gains are taxable to the Registrant's shareholders as
ordinary income for federal income tax purposes.
Distributions of net capital gains (i.e., the excess of
net long-term capital gains over net short-term capital
losses) are taxable to shareholders as long-term
capital gains without regard to the length of time the
shareholders have held their shares. Such
distributions will not be eligible for the dividends-
received deduction for corporate shareholders. Monthly
distributions by the Registrant from 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 a gain to the shareholder from a sale of
shares. Registrant dividends which are declared in
October, November or December, to shareholders of
record in such month and paid the following January,
will be taxable to shareholders as if received on
December 31 in the year in which they are declared.
The Registrant will notify shareholders regarding the
federal tax status of its distributions after the end
of each calendar year.
Any distributions by the Registrant will have the
effect of reducing the per share net asset value of
shares in the Registrant by the amount of the
distribution. Shareholders purchasing shares shortly
before the record date of any distribution may thus pay
the full price for the shares and then effectively
receive a portion of the purchase back as a taxable
distribution.
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 disposition of shares
in the Registrant held for six months or less will be
treated as a long-<PAGE>term capital loss to the extent
of any distributions of net capital gain made with
respect to those shares. Any loss realized upon a
disposition of shares may also be disallowed under
rules relating to wash sales.
Distributions will be taxable as described above,
whether received in cash or in shares under the
Registrant's 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
distribution 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.
The Registrant's current dividend and accounting
policies will affect the amount, timing, and character
of distributions to shareholders, and may, under
certain circumstances, make an economic return of
capital taxable to shareholders. Any investment in
zero coupon bonds, certain stripped securities and
certain securities purchased at a market discount will
cause the Registrant to recognize income prior to the
receipt of cash payments with respect to those
securities. In order to distribute this income and
avoid a tax on the Registrant, the Registrant may be
required to liquidate portfolio securities that it
might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the
Registrant. An investment in residual interests of a
CMO that has elected to be treated as a real estate
mortgage conduit, or "REMIC," can create complex tax
problems, especially if the Registrant has state or
local governments or other tax-exempt organizations as
shareholders.
The Registrant's transactions in options, Futures
Contracts and Forward Contracts will be subject to
special tax rules which may affect the amount, timing,
and character of Trust income and distributions to
shareholders. For example, certain positions held by
the Registrant on the last business day of each taxable
year will not be marked to market (i.e., treated as if
closed out) on that day, and any gain or loss
associated with the positions will be treated as 60%
long-term and 40% short-term capital gain or loss.
Certain positions held by the Registrant that
substantially diminish its risk of loss with respect to
other positions in its portfolio may constitute
"straddles," and may be subject to special tax rules
which would cause deferral of Trust losses, adjustments
in the holding periods of Trust securities, and
conversion of short-term into long-term capital losses.
<PAGE>Certain tax elections exist for straddles which
may alter the effects of these rules. The Registrant
will limit its activities in options, Futures
Contracts, Forward Contracts, and swaps and related
transactions to the extent necessary to meet the
requirements of Subchapter M of the Code.
Special tax considerations apply with respect to
foreign investments of the Registrant. Foreign
exchange gains and losses realized by the Registrant
will generally be treated as ordinary income and loss.
Use of foreign currencies for non-hedging purposes may
be limited in order to avoid a tax on the Registrant.
Investment income received by the Registrant from
sources within foreign countries may be subject to
foreign income taxes withheld at the source; the
Registrant does not expect to be able to pass through
to shareholders foreign tax credits with respect to
such foreign taxes. The United States has entered into
tax treaties with many foreign countries that may
entitle the Registrant to a reduced rate of tax or an
exemption from tax on such income; the Registrant
intends to qualify for treaty reduced rates where
available. It is not possible, however, to determine
the Registrant's effective rate of foreign tax in
advance since the amount of the Registrant's assets to
be invested in various countries is not known.
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 tax payments at the rate of 30% on any
taxable dividends and other payments made to Non-U.S.
Persons that are subject to withholding, regardless of
whether a lower rate may be permitted under any
applicable tax treaty. 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. Distributions
received from the Registrant by Non-U.S. Persons may
also be subject to tax under the laws of their own
jurisdiction. Non-U.S. shareholders should consult
their tax advisers regarding the U.S. and foreign tax
consequences of an investment in the Registrant.
The Registrant is also required in certain
circumstances to withhold 31% of taxable dividends and
redemption proceeds paid to any shareholder (including
a Non-U.S. Person) who does not furnish to the
Registrant certain information and certifications or
who is otherwise subject to backup withholding.
However, backup withholding will not be applied to
payments that have been subject to 30% withholding.
The Registrant, which is organized as a
Massachusetts business trust, is not subject to any
Massachusetts income or excise taxes 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 <PAGE>state and
local taxes. The Registrant intends to advise
shareholders of the extent to which its distributions
consist of such interest. Additionally, residents of
certain states may be subject to an intangibles tax or
a personal property tax on all or a portion of the
value of their shares. Shareholders are urged to
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.
<PAGE>
10.5. Outstanding Securities: The following
information is furnished as of March 1, 1995:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Amount
Outstanding
Amount Held by Exclusive
Amount Registrant or for of Amount Shown
Title of Class Authorized its Account Under (3)
<S> <C> <C> <C>
Shares of Unlimited 11,358,400* 86,553,155,084
Beneficial interest shares
without par value
</TABLE>
*Treasury Shares
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. For fiscal year 1994, the Registrant's
portfolio turnover rate was 295%. For fiscal year
1993, the Registrant's portfolio turnover rate was
453%.
A high turnover rate necessarily involves greater
expenses to the Registrant and could involve
realization of capital gains that would be taxable to
the shareholders. 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. The Investment Advisers, 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. Cohan,
Gibbons, Smith and Ms. O'Neill will continue in office
until 1995, Messrs. Cohn, Robb and Sherratt will
continue in office until 1996 and Messrs. Brodkin,
Bailey, Scott and Shames will continue in office until
1997.
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position(s) Principal Occupation(s)
Held with During Past 5 Years
Registrant
<S> <C> <C>
A. Keith Brodkin* Chairman, President Massachusetts Financial
and Trustee Services Company, Director,
Chairman, Chief Executive
Officer, Chief Operating
Officer and Chief
Investment Officer
Richard B. Bailey* Trustee Private Investor;
Massachusetts Financial
Services Company, former
Chairman (until September 30,
1991)
Marshall N. Cohan Trustee Private
Investor
2524 Bedford Mews Drive
Wellington, Florida
Lawrence H. Cohn, M.D. Trustee Brigham and Women's
75 Francis Street Hospital, Chief of Cardiac
Boston, Massachusetts Surgery; Harvard Medical
School, Professor of Surgery
The Hon. Sir J. David Gibbons,
KBE Trustee Edmund Gibbons Limited,
21 Reid Street Chief Executive Officer;
Hamilton, Bermuda HM 12 The Bank of N.T. Butterfield &
Son Limited, Chairman
Abby M. O'Neill Trustee Private Investor;
30 Rockefeller Plaza, Rockefeller Financial
Room 5600 Services, Inc.
New York, New York (investment advisers),
Director
Walter E. Robb, III Trustee Benchmark Advisors, Inc.
110 Broad Street (corporate financial
Boston, Massachusetts consultants), President and
Treasurer
Arnold D. Scott* Trustee Massachusetts Financial
Services Company, Director,
Senior Executive Vice
President and Secretary
Jeffrey L. Shames* Trustee Massachusetts Financial
Services Company, President
and Chief Equity Officer
<PAGE>
J. Dale Sherratt Trustee Insight Resources, Inc.
One Liberty Square (acquisition planning
Boston, Massachusetts specialists), President
Ward Smith Trustee NACCO Industries (holding
5875 Landerbrook Drive, company), Chairman (prior to
Mayfield Heights, Ohio June 1994); Sundstrand
Corporation (diversified
mechanical manufacturer),
Director; Society Corporation
(bank holding company),
Director (prior to April
1992); Society National Bank
(commercial bank), Director
(prior to April 1992)
Patricia A. Zlotin* Vice President Massachusetts Financial
Services Company, Executive
Vice President
Leslie J. 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
Stephen E. Cavan* Secretary Massachusetts Financial
and Clerk Services Company, Senior Vice
President, General Counsel and
Assistant Secretary (since
December 1989)
James R. Bordewick, Jr.* Assistant Secretary Massachusetts Financial
Services Company, Vice
President and Associate
General Counsel (since
September 1990); Associated
with a 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.
<PAGE> 18.2. Each Trustee is also a Trustee of
MFS Government Limited Maturity Fund, MFS Series Trust
I, MFS Series Trust II, MFS Series Trust VI, MFS Series
Trust VIII, MFS Municipal Series Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust and
MFS Special Value 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 Multimarket
Income Trust, MFS Intermediate Income Trust and MFS
Municipal 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
Multimarket Income Trust and MFS Municipal Income
Trust.
18.3. Sir J. David Gibbons has not authorized
an agent in the United States to receive notice.
<PAGE> 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>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Benefits Compensation
(Estimated From Fund(1) Benefits Accrued Upon From Fund and
Credited Years As Part of Fund Retirement(2) Fund Complex
of Service(2)(5)) Expenses(1) Paid to Trustees(3)
<S> <C> <C> <C> <C>
A. Keith
Brodkin,
Chairman, None None None None
President and
Trustee
Richard B. $15,167 $2,250 (4) $226,221
Bailey,
Trustee (8)
Marshall N. $16,667 $5,892 (4) $147,274
Cohan, Trustee
(8)
Lawrence H. $15,667 $700 (4) $133,524
Cohn, M.D.,
Trustee (22)
The Hon. Sir J. $15,167 $4,550 (4) $132,024
David Gibbons,
KBE, Trustee (8)
Abby M. O'Neill, $15,167 $1,450 (4) $125,924
Trustee (9)
Walter E. Robb, $16,667 $6,733 (4) $147,274
III, Trustee (8)
Arnold D. Scott, None None None None
Trustee
Jeffrey L. None None None None
Shames, Trustee
J. Dale Sherratt, $16,667 $750 (4) $147,274
Trustee (24)
Ward Smith, $16,667 $1,650 (4) $147,274
Trustee (12)
</TABLE>
(1) For Fiscal year ended November 30, 1994
(2) Based on normal retirement age of 75
(3) Information provided is provided for calendar
year 1994. All Trustees served as Trustees
of 36 funds within the MFS Fund complex
(having aggregate net assets at December 31,
1994, of approximately $9,746,460,756) 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 $24,474,119,825).
(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 not an officer of
the Investment Adviser a fee of $8,000 per year plus
$500 per meeting and committee meeting attended,
together with such Trustee's actual out-of-pocket
expenses relating to attendance at meetings. For
attendance at meetings and other services as Trustees,
the Trustees of the Registrant as a group received
168,125 from the Registrant for the fiscal year ended
November 30, 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 75 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 the age of 75 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
retired as Chairman of MFS as of September 30, 1991 and
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.
<PAGE>The following table sets forth the estimated
annual benefits payable by the Registrant to the non-
interested Trustees and Mr. Bailey upon retirement.
Estimated Annual Benefits Payable by Registrant
upon Retirement (1)
Average Years of Service
Trustee Fees 3 5 7 10 or more
$14,000 $2,100 $3,500 $4,900 $7,000
$14,800 $2,220 $3,700 $5,180 $7,400
$15,600 $2,340 $3,900 $5,460 $7,800
$16,400 $2,460 $4,100 $5,740 $8,200
$17,200 $2,580 $4,300 $6,020 $8,600
$18,000 $2,700 $4,500 $6,300 $9,000
(1) Other funds in the MFS fund complex provide
similar retirement benefits to the Trustees.
Item 19. Control Persons and Principal Holders of
Securities:
As of March 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
76.09% of the outstanding shares of the Registrant.
As of March 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. For
the fiscal year ended November 30, 1994, MFS received
fees under the Registrant's Investment Advisory
Agreement of $4,973,689. For the fiscal year ended
November 30, 1993, MFS received fees under the
Investment Advisory Agreement of $5,495,845. For the
fiscal year ended November 30, 1992, MFS received fees
under the Registrant's Investment Advisory Agreement of
$6,090,150.
20.6. The Registrant's securities and cash are
held under a Custodian Agreement by State Street Bank
and Trust Company, whose principal business address is
225 Franklin Street, Boston, Massachusetts 02110.
State Street Bank and Trust Company also serves as
dividend disbursing agent and as agent under the Plan
and as transfer agent and registrar for the
Registrant's shares. The Custodian has contracted with
the Investment Adviser for the Investment Adviser to
perform certain accounting functions related to options
transactions for which the Investment Adviser receives
remuneration on a cost basis.
<PAGE>20.7. Deloitte & Touche LLP are the
Registrant's independent public accountants and certify
financial statements of the Registrant as required to
be certified by any law or regulation and provide
certain 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). The principal business address of
Deloitte & Touche LLP is 125 Summer Street, Boston,
Massachusetts 02110.
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 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 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: For
the fiscal years ended November 30, 1994, 1993 and 1992
the Registrant did not pay any brokerage commissions.
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. Such employees may serve other
clients of the Investment Adviser and any subsidiary in
a similar capacity. Changes in the Registrant's
investments are reviewed by the Board of Trustees.
Item 22. Tax Status: None.
Item 23. Financial Statements: The following are
incorporated herein by reference to the Registrant's
Annual Report to its shareholders, for its fiscal year
ended November 30, 1994, copies of which have been
filed with the SEC:
Portfolio of Investments at November 30, 1994
Statement of Assets and Liabilities at November
30, 1994
<PAGE>Statement of Operations for the year ended
November 30, 1994
Statement of Changes in Net Assets for the years
ended November 30, 1994 and 1993
Financial Highlights for the period from the
commencement of investment operations, May 28,
1987, to November 30, 1987 and for the years
ended November 30, 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 November 30,
1994
Statement of Assets and Liabilities at
November 30, 1994
Statement of Operations for year ended
November 30, 1994
Statement of Changes in Net Assets for
the years ended November 30, 1994 and
1993
Per Share and Other Data for the period
from the commencement of operations,
May 28, 1987 to November 30, 1987 and
for the years ended November 30,
1988, 1989, 1990, 1991, 1992, 1993
and 1994
Notes to Financial Statements
Independent Auditors' Report
2. Exhibits:
(a) -- Declaration of Trust
(previously filed as
Exhibit (1) to the
Registrant's
Registration Statement
on Form N-2
(Investment Company
Act File No. 811-
5078), filed with the
SEC on March 27, 1987
("Registration
Statement"))
incorporated herein by
reference.
(b)(1) -- By-Laws dated
March 27, 1987 as
amended through
October 22, 1990
(previously filed as
Exhibit (2) to
Amendment No. 8 to the
Registration
Statement, filed with
the SEC March 27, 1992
("Amendment No. 8"))
incorporated herein by
reference.
(b)(2) -- Amended and
Restated By-Laws dated
December 14, 1994
filed herewith.
(c) -- Inapplicable.
(d) -- Specimen certificate
for Shares of
Beneficial Interest,
without par value
(previously filed as
Exhibit (4) to
Amendment No. 1 to the
Registration
Statement, filed with
the SEC on April 16,
1987 ("Amendment No.
1")) incorporated
herein by reference.
(e) -- The section "Dividend
Reinvestment and Cash
Purchase Plan" on page
3 of the Registrant's
Annual Report to its
Shareholders, for its
fiscal year ended
November 30, 1994,
incorporated herein by
reference.
(f) -- Inapplicable.
(g) -- Investment Advisory
Agreement (previously
filed as Exhibit (6)
to Amendment No. 3 to
the Registration
Statement, filed with
the SEC on May 20,
1987 ("Amendment No.
3")) incorporated
herein by reference.
(h) -- Omitted pursuant to
General Instruction
G.3 to Form N-2.
(i) -- Retirement Plan for Non-
Interested Person
Trustees dated January
1, 1991 (previously
filed as Exhibit (8)
to Amendment No. 9 to
the Registration
Statement, filed with
the SEC on March 30,
1993 ("Amendment No.
9"))
<PAGE>incorporated
herein by reference.
(j)(1) -- Form of Custodian
Agreement between the
Registrant and State
Street Bank and Trust
Company (previously
filed as Exhibit (9)
to Amendment No. 1),
as amended by
amendment dated May
20, 1987 (previously
filed as Exhibit
(9)(b) to Amendment
No. 5 to the
Registration
Statement, filed with
the SEC on March 29,
1989 ("Amendment No.
5")) incorporated
herein by reference.
(j)(2) -- Amendment to
Custodian Agreement
(previously filed as
Exhibit (9)(A)(1) to
Amendment No. 6 to the
Registration
Statement, filed with
the SEC on March 31,
1990 ("Amendment No.
6")) incorporated
herein by reference.
(j)(3) -- Amendment to
Custodian Agreement,
dated October 9, 1991
(previously filed as
Exhibit (9)(A)(2) to
Amendment No. 8)
incorporated herein by
reference.
(j)(4) -- Amendment to
Custodian Agreement,
dated February 29,
1988 (previously filed
as Exhibit (9)(A)(3)
to Amendment No. 9)
incorporated herein by
reference.
(k)(1) -- Loan Agreement
among the MFS
Borrowers and The
First National Bank of
Boston dated as of
September 29, 1989, as
amended by an
amendment dated as of
September 29, 1989
together with a letter
agreement <PAGE>dated
September 29, 1989
between the Registrant
and The First National
Bank of Boston
(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) -- Loan Agreement by
and among the Banks
named therein, the MFS
Funds named therein,
and The First National
Bank of Boston, dated
as of February 21,
1995, filed herewith.
(l) -- Omitted pursuant to
General Instruction
G.3 to Form N-2.
(m) -- None.
(n) -- Omitted pursuant to
General Instruction
G.3 to Form N-2.
(o) -- Inapplicable.
(p) -- Purchase Agreements
(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 Interest 16,742
(without par value) (as at March 1, 1995)
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 <PAGE>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) (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 Multimarket 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.
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 <PAGE>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
recordkeeping 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 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 30th day of March, 1995.
MFS GOVERNMENT MARKETS
INCOME TRUST
By: /s/ JAMES R. BORDEWICK, JR.
-----------------------------
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
<PAGE>INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page
(b)(2) -- Amended and Restated By-Laws of
Registrant dated December 14, 1994.
(k)(2) -- Registrar, Transfer Agency and
Service Agreement between Registrant
and MFS Service Center, Inc.
dated August 15, 1994.
(k)(3) -- Loan Agreement by and among the Banks
named therein, the MFS Funds named
therein, and The First National
Bank of Boston, dated as of
February 21, 1995.
27 -- Financial Data Schedule.
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS GOVERNMENT MARKETS INCOME TRUST
DECEMBER 14, 1994
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS GOVERNMENT MARKETS 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 Government Markets
Income Trust, dated March 27, 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.
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 <PAGE>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
<PAGE>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.
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
<PAGE>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.
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.
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.
<PAGE>
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 required to constitute a
quorum and the number of members of a
Committee required to exercise specified
powers delegated to such Committee,
(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 <PAGE>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.
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 <PAGE>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.
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.
<PAGE>
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.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the
first day of December in each year and shall end on the
last day of November 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.
<PAGE>
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:
(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.
<PAGE>
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.
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,
<PAGE>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.
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 <PAGE>"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.
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
<PAGE>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
(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 <PAGE>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.
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 <PAGE>Shares of
such series or class or treasury Shares of such series
or class or both.
<PAGE>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.
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 GOVERNMENT MARKETS 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 _____ day of
_______________, 1994, by and between MFS GOVERNMENT
MARKETS 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;
<PAGE> 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 OF 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:
<PAGE>(i) issue and record the appropriate
number of Shares and hold such Shares in
the appropriate shareholder account;
(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 <PAGE>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.
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.
<PAGE>
(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.
<PAGE>ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF
MFSC
MFSC represents and warrants to the Fund that:
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:
<PAGE> 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.
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 <PAGE>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 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 <PAGE>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.
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
<PAGE> 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 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 <PAGE>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
<PAGE> 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 of 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.
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 <PAGE>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 GOVERNMENT MARKETS INCOME TRUST
By:/s/ A. Keith Brodkin
-------------------------
Name: A. Keith Brodkin Address: 500 Boylston Street
Title: Chairman Boston, MA 02116
MFS SERVICE CENTER, INC.
By:/s/ Joseph A. Recomendes
-------------------------
Name: Joseph A. Recomendes Address: 500 Boylston Street
Title: President, Boston, MA 02116
MFS Service 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.
-1-
<PAGE>
LOAN AGREEMENT
by and among
THE BANKS NAMED THEREIN,
THE MFS FUNDS NAMED THEREIN,
and
THE FIRST NATIONAL BANK OF BOSTON, AS AGENT
Dated as of February __, 1995
<PAGE>TABLE OF CONTENTS
Page
Preamble 1
Article I. Definitions; Construction 1
Section 1.01.Definitions 1
Section 1.02.Accounting Terms and
Determinations 6
Section 1.03.Other Definitional Terms 6
Article II. Amounts and Terms of Credit 7
Section 2.01.Commitment to Lend 7
Section 2.02.Reduction or Termination
of Commitment 7
Section 2.03.Loan Accounts 8
Section 2.04.Requests for Loans 9
Section 2.05.Repayment of Loans 11
Section 2.06.Optional Prepayments;
Certain Mandatory Prepayments... 11
Section 2.07.Place and Mode of Payments;
Computations 12
Section 2.08.Interest 14
Section 2.09.Overdue Principal and
Interest 14
Section 2.10.Limitation on Interest 15
Section 2.11.Indemnification 15
Section 2.12.Increased Capital
Requirements 15
Section 2.13.Commitment Fee 16
Section 2.14.Use of Proceeds 17
Section 2.15.Borrower Agents 17
Section 2.16.Take-out of Individual Banks 18
Section 2.17.Sharing of Payments, Etc 18
Article III.Representations and Warranties 19
Section 3.01.Organization, Standing, Etc.
of the Borrower 19
Section 3.02.Financial Information;
Disclosure; Etc 19
Section 3.03.Litigation, Etc 20
Section 3.04.Authorization; Compliance
with Other Instruments 20
Section 3.05.SEC Compliance, Etc 21
Section 3.06.Governmental Consent 21
Section 3.07.Regulation U, Etc 21
Section 3.08.Relationship with MFS 21
<PAGE>
Section 3.09.Investment Company Status 21
Section 3.10.Affiliated Persons 21
Article IV. Conditions Precedent 21
Section 4.01.Conditions to Closing 21
Section 4.02.Conditions Precedent to All Loans 23
Article V. Affirmative Covenants 24
Section 5.01.Financial Statements, Etc 24
Section 5.02.Legal Existence; Compliance
with Laws; Etc 25
Section 5.03.Further Assurances 25
Section 5.04.Investment Company Status 26
Section 5.05.Use of Proceeds 26
Article VI. Negative Covenants 26
Section 6.01.Asset Coverage 26
Section 6.02.Mortgages, Liens, Etc 27
Article VII.Defaults; Remedies 28
Section 7.01.Events of Default; Acceleration 28
Section 7.02.Remedies on Default, Etc 30
Article VIII.Setoffs, Etc. 30
Article IX. The Agent and Relations among
the Banks 31
Section 9.01.Appointment of Agent; Powers
and Immunities 31
Section 9.02.Reliance by Agent 31
Section 9.03.Indemnification 31
Section 9.04.Documents 32
Section 9.05.Non-Reliance on Agent and
Other Banks 32
Section 9.06.Resignation or Removal of Agent 32
Article X. Additional Borrowers 33
Article XI. Term and Termination 34
Section 11.01.Term and Termination of Agreement 34
Section 11.02.Termination as to a Borrower 34
Section 11.03.Termination due to Change in Control 36
Article XII.Provisions of General Application 37
Section 12.01.Expenses 37
Section 12.02.Amendments and Waiver, Etc 37
<PAGE>
Section 12.03.Nature of Obligations 38
Section 12.04.Notices, Etc 38
Section 12.05.Calculations, Etc 39
Section 12.06.Survival of Covenants, Etc 40
Section 12.07.Parties in Interest;
Assignments; Participations 40
Section 12.08.Counterparts, Etc 41
Section 12.09.Entire Agreement, Etc 41
Section 12.10.Severability 41
Section 12.11.Governing Law; Jurisdiction;
Waiver 41
Section 12.12.Indemnification 42
Section 12.13.Miscellaneous 42
Article XIII.Limitation of Liability 42
Exhibit A -List of Eligible Borrowers
Exhibit B -Borrowing Request
Exhibit C -Daily Valuation Report
Exhibit D -Form for Additional Borrower
Exhibit E -Form of Opinion
Exhibit F -Banks; Addresses; Commitments
Exhibit G -Form of Assignment and Agreement
<PAGE>LOAN AGREEMENT
LOAN AGREEMENT dated as of February ___, 1995, by
and among the Persons listed on Exhibit A attached
hereto, as revised from time to time (collectively, the
"Borrowers" and each individually a "Borrower", which
terms shall also include any other Persons that may
become parties to this Agreement as provided in Article
X hereof); the Banks listed on Exhibit F attached
hereto, as revised from time to time (collectively, the
"Banks and each individually a "Bank"); and The First
National Bank of Boston, not individually but in its
separate capacity as agent for the Banks hereunder (in
such capacity, the "Agent")
The Borrowers, the Banks and the Agent hereby
agree as follows:
ARTICLE I. DEFINITIONS; CONSTRUCTION
Section 1.01. Definitions. As used herein, the
following terms shall have the meanings herein
specified (to be equally applicable to both the
singular and plural forms of the terms defined):
"Administrator" shall mean the Person supervising
the overall administration of an Investment Company.
"Affiliate" shall mean, as applied to any Person,
a spouse or relative of such Person, any member,
director or officer of such Person, any corporation,
association, firm or other entity of which such Person
is a member, director or officer, and any other Person
directly or indirectly controlling, controlled by or
under direct or indirect common control with such
Person.
"Agent" shall have the meaning specified in the
preamble hereof.
"Agreement" shall mean this Loan Agreement,
including the Exhibits annexed hereto, as amended,
supplemented or modified from time to time in
accordance with its terms.
"Authorized Officer" shall mean the Chairman of
the Board, the President, any Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary of a Borrower.
"Bank" or "Banks" shall have the respective
meanings specified in the preamble hereof.
"Banking Day" shall mean any day excluding
Saturday and Sunday and excluding any other day which
shall be in Boston, <PAGE>Massachusetts, or New York,
New York, a legal holiday or a day on which banking
institutions are authorized by law to close.
"Base Rate" shall mean an annual rate of interest
equal to the higher of (i) the annual rate of interest
announced from time to time by The First National Bank
of Boston at its head office at 100 Federal Street,
Boston, Massachusetts 02110 as its Base Rate, and (ii)
an annual rate of interest equal to the sum of (A) the
Federal Funds Effective Rate, plus (B) one-half of one
percent (1/2 of 1%)
"Base Rate Loan" or "Base Rate Loans" shall mean
a Loan or Loans as to which interest is determined by
reference to the Base Rate.
"Board" shall mean the Board of Governors of the
Federal Reserve System of the United States.
"Borrower" or "Borrowers" shall have the
respective meanings specified in the preamble hereof.
"Borrower Agent" or "Borrower Agents" shall have
the respective meanings specified in Section 2.15.
"Borrowing Base" shall have the meaning specified
in Section 6.01.
"Borrowing Request" shall have the meaning
specified in Section 2.04.
"Commitment" shall mean, with respect to each
Bank, such Bank's obligation to make Loans in an
aggregate amount not exceeding such Bank's Commitment
Percentage of the Maximum Commitment Amount; and
"Commitments" shall mean the aggregate Commitments of
all the Banks.
"Commitment Fee" shall have the meaning specified
in Section 2.13.
"Commitment Percentage" shall mean, with respect
to each Bank, the percentage figure set forth opposite
the Bank's name in Exhibit F.
"Distributor" shall mean the principal
underwriter or distributor of the Shares of an
Investment Company.
"Event of Default" shall have the meaning
specified in Section 7.01.
"Exempted Borrower" shall mean any Borrower to
which a Loan is made, if immediately prior to any such
Loan and after applying the proceeds thereof, and at
all times while any such <PAGE>Loan is outstanding to
such Borrower, not more than twenty-five percent (25%)
of the value of such Borrower's assets are represented
by "margin stock" within the meaning of Regulation U
(12 CFR Part 221). For purposes of this definition,
the value of any Borrower's assets shall be the value
determined from time to time by the custodian thereof
or any party that the Board of Trustees of such
Borrower appoints to value such assets, which may
include MFS, provided that such value shall be
determined in a manner consistent with that used by
such Borrower for reporting purposes in accordance with
regulatory requirements.
"Expiration Date" shall have the meaning
specified in Section 11.01.
"FDIC" shall mean the Federal Deposit Insurance
Corporation.
"Fed Funds Loan" or "Fed Funds Loans" shall mean
a Loan or Loans as to which interest is determined by
reference to the Federal Funds Rate.
"Federal Funds Effective Rate" shall mean, as of
any date, an annual rate of interest (rounded upwards,
if necessary, to the nearest 0.01%) equal to the
weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve
System arranged by federal funds brokers on the day, as
published by the Federal Reserve Bank of New York on
the Banking Day following that date; provided that if
the day is not a Banking Day, the Federal Funds
Effective Rate for the day shall be the rate on such
transactions on the preceding Banking Day as so
published on the following Banking Day; and further
provided that if no such rate is so published on the
following Banking Day, the Federal Funds Effective Rate
for the day shall be the average rate on such
transactions quoted to the Agent on the day by three
federal funds brokers of recognized standing selected
by the Agent.
"Federal Funds Rate" shall mean, at the relevant
time of reference thereto and for the relevant Interest
Period, an annual rate of interest (rounded upwards, if
necessary, to the nearest 0.01%) equal to the sum of
(A) the average rate of interest at which the Reference
Banks offer to lend to other members of the Federal
Reserve System for federal funds transactions of the
same maturity and amount as the requested Fed Funds
Loan at or about the time of borrowing on the date of
the borrowing, plus (B) three-quarters of one percent
(3/4 of 1%).
"Financial Contracts" shall mean option
contracts, futures contracts, options on future
contracts, forward foreign currency exchange contracts,
options on foreign currencies, repurchase agreements,
reverse repurchase agreements, <PAGE>securities lending
agreements, interest rate swaps, currency swaps and all
other types of swap agreements and related transactions
(including, without limitation, caps, floors and
collars), when-issued securities and other similar
arrangements.
"GAAP" shall mean generally accepted accounting
principles as set forth in the opinions and
pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial
Accounting Standards Board.
"Indebtedness" shall mean, as applied to any
Person, all obligations, contingent and otherwise,
which, in accordance with generally accepted accounting
principles, should be classified upon the Person's
balance sheet as liabilities, or to which reference
should be made by footnotes thereto, including, without
limitation, in any event and whether or not so
classified: (i) all debt and similar monetary
obligations, whether direct or indirect; (ii) all
liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on
property owned or acquired subject thereto, or with
respect to which assets of the Person have been
segregated, whether or not the liability secured
thereby shall have been assumed; and (iii) all
guaranties, endorsements and other contingent
obligations, whether direct or indirect, in respect of
Indebtedness of others, including any obligation to
supply funds to or in any manner to invest in, directly
or indirectly, the debtor (whether by way of loan,
stock purchase, capital contribution or otherwise), to
purchase Indebtedness, or to assure the owner of
Indebtedness against loss, through an agreement to
purchase goods, supplies or services for the purpose of
enabling the debtor to make payment of the Indebtedness
held by such owner or otherwise, and the obligations to
reimburse the issuer of any letters of credit.
"Interest Period" shall mean, with respect to
each Loan, the period commencing on the date of such
Loan and ending on the last day of the period selected
by a Borrower in a Borrowing Request delivered pursuant
to Section 2.04(a); provided that no Interest Period
shall be longer than thirty (30) days; and further
provided that if such Interest Period would end on a
day which is not a Banking Day, it shall end instead on
the next succeeding Banking Day.
"Investment Adviser" shall mean any Person
serving as an investment adviser, as defined in the
Investment Company Act, to an Investment Company.
"Investment Company" shall mean any Person
registered as an investment company under the
Investment Company Act.
<PAGE> "Investment Company Act" shall mean the
Investment Company Act of 1940, as amended.
"Loan Account" shall have the meaning specified
in Section 2.03.
"Loan Documents" shall mean, collectively, this
Agreement and all other agreements, instruments,
documents and certificates now and hereafter executed
and/or delivered pursuant hereto or thereto.
"Loans" shall mean, collectively, all of the Base
Rate Loans and the Fed Funds Loans, and "Loan" shall
mean any of the Base Rate Loans or Fed Funds Loans
(each of which shall be a "Type" of Loan).
"Majority Banks" shall mean, at any particular
time, those Banks the sum of whose then outstanding
Loans to the Borrowers aggregate to at least 60% of the
aggregate of all such outstanding Loans or, if no Loans
are then outstanding, the sum of whose Commitment
Percentages aggregate to at least 60% of the Maximum
Commitment Amount.
"Maximum Commitment Amount" shall mean the
maximum amount of the Banks' commitments to make Loans
to the Borrowers hereunder, which in the first instance
shall be $350,000,000, as the same may be reduced from
time to time pursuant to Section 2.02.
"MFS" shall mean Massachusetts Financial Services
Company, a Delaware corporation.
"Net Assets" shall mean, as applied to any
Borrower, the value of the total assets of such
Borrower, less all liabilities and Indebtedness other
than Loans outstanding hereunder. For purposes of this
definition the value of any Borrower's portfolio
securities shall be the value of such securities as
determined from time to time by the custodian thereof
or any party that the Board of Trustees of such
Borrower appoints to value such securities which may
include MFS, provided that such value shall be
determined in a manner consistent with that used by
such Borrower for reporting purposes in accordance with
regulatory requirements.
"Person" shall mean a corporation, an
association, a trust (or series of a trust), a
partnership, a joint venture, an organization, a
business, an individual, a government or political
subdivision thereof or a governmental agency.
"Pro Rata Share" shall mean, with respect to each
Borrower and at the relevant time of reference thereto,
the percentage obtained by dividing (i) the aggregate
outstanding principal amount of all Loans to such
Borrower hereunder by <PAGE>(ii) the aggregate
outstanding principal amount of all Loans to all
Borrowers hereunder.
"Prospectus" shall mean the currently effective
prospectus and statement of additional information
delivered to purchasers of Shares of a Borrower, which
is an open-end Investment Company, pursuant to the
Securities Act of 1933, as amended.
"Reference Banks" shall mean The First National
Bank of Boston and State Street Bank and Trust Company.
"Registration Statement" shall mean the
Registration Statement on Form N-2, or any successor
form, of a Borrower which is a closed-end Investment
Company, as amended by any amendment most recently
filed with the SEC, including the Borrower's investment
objectives and fundamental investment policies and
restrictions as may be set forth therein or as such
investment objectives and fundamental investment
policies and restrictions are set forth in a subsequent
vote adopted by the Shareholders of the Borrower.
"Renewal Notice" shall have the meaning specified
in Section 11.01.
"SEC" shall mean the Securities and Exchange
Commission.
"Shares" shall mean the securities representing
beneficial or equity interests in a Borrower.
"Shareholders" shall mean the owners of Shares of
a Borrower.
"Shareholder Servicing Agent" shall mean the
shareholder servicing agent of an Investment Company
responsible for administering and performing transfer
agent functions.
Section 1.02. Accounting Terms and
Determinations. Unless otherwise defined or specified
herein, all accounting terms shall be construed herein,
all accounting determinations hereunder shall be made,
all financial statements required to be delivered
hereunder shall be prepared and all financial records
shall be maintained in accordance with GAAP. All terms
not specifically defined herein which are defined in
the Uniform Commercial Code as in effect in the
Commonwealth of Massachusetts shall have the same
meanings herein as therein.
Section 1.03. Other Definitional Terms. (a) The
words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular
provision of this Agreement, and Article, section,
schedule, exhibit and like references are to this
Agreement unless otherwise specified.
<PAGE>
(b) Each reference herein to a particular
Person shall include a reference to such Person's
successors and permitted assigns.
(c) Any defined term which relates to a
document, instrument or agreement shall include within
its definition any amendments, modifications, renewals,
restatements, extensions, supplements or substitutions
which may have been heretofore or may be hereafter
executed in accordance with the terms hereof and
thereof.
ARTICLE II. AMOUNTS AND TERMS OF CREDIT
Section 2.01. Commitment to Lend. Subject to the
terms and conditions set forth in this Agreement, each
Bank severally agrees to make Loans to each Borrower
from time to time on any Banking Day during the period
from the date hereof to and including the Expiration
Date, as may be requested by such Borrower in
accordance with Section 2.04 hereof, in an aggregate
amount not to exceed at any one time outstanding the
amount of such Bank's Commitment Percentage of the
Maximum Commitment Amount (hereinafter such Bank's
"Commitment"). Each Loan made by the Banks to a
Borrower hereunder shall be comprised of a single Type
and in a minimum principal amount of $350,000, in the
case of a Base Rate Loan, or $10,000,000, in the case
of a Fed Funds Loan; provided that (i) at no time shall
any Bank be obligated to fund or maintain Loans in
excess of such Bank's Commitment; (ii) at no time shall
the aggregate outstanding principal amount of all Loans
made to the Borrowers hereunder exceed the Maximum
Commitment Amount; and (iii) at no time shall the
aggregate outstanding principal amount of all Loans to
any Borrower hereunder exceed such Borrower's Borrowing
Base. Each request for a Loan shall constitute a
representation by the Borrower thereof that the
conditions set forth in Section 4.02 hereof have been
satisfied on the date of such request. Within the
limits of the provisions of this Section 2.01, each
Borrower may borrow, prepay pursuant to Section 2.06,
and reborrow under this Section 2.01.
Section 2.02. Reduction or Termination of
Commitment.
(a) The Borrowers, acting through a Borrower
Agent for each Borrower, may at any time on or prior to
the Expiration Date, (i) terminate the Commitments in
full by (A) giving at least three (3) Banking Days'
written notice thereof to the Agent (with copies to
each Bank), and (B) repaying in full the Loans and any
other obligations of the Borrowers hereunder,
including, without limitation, accrued and unpaid
interest on the Loans, the accrued and unpaid
Commitment Fees, and all other fees and expenses
provided for herein and therein; or (ii) reduce the
Maximum Commitment Amount in part in an amount
<PAGE>not less than $10,000,000 by (C) giving at least
three (3) Banking Days' written notice thereof to the
Agent (with copies to each Bank), and (D) repaying the
amount, if any, by which the aggregate unpaid principal
amount of the Loans exceeds the then reduced Maximum
Commitment Amount, together with the Commitment Fees
accrued with respect to the amount of such reduction to
the date of such reduction. Except as otherwise set
forth hereinabove, upon the termination of the
Commitments this Agreement shall terminate and be of no
further force and effect except for the obligations, if
any, of the Banks for the reimbursement to a Borrower
of recovered costs under Section 2.13 hereof. No
termination of the Commitments or reduction of the
Maximum Commitment Amount by the Borrowers shall be
subject to reinstatement.
(b) In addition to the provisions of paragraph
(a) of this Section 2.02, any Borrower (other than a
Borrower, if any, which shall be the sole remaining
Borrower hereunder), acting through a Borrower Agent
for such Borrower, may terminate its participation in
this Agreement and withdraw as a party hereto by (A)
giving at least three (3) Banking Days' written notice
thereof to the Agent (with copies to each Bank),
accompanied by a revised Exhibit A in accordance with
Section 2.15 reflecting the withdrawal of such
Borrower, and (B) repaying in full the Loans and any
other obligations of such Borrower hereunder,
including, without limitation, accrued and unpaid
interest on the Loans, the accrued and unpaid
Commitment Fees, and all other fees and expenses
provided for herein and therein to be paid by such
Borrower. Upon the effective date of such termination,
the Banks' obligations to make Loans to such Borrower
hereunder shall terminate, such Borrower shall cease to
be a party to this Agreement and this Agreement shall
be of no further force and effect as to such Borrower
except as otherwise provided hereinabove and except for
the rights of such Borrower pursuant to Section 2.13 to
be reimbursed costs, if any, recovered by the Banks;
provided that this Agreement shall otherwise remain in
full force and effect as to all other Borrowers,
including the Commitments.
Section 2.03. Loan Accounts. Each Bank will open
and maintain a loan account (each a "Loan Account") on
its books in the name of each Borrower with respect to
such Bank's Loans to such Borrower. Each Loan made by
a Bank will be debited, and each payment or prepayment
on account thereof will be credited, to the Loan
Account maintained by such Bank; provided that the
failure of any Bank to record such amounts in its Loan
Account shall not affect the obligations of the
Borrower hereunder with respect thereto. The Agent
shall render to each Borrower and each Bank, on or
before the fifth Banking Day of each calendar quarter,
a statement of its calculation of amounts owing with
respect to each Loan Account as of the last day of the
prior calendar quarter, which statement shall be
considered correct and accepted and binding upon each
Borrower and each Bank <PAGE>absent manifest error;
provided that the failure of the Agent to render any
such statement in a timely fashion shall not affect or
impair the validity or binding nature of any Loan
Account.
Section 2.04. Requests for Loans.
(a) Each request by a Borrower for a Loan under
Section 2.01 hereof (a "Borrowing Request") shall be
made by notice to the Agent from a Borrower Agent for
such Borrower not later than (i) 10:00 a.m. on the
Banking Day of the proposed borrowing in the case of
Fed Funds Loans, or (ii) 1:00 p.m. on the Banking Day
of the proposed borrowing in the case of Base Rate
Loans. The Agent shall give each Bank prompt notice of
the Agent's receipt of any Borrowing Request. Each
Borrowing Request shall be in writing in the form of
Exhibit B hereto, or by telephonic communication
confirmed the same day by telex, telecopy or other
facsimile transmission in the form of Exhibit B hereto,
and the Agent may rely upon any telephonic Borrowing
Request which it reasonably believes is made by such a
Borrower Agent. Each Borrower severally agrees to
indemnify and hold the Agent and each Bank harmless for
any reasonable action, including, without limitation,
the making of Loans hereunder to such Borrower, or loss
or expense, taken or incurred by the Agent or any Bank
in good faith reliance upon such telephonic Borrowing
Request; provided that no Borrower shall be liable for
any such action, loss or expense to the extent, but
only to the extent, that the gross negligence or
willful misconduct of the Agent or Bank, as applicable,
shall have contributed to such action, loss or expense
of the Agent or Bank, as applicable. At the time of
the initial request for a Loan made under this Section
2.04 each Borrower shall have provided the Agent and
the Banks with an Officer's Certificate as required by
Section 4.01(d). Each Borrower hereby agrees (a) that
the Agent and each Bank shall be entitled to rely upon
the Officer's Certificate in its possession until it is
superseded by a more recent Officer's Certificate, and
(b) that each Borrowing Request shall (i) obligate such
Borrower to borrow the principal amount of the Loan
requested thereby, and (ii) constitute a representation
and warranty by such Borrower to the Agent and the
Banks that (A) the Loan requested thereby is permitted
under such Borrower's most recent Prospectus and
Statement of Additional Information, (B) will not, when
made, cause the aggregate Indebtedness of such Borrower
hereunder to exceed such Borrower's Borrowing Base, (C)
will not, when made, cause the aggregate Indebtedness
of the Borrowers to the Banks in respect of Loans to
exceed the Maximum Commitment Amount, and (D) will be
used by such Borrower only in accordance with the
provisions of Section 2.14 hereof.
(b) Subject to the terms and conditions of this
Agreement, each Bank shall, as soon as practicable on
the date of a proposed borrowing, and in no event later
than a time <PAGE>reasonably necessary to ensure that
the Agent is able to remit the proceeds of the Loan to
the Borrower on such date, make available to the Agent,
at the Agent's address referred to in Section 12.04
hereof and in immediately available funds, such Bank's
ratable portion of the Loan requested. After the
Agent's receipt of such funds and upon fulfillment of
the applicable conditions set forth in Article IV
hereof, the Agent will wire the proceeds of the Loan in
immediately available funds to the account of the
Borrower specified in the Borrowing Request not later
than the close of business on the date of such
Borrowing Request.
(c) A Borrowing Request with respect to a Fed
Funds Loan shall be irrevocable and binding on the
Borrower making such Borrowing Request, and, in respect
of any such Borrowing Request if such Loan is not
borrowed by the Borrower on the date specified for such
Loan in such Borrowing Request, the Borrower shall
indemnify each Bank against any loss or expense
incurred by such Bank by reason of the liquidation or
reemployment of deposits or other funds acquired by
such Bank to fund or maintain a Fed Funds Loan to be
made by such Bank, and calculated pursuant to Section
2.11 hereof.
(d) Unless the Agent shall have received notice
from a Bank prior to the time of any borrowing that
such Bank will not make available to the Agent such
Bank's ratable portion of the Loan, the Agent may
assume that such Bank has made such portion available
to the Agent on the date of such borrowing in
accordance with and as provided in Section 2.04(b), and
the Agent may, in reliance upon such assumption, make
available on such date a corresponding amount to the
Borrower on whose behalf the Borrowing Request was
made. If and to the extent such Bank shall not have so
made such ratable portion available to the Agent and
the Agent shall have made available such corresponding
amount to the Borrower, such Bank agrees to pay the
same to the Agent forthwith on demand, and if such Bank
shall fail to do so, the Borrower agrees to repay to
the Agent, within two Banking Days after demand (but
only after demand for payment has first been made to
such Bank), an amount equal to such corresponding
amount, together with interest thereon at the interest
rate applicable at the time to Loans comprising such
borrowing for each day from the date the Agent shall
make such amount available to the Borrower until the
date such amount is paid or repaid to the Agent.
Payments made to the Agent by the Borrower pursuant to
this Section 2.04(d) shall not be subject to Section
2.11. If such Bank shall pay to the Agent such
corresponding amount, such amount so paid shall
constitute such Bank's Loan as part of such borrowing
for purposes of this Agreement, from the date of such
payment to the Agent.
(e) Except as otherwise provided in this
Agreement, if on any date on which a Borrower makes a
Borrowing Request with <PAGE>respect to a Fed Funds
Loan any Bank shall determine (which determination
shall be conclusive) that it is unable to or it is
impracticable for it to fund the Fed Funds Loan for the
requested Interest Period, or that the Federal Funds
Rate does not or will not accurately reflect the cost
to such Bank of obtaining or maintaining the Fed Funds
Loan during the requested Interest Period, each being
the result of an event occurring after the date of this
Agreement, then such Bank shall so notify the Agent,
which notification shall be given immediately by the
Agent to the Borrower, and, subject to the Borrowers'
rights under Section 2.16 hereof, that portion of the
principal amount of the requested Loan shall,
notwithstanding any contrary election by the Borrower
or any other provisions hereof, be denominated as a
Base Rate Loan.
(f) The failure of any Bank to make the Loans to
be made by it as part of any borrowing shall not
relieve any other Bank of its obligation, if any,
hereunder to make its Loans on the date of such
borrowing, but no Bank shall be responsible for the
failure of any other Bank to make the Loan to be made
by such other Bank on the date of any borrowing.
Section 2.05. Repayment of Loans.
(a) Each Borrower hereby absolutely and
unconditionally promises to pay to the Agent for the
account of and in trust for each of the Banks on the
date specified in the Borrowing Request the outstanding
principal amount of the Loan made pursuant to such
Borrowing Request; provided that (i) each such
repayment date shall be a Banking Day, and (ii) no Loan
shall mature later than thirty (30) days following the
date such Loan is made. Subject to the provisions of
paragraph (b) of this Section 2.05, any Borrower may
apply all or any portion of the proceeds of any Loan
made to such Borrower to the repayment of any unpaid
principal amount of any other Loan then outstanding to
such Borrower.
(b) Notwithstanding anything to the contrary
contained herein, (i) no Borrower shall have Loans
outstanding hereunder on more than thirty (30)
consecutive calendar days, and all outstanding Loans to
a Borrower shall become immediately due and payable
without renewal or refunding on the next Banking Day
following the thirtieth consecutive day that a Borrower
has Loans outstanding hereunder, and (ii) no Borrower
shall be permitted to reborrow Fed Funds Loans on an
overnight basis on more than three consecutive Banking
Days following the initial borrowing thereof.
Section 2.06. Optional Prepayments: Certain
Mandatory Prepayments.
(a) Each Borrower shall have the right at any
time without premium or penalty (subject to the
provisions of <PAGE>Section 2.11 hereof) to prepay the
Loans made to such Borrower hereunder, in whole or in
part, upon telephonic notice to the Agent of its
intention to prepay such Loan prior to 12:00 noon
(Boston time) on the date such prepayment is to be
made; provided, however, that each such prepayment
(except a prepayment in full) shall be made in an
amount of $500,000 or an integral multiple thereof.
(b) Upon any reduction in the Maximum Commitment
Amount pursuant to Section 2.02 (a) hereof or
otherwise, or if, at any time, the aggregate unpaid
principal amount of Loans exceeds the Maximum
Commitment Amount, each Borrower with Loans outstanding
agrees to immediately prepay its Pro Rata Share of the
amount, if any, by which the aggregate unpaid principal
amount of Loans made to the Borrowers hereunder exceeds
the Maximum Commitment Amount.
(c) If, at any time, the aggregate unpaid
principal amount of Loans to any Borrower shall exceed
such Borrower's Borrowing Base, such Borrower shall
immediately prepay the amount by which the aggregate
unpaid principal amount of Loans to such Borrower
exceeds such Borrower's Borrowing Base.
(d) Upon each repayment or prepayment of any
principal of any Loan made to a Borrower pursuant to
any of the provisions of this Agreement, such Borrower
hereby absolutely and unconditionally promises to pay
to the Agent, for the ratable benefit of the Banks, and
there shall become absolutely due and payable on the
date of each such repayment or prepayment, all of the
unpaid interest accrued to such date on the amount of
the principal of the Loan being repaid or prepaid on
such date. Whenever any interest on and any principal
of the Loans are paid simultaneously hereunder, the
whole amount paid shall be applied first to interest
then due and payable.
Section 2.07. Place and Mode of Payments;
Computations.
(a) Each Borrower shall give notice to the Agent
of each payment to be made by it hereunder not later
than 12:00 noon (Boston time) on the day when due.
Each such payment shall be made in lawful money of the
United States to the Agent at its address set forth in
Section 12.04 in immediately available and freely
transferable funds, and shall be received by the Agent
not later than 3:00 p.m. (Boston time) on the day when
due. The Agent will, promptly after its receipt
thereof, distribute like funds relating to the payment
of principal, interest, Commitment Fees or other
amounts payable to the Banks for their respective
accounts.
(b) Notwithstanding anything to the contrary
contained in this Agreement, if it shall become
unlawful or, in the opinion of the Agent, impracticable
for any payment to be made as above provided and the
Agent shall give notice to the Banks <PAGE>and the
Borrowers to that effect, then the Borrowers shall pay
to each Bank, for its own account in such funds as are
required hereunder or in such other manner as may be
agreed upon between the Borrowers and the relevant Bank
and to such account as may be specified by the relevant
Bank, such Bank's ratable share of the payment in
question. Each Bank shall keep the Agent fully
informed as to all amounts received by it and as to all
agreements made between it and the Borrowers as
referred to above.
(c) All payments by the Borrowers hereunder shall
be made without setoff or counterclaim and free and
clear of and without deduction or withholding of any
kind (all of which will be paid by the Borrowers for
their respective accounts if required by law prior to
the date penalties are attached). If any such
obligation is imposed upon a Borrower with respect to
any amount payable by it hereunder, it will pay to the
Agent, for the benefit of the affected Bank(s), on the
date on which such amount becomes due and payable
hereunder such additional amount as shall be necessary
to enable each of the Banks to receive the same net
amount which each would have received on such due date
had no such obligation been imposed upon the Borrower.
The foregoing provisions of this Section 2.07(c) shall
not apply, in the case of each Bank and the Agent, (i)
to taxes imposed upon or by reference to its overall
net income, profits or gains, or (ii) to franchise
taxes imposed on it except in a jurisdiction in which
the Agent or such Bank is not doing business other than
extending credit hereunder to the Borrowers.
Notwithstanding anything herein to the contrary, no
financial institution organized under the laws of a
jurisdiction other than the United States of America or
any political subdivision thereof shall be a Bank
hereunder or a permitted assign or participant of any
Bank unless it shall certify, as of the date of its
becoming a Bank hereunder or, as the case may be, as of
the effective date of such assignment or participation,
that it is not subject to withholding taxes on its
United States earned income; provided that if such a
financial institution is or becomes a Bank hereunder or
a permitted assign or participant of any Bank and shall
be unable to make such certification, each Borrower
agrees to pay in a timely manner any obligation imposed
on such Borrower for withholding taxes on such
institution's United States earned income, but such
Borrower shall not be required to pay such additional
amount to the Agent for the benefit of the affected
institution(s) as otherwise provided in this Section
2.07(c)
(d) If any sum would, but for the provisions of
this paragraph (d), become due and payable to the Banks
by the Borrowers, or any of them, under this Agreement
on any day which is not a Banking Day, then such sum
shall become due and payable on the Banking Day next
succeeding the day on which such sum would otherwise
have become due and payable hereunder <PAGE>or
thereunder, and interest and fees payable to the Banks
under this Agreement shall be adjusted by the Agent
accordingly.
(e) All computations of interest payable under
this Agreement shall be made by the Agent on the basis
of a 360-day year and paid for the actual number of
days elapsed. All computations of Commitment Fees
payable under this Agreement shall be made by the Agent
on the basis of a 365-day year and paid for the actual
number of days elapsed.
(f) The Agent will determine the Base Rate in
effect from time to time. Any change in the Base Rate
shall, for all purposes of this Agreement, become
effective on, and from the beginning of, the day on
which such change shall first be announced by the Agent
in accordance with the Agent's customary banking
practices. The Agent will promptly notify the
Borrowers and the Banks of each change in the Base
Rate.
(g) Each determination of an interest rate by the
Agent pursuant to this Agreement shall be conclusive
and binding on the Borrowers and the Banks in the
absence of manifest error.
Section 2.08. Interest.
(a) Except as otherwise provided in Section 2.09
hereof, the outstanding principal amount of each Base
Rate Loan shall bear interest from the date of such
Base Rate Loan until repayment thereof in full at the
Base Rate. Interest accrued on each Base Rate Loan to
a Borrower shall be paid by such Borrower in arrears on
the last day of the applicable Interest Period for such
Base Rate Loan and at maturity.
(b) Except as otherwise provided in Section 2.09
hereof, the outstanding principal amount of each Fed
Funds Loan shall bear interest from the date of such
Fed Funds Loan until repayment thereof in full at the
Fed Funds Rate. Interest accrued on each Fed Funds
Loan to a Borrower shall be paid by such Borrower in
arrears on the last day of the applicable Interest
Period for such Fed Funds Loan and at maturity.
(c) Subject to the provisions of paragraph (b) of
Section 2.05 hereof, any Borrower may apply all or any
portion of the proceeds of any Loan made to such
Borrower to the payment of any accrued and unpaid
interest on any other Loan then outstanding to such
Borrower.
Section 2.09. Overdue Principal and Interest. In
the event that any Borrower shall fail to make any
payment of principal of or interest on any Loan when
due, whether at maturity or by acceleration or
otherwise, interest on such unpaid principal and (to
the extent permitted by law) on such unpaid interest
shall thereafter be payable on demand at a rate
<PAGE>per annum equal to two percent (2%) above the
rate otherwise applicable to such Loan hereunder.
Section 2.10. Limitation on Interest. No
provision of this Agreement shall require the payment
or permit the collection of interest in excess of the
rate then permitted by applicable law.
Section 2.11. Indemnification. If, due to
acceleration of the maturity of the Loans pursuant to
Section 7.01 or due to any other reason other than
payments in the circumstances set forth in Section
2.04(d), any Bank receives payments of principal of a
Fed Funds Loan from a Borrower other than on the last
day of the Interest Period for such Fed Funds Loan,
such Borrower agrees, upon written demand by such Bank
(with a copy to the Agent), to pay to the Agent for the
account of such Bank any amounts required to compensate
such Bank for any losses, costs or expenses incurred by
reason of the liquidation or reemployment of deposits
or other funds acquired by any Bank to fund or maintain
such Loans. Such compensation, and the compensation
provided for in Section 2.04(c) hereof, may include,
without limitation, an amount equal to the excess, if
any, of (a) the amount of interest which would have
accrued on the amount so paid or prepaid or not
borrowed or required to be prepaid for the period from
the date of such payment, prepayment or failure to
borrow or prepay to the last day of the then current
Interest Period for such Loan (or, in the case of a
failure to borrow or prepay, the Interest Period for
such Loan which would have commenced on the date of
such failure to borrow or prepay) at the applicable
rate of interest for such Loan provided for herein
(excluding, however, the applicable margin specified in
Article I hereof) over (b) the amount of interest (as
reasonably determined by such Bank in consultation with
the Agent) such Bank would have bid to obtain federal
funds deposits of comparable amounts having terms
comparable to such period placed with it by leading
banks in the New York interbank market.
Section 2.12. Increased Capital Requirements.
If, after the date of this Agreement, any Bank shall
have determined that the adoption or implementation of
any applicable law, rule or regulation regarding
capital requirements for banks or bank holding
companies, or any change therein (including, without
limitation, any change according to a prescribed
schedule of increasing requirements, whether or not
known on the date of this Agreement), or any change in
the interpretation or administration thereof by any
governmental authority, central bank or comparable
agency charged with the interpretation or
administration thereof, or compliance by such Bank with
any request or directive of any such Person regarding
capital adequacy (whether or not having the force of
law) has the effect of reducing the return on such
Bank's capital to a level below that which such Bank
could have achieved (taking into <PAGE>consideration
such Bank's policies with respect to capital adequacy
immediately before such adoption, implementation,
change or compliance and assuming that such Bank's
capital was fully utilized prior to such adoption,
implementation, change or compliance) but for such
adoption, implementation, change or compliance as a
consequence of such Bank's commitment to make Loans
hereunder by any amount deemed by such Bank to be
material, the Borrowers shall, upon fifteen (15)
Banking Days' prior notice to a Borrower Agent for each
Borrower from such Bank (with a copy to the Agent), and
subject to the Borrowers' rights under Section 2.16
hereof, pay to the Agent for the benefit of such Bank
as an additional fee from time to time on demand such
amount as such Bank shall have determined to be
necessary to compensate it for such reduction. The
determination by such Bank (in consultation with the
Agent) of such amount, if done on the basis of any
reasonable averaging and attribution methods, shall in
the absence of manifest error be conclusive, and at the
request of the Borrower Agents, such Bank shall
demonstrate the basis of such determination.
Section 2.13. Commitment Fee. The Borrowers
shall pay the Agent for the ratable benefit of the
Banks a commitment fee (the "Commitment Fee") for the
period commencing on the date hereof to and including
the termination of the Commitments hereunder, equal in
the aggregate for all of the Borrowers to one-tenth of
one percent (1/10 of 1%) per annum of the average daily
unused portion of the Commitments. Each Borrower shall
pay the Agent the percentage of the Commitment Fee set
forth opposite such Borrower's name on Exhibit A
hereto, the sum of such percentages always to equal
100%, as revised from time to time in accordance with
Section 2.15. The Commitment Fee shall be payable
quarterly in arrears on the last day of each March,
June, September and December of each year commencing on
the first such date next succeeding the date hereof,
and, in connection with the partial reduction of the
Maximum Commitment Amount in accordance with Section
2.02 (a) hereof, on the date of such reduction, and on
the date of any termination of the Commitments. With
respect to each quarterly payment the Commitment Fee
shall be computed on the basis of the average daily
unused portion of the Commitments during such quarter
or shorter period. Without duplication of the amounts
payable pursuant to Section 2.12 hereof, if any change
in any requirement imposed upon any Bank by any law of
the United States of America or any state or political
subdivision thereof to which such Bank may be subject
or by any regulation, order, interpretation, ruling or
official directive (whether or not having the force of
law) of the Board, the FDIC or any other board or
governmental or administrative agency of the United
States of America or any state or political subdivision
thereof to which such Bank may be subject shall impose,
increase, modify or deem applicable any reserve,
special deposit, assessment or other requirement
against the Commitment of such <PAGE>Bank hereunder,
and the result of the foregoing, in the determination
of such Bank (in consultation with the Agent), is to
impose a cost on such Bank that is attributable to the
maintaining of such Bank's Commitment, then upon five
(5) Banking Days' prior notice to the Borrowers from
such Bank (with a copy to the Agent), and subject to
the Borrowers' rights under Section 2.16 hereof, the
Commitment Fee payable to such Bank shall be increased,
for so long as the increased cost is imposed on such
Bank, to the extent determined by such Bank to be
necessary to compensate such Bank for such increased
cost. The determination by such Bank of the amount of
such cost, if done in good faith, shall, in the absence
of manifest error, be conclusive, and at the request of
a Borrower Agent such Bank shall demonstrate the basis
for such determination. No portion of the Commitment
Fee paid by any Borrower shall be subject to refund,
reduction or proration, provided, however, if, after
any adjustment in the Commitment Fee resulting from
increased costs to any Bank, any part of any increased
cost paid by such Bank is subsequently recovered by the
Bank, such Bank shall reimburse such Borrower to the
extent of the amount so recovered. A certificate of an
officer of such Bank setting forth the amount of such
recovery and the basis thereof (or such other
communication as shall be consistent with the policy of
such Bank) shall, in the absence of manifest error, be
conclusive.
Section 2.14. Use of Proceeds. Each Borrower
will use the proceeds of the Loans solely to enable
such Borrower to finance temporarily, until sale and
settlement of the sale of portfolio securities by such
Borrower, the repurchase or redemption of Shares of
such Borrower either (i) at the request of the holders
of such Shares or (ii) in the case of a Borrower whose
Shareholders do not have the right to require such
Borrower to repurchase or redeem their Shares for
retirement of such Shares, at the election of such
Borrower, in each case for prompt delivery, and solely
if such Loan is to be repaid by such Borrower in the
ordinary course of such Borrower's business upon
completion of the transaction, in compliance with
Regulation U (12 CFR Part 221) of the Board, and each
such Loan to a Borrower shall constitute an "Exempted
Transaction" as described in section 221.6(f) of such
Regulation U or shall otherwise constitute an "Exempted
Transaction" under, or shall not constitute a "purpose
credit" for purposes of, such Regulation U, provided
that any Exempted Borrower may also use the proceeds of
the Loans for working capital purposes of such Exempted
Borrower so long as such use of proceeds does not cause
such Loans to violate the provisions of Regulation U.
Without limiting the foregoing, no Borrower will,
directly or indirectly, use any part of such proceeds
for any purpose which would violate any provision of
any applicable statute, regulation, order or
restriction.
<PAGE> Section 2.15. Borrower Agents. Each
Borrower hereby appoints each person who shall now or
hereafter serve as an Authorized Officer of such
Borrower to act as its agent hereunder (individually, a
"Borrower Agent" and collectively, the "Borrower
Agents") with such powers as are specifically delegated
to the Borrower Agents by the terms of this Agreement,
together with such other powers as are reasonably
incidental thereto. The Borrowers shall cause the
Borrower Agents, on behalf of the Borrowers for whom
they serve as agent: (i) to prepare and submit
Borrowing Requests to the Agent in compliance with the
terms hereof; (ii) to notify the Agent pursuant to
Section 2.02 of the termination, at the request of the
Borrowers, of this Agreement and the Commitments; and
(iii) upon the admission of any new Borrower pursuant
to Article X, the withdrawal of a Borrower pursuant to
Section 2.02(b) or at such other times as the Borrowers
shall deem it appropriate, promptly to reallocate the
percentages of the Commitment Fee and other fees and
expenses payable by each Borrower hereunder among the
Borrowers entitled to borrow hereunder, after giving
effect to such admission or withdrawal, as the case may
be, if any, and notify the Agent in a writing signed by
one or more Borrower Agents on behalf of each Borrower
(with copies to each Bank) of the new percentages, at
which time Exhibit A shall be revised to reflect the
adjustment in such percentages and the admission or
withdrawal, as the case may be, of such Borrower, if
any.
Section 2.16. Take-out of Individual Banks. Upon
the occurrence of an event set forth in Section
2.04(e), or upon the assertion of a claim for
additional fees and expenses under Sections 2.12 or
2.13 by any Bank, the Borrowers may (so long as no
Event of Default, or event which with notice or the
passage of time or both would constitute an Event of
Default, exists or would result after giving effect to
the Borrowers' action under this Section 2.16) prepay
in full all Loans and other obligations owed the
individual Bank or Banks with respect to which the
Borrowers are exercising their rights hereunder
(including, without limitation, any amounts owed to
such Bank or Banks under Sections 2.12 and 2.13), and
terminate the Commitment(s) of such Bank(s), in each
case after appropriate notice as required by Sections
2.02 (a) and 2.06, and subject to all other provisions
of this Agreement. Except as provided hereinbelow,
such action shall reduce the Maximum Commitment Amount
by the relevant amount and shall result in an automatic
corresponding change in the remaining Banks' Commitment
Percentages so that they total one hundred percent
(100%). Notwithstanding the foregoing, in the event
that the Borrowers are able to reach agreement with a
substitute commercial bank(s) to simultaneously accept
the Commitment(s) being terminated pursuant to this
Section 2.16, and to thereby become a Bank hereunder,
the Maximum Commitment Amount shall not be reduced and
the Commitment Percentages shall remain unchanged,
other than to effect the change to the substitute
<PAGE>Bank(s). The substitute commercial bank(s) shall
become a Bank hereunder upon the effective date of such
substitution, at which time the Agent shall revise
Exhibit F to reflect the necessary changes. The Agent
shall forward a copy of the revised Exhibit F to each
Bank and the Borrowers.
Section 2.17. Sharing of Payments: Etc. If any
Bank shall obtain any payment on account of the Loans
(whether voluntary, involuntary, through the exercise
of any right of setoff, or otherwise) in excess of its
ratable share (according to the then outstanding
principal amount of the Loans) of payments on account
of the Loans obtained by all Banks (other than as a
result of payments made pursuant to Section 2.04(c),
2.07(c), 2.11, 2.12 and 2.13 hereof), such Bank shall
purchase from the other Banks such participations in
the Loans held by them as shall cause such purchasing
Bank to share such payment ratably according to the
then outstanding principal amount of the Loans with
each of them; provided that if all or any portion of
such payment is thereafter recovered from such
purchasing Bank, the purchase shall be rescinded and
the purchase price restored to the extent of such
recovery, but without interest. Each Borrower agrees
that any Bank so purchasing a participation in the
Borrower's Loans from another Bank pursuant to this
Section 2.17 may, to the fullest extent permitted by
law, exercise all its rights of payment with respect to
such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such
participation.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks and the Agent to
enter into this Agreement and to make the Loans
provided for hereunder, each of the Borrowers,
severally and not jointly, makes the following
representations and warranties with respect to such
Borrower, which shall survive the execution and
delivery hereof:
Section 3.01. Organization, Standing, Etc. of the
Borrower. Exhibit A accurately and completely lists the
full legal name of the Borrower, its principal business
address, the nature of its organization and the
jurisdiction of its organization. The Borrower is
legally organized as specified on Exhibit A, duly
organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and
has all requisite power and authority to own and
operate its properties and assets, to carry on its
business as now conducted and proposed to be conducted,
to enter into this Agreement and all other documents to
be executed by it in connection with the transactions
contemplated hereby and to carry out the terms hereof
and thereof.
<PAGE> Section 3.02. Financial Information:
Disclosure: Etc. The statement of assets and
liabilities of the Borrower as of the Borrower's most
recently ended fiscal year for which annual reports
have been prepared and the related statements of
operations and of changes in net assets for the fiscal
year ended on such date, copies of which financial
statements, certified by the independent public
accountants for the Borrower, have heretofore been
delivered to the Agent and each Bank, fairly present,
in all material respects, the financial position of the
Borrower as of such date and the results of its
operations for such period, in conformity with GAAP.
Neither this Agreement nor any financial statements,
reports or other documents or certificates furnished to
the Banks and the Agent by the Borrower in connection
with the transactions contemplated hereby or thereby
contain any untrue statement of a material fact or omit
to state any material fact necessary to make the
statements herein or therein contained not misleading.
None of the Loans will render the Borrower unable to
pay its debts as they become due; the Borrower is not
contemplating either the filing of a petition by it
under any state or federal bankruptcy or insolvency
laws or the liquidation of all or a major portion of
its property except in the ordinary course of such
Borrower's business; and the Borrower has no knowledge
of any person contemplating the filing of any such
petition against it.
Section 3.03. Litigation: Etc. There is no
action, proceeding or investigation pending or
threatened (or any basis there for known to the
Borrower) which questions the validity of this
Agreement or the other documents executed in connection
herewith, or any action taken or to be taken pursuant
hereto, or in which there is a reasonable possibility
of an adverse decision and which could, either in any
case or in the aggregate, adversely affect the ability
of the Borrower to perform its obligations hereunder or
thereunder.
Section 3.04. Authorization: Compliance with
Other Instruments. The execution, delivery and
performance of this Agreement and the other Loan
Documents have been duly authorized by all necessary
action on the part of the Borrower, will not result in
any violation of or be in conflict with or constitute a
default under any term of the Prospectus or the
Registration Statement, as applicable, of the Borrower
or of its charter, articles of association, declaration
of trust or bylaws of the Borrower, or of any
investment, borrowing or other similar type of policy
or restriction to which the Borrower is subject or of
any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to
the Borrower, or result in the creation of any
mortgage, lien, charge or encumbrance upon any of the
properties or assets of the Borrower pursuant to any
such term. The Borrower is not in material violation
of any material term of its Prospectus or the
Registration Statement, as applicable, <PAGE>of the
Borrower or of its charter, articles of association,
declaration of trust or bylaws, or of any investment,
borrowing or other similar type of policy or
restriction to which the Borrower is subject or of any
material term of any material agreement or instrument
to which it is a party, or, to the best of the
Borrower's knowledge, of any judgment, decree, order,
statute, rule or governmental regulation applicable to
it.
Section 3.05. SEC Compliance; Etc. Without
limiting the scope of Section 3.04, the Borrower is in
compliance in all material respects with all federal
and state securities or similar laws and regulations,
including all material rules, regulations and
administrative orders of the SEC and applicable state
blue sky authorities. To the best of its knowledge,
the Borrower is not in material violation of any of the
provisions of the Investment Company Act and the
Borrower has filed all reports with the SEC that are
required of it.
Section 3.06. Governmental Consent. Except for
routine filings required under federal and state
securities laws, the Borrower is not required to obtain
any order, consent, approval or authorization of, or
required to make any declaration or filing with, any
governmental authority in connection with the execution
and delivery of this Agreement.
Section 3.07. Regulation U; Etc. None of the
proceeds of any Loan will be used, directly or
indirectly, by the Borrower for any purpose which might
cause this Agreement to violate Regulation U (12 CFR
Part 221), Regulation T, Regulation X, or any other
regulation of the Board or the Securities Exchange Act
of 1934. If requested by any Bank, the Borrower will
promptly furnish such the Bank with a statement in
conformity with the requirements of Federal Reserve
Form F.R. U-1 referred to in said Regulation U.
Section 3.08. Relationship with MFS. MFS or an
Affiliate of MFS serves as either the Investment
Adviser, Shareholder Servicing Agent, Administrator or
Distributor for the Borrower.
Section 3.09. Investment Company Status. The
Borrower is an Investment Company or a series of an
Investment Company duly and validly registered as such
under the Investment Company Act.
Section 3.10. Affiliated Persons. To the best of
the Borrower's knowledge, such Borrower is not an
"Affiliated Person" (as defined in the Investment
Company Act) of the Agent or any Bank
<PAGE>ARTICLE IV. CONDITIONS PRECEDENT
Section 4.01. Conditions to Closing. At the time
this Agreement is duly executed and delivered by the
Borrowers:
(a) Each of the Loan Documents shall be in form
and substance satisfactory to the Agent and each Bank,
shall have been duly and properly authorized, executed
and delivered by the respective party or parties
thereto, and shall be in full force and effect on the
date hereof. Executed original counterparts of each of
the Loan Documents shall have been furnished to the
Agent and each Bank.
(b) The Agent and each Bank shall have received
from each of the Borrowers certified copies of its
Declaration of Trust and bylaws, and copies of its most
recent Prospectus and Statement of Additional
Information.
(c) The Agent and each Bank shall have received
from each of the Borrowers certified copies of all
documents relating to its due authorization and
execution of the Loan Documents as the Agent and the
Banks may reasonably request, including, without
limitation, all resolutions of its Board of Trustees
authorizing (i) its execution and delivery of each of
the Loan Documents to which it is or is to become a
party, (ii) its performance of all of its agreements
and obligations under each of such documents, and (iii)
the borrowings and other transactions contemplated by
this Agreement.
(d) The Agent and each Bank shall have received
from each of the Borrowers a certificate, dated the
date hereof, signed by the Secretary or Assistant
Secretary of such Borrower (an "Officer's
Certificate"), setting forth the name and bearing a
specimen signature of each individual who shall be
authorized to (i) sign, in the name and on behalf of
such Borrower, each of the Loan Documents to which it
is a party, and (ii) give notices and to take other
action on behalf of such Borrower in connection with
the transactions contemplated by this Agreement.
(e) Each Bank shall have received from each of
the Borrowers a duly completed and executed Federal
Reserve Form F.R.
U-1.
(f) The Agent and each Bank shall have received
from each of the Borrowers the favorable opinion of
Stephen E. Cavan, Esquire, General Counsel for MFS,
dated as of such date and in form and substance
satisfactory to the Agent and each Bank and their
respective counsel.
(g) Each Borrower shall have performed and
complied in all material respects with all terms and
conditions herein <PAGE>required to be performed or
complied with by it on or prior to the date hereof, and
the consummation of the transactions on the date hereof
shall not result in an Event of Default or an event
which, with notice or the passage of time, or both,
would constitute an Event of Default.
(h) The Agent and each Bank shall have received
from each Borrower a certificate dated as of the date
of this Agreement, in form and substance satisfactory
to the Agent and the Banks, in which such Borrower
shall represent and warrant to the Agent and the Banks
all of the matters set forth in Article III hereof, and
shall represent and warrant to the Agent and the Banks
that the conditions precedent set forth in paragraph
(g) of this Section 4.01 are satisfied at and as of the
date of this Agreement.
(i) The Agent and each Bank shall have received
all other information and documents which the Agent and
the Banks or their respective counsel may reasonably
have requested in connection with the transactions
contemplated by this Agreement, such information and
documents where appropriate to be certified by the
proper officers of each Borrower or governmental
authorities.
Section 4.02. Conditions Precedent to All Loans.
The obligation of the Banks to make any Loan hereunder
to a Borrower is subject to the following conditions:
(a) The Agent shall have received a Borrowing
Request from such Borrower as required by Section 2.04
(a) hereof;
(b) The representations and warranties of such
Borrower contained in Article III of this Agreement
shall be true on and as of such date as if they had
been made on such date (except to the extent that such
representations and warranties expressly relate to an
earlier date or are affected by the consummation of
transactions permitted under this Agreement);
(c) Such Borrower shall be in compliance in all
material respects with all of the terms and provisions
set forth herein on its part to be observed or
performed on or prior to such date;
(d) After giving effect to the Loans to be made
on such date to such Borrower, no Event of Default with
respect to such Borrower, nor any event which with the
giving of notice or expiration of any applicable grace
period or both would constitute such an Event of
Default with respect to such Borrower, shall have
occurred and be continuing. Each Borrowing Request
hereunder shall constitute a representation and
warranty to the Agent and the Banks by each Borrower
requesting a Loan that all of the conditions specified
in this <PAGE>Section 4.02 have been satisfied in all
material respects by such Borrower as of the date of
each such Loan; and
(e) The making of the Loan shall not contravene
any law, regulation, decree or order binding on such
Borrower, the Agent or the Banks.
ARTICLE V. AFFIRMATIVE COVENANTS
So long as the Commitments shall be in effect with
respect to a Borrower, and until the principal of and
interest on the Loans to such Borrower and all fees due
hereunder from such Borrower shall have been paid in
full, such Borrower agrees that:
Section 5.01. Financial Statements: Etc. Such
Borrower will furnish or cause to be furnished to the
Agent and each Bank:
(a) As soon as available and in any event within
90 days after the end of each fiscal year of such
Borrower, a statement of assets and liabilities of such
Borrower as at the end of such 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 at
the end of such fiscal year and the per share and other
data for such fiscal year prepared in accordance with
regulatory requirements, and all reported on in a
manner acceptable to the SEC by Touche Ross & Co. or
other independent certified public accountants of
recognized standing;
(b) As soon as available and in any event within
75 days after the close of the first six-month period
of each fiscal year of such Borrower, a statement of
assets and liabilities as at the end of such six-month
period, a statement of operations for such six-month
period, a statement of changes in net assets for such
six-month period and a portfolio of investments as at
the end of such six-month period, all prepared in
accordance with regulatory requirements and all
certified (subject to normal year end adjustments) as
to fairness of presentation, GAAP and consistency by
the President, Treasurer or Assistant Treasurer of such
Borrower. Such financial statements shall in each
instance also be accompanied by a statement signed by
such officer to the effect that he(she) has no
knowledge of any existing event or condition which
constitutes, or with notice or lapse of time or both
would constitute, an Event of Default with respect to
such Borrower, or if he(she) has such knowledge,
specifying such event or condition and its period of
existence and what action such Borrower has taken or
proposes to take with respect thereto;
<PAGE> (c) Such Borrower's annual report to
shareholders, Prospectus or current Registration
Statement, as applicable, of such Borrower, in the case
of a Prospectus, when given to such Borrower's
Shareholders or, in the case of a Registration
Statement, when filed with the SEC following the date
hereof; and
(d) At the time of any request for a Loan
hereunder, a Borrowing Request setting forth, among
other things, the value of such Borrower's portfolio
securities and the value of such Borrower's Net Assets
as of the close of business on the previous business
day of such Borrower, and as soon as available and in
any event not later than 2:00 p.m. on each Banking Day
thereafter when any Loans are outstanding to such
Borrower, a report in the form of Exhibit C hereof
setting forth the value of such Borrower's portfolio
securities and the value of such Borrower's Net Assets
as of the close of business on the previous business
day of such Borrower.
Such Borrower will also furnish or cause to be
furnished to the Agent and each Bank such other
information regarding the business, affairs and
condition of such Borrower as the Agent and the Banks
may from time to time reasonably request, including,
without limitation, information with respect to any
lending or credit facilities of such Borrower (other
than Financial Contracts). Such Borrower will permit
the Agent and any Bank to inspect the books and any of
the properties or assets of such Borrower at such
reasonable times as the Agent or such Bank may from
time to time request. The Agent and the Banks agree to
provide to each Borrower's independent public
accountants such verifications of the Commitments, the
Loans and related matters as the accountants shall
reasonably request in connection with the audit of such
Borrower.
Section 5.02. Legal Existence; Compliance with
Laws; Etc. Such Borrower will maintain its legal
existence and business, provided, however, that nothing
contained in this Section 5.02 shall prohibit the
merger or consolidation of any Borrower with or into
another Person, subject to the provisions of Section
11.02 hereof, and provided that the surviving entity
assumes all of the obligations of such Borrower under
this Agreement, including, without limitation, the
obligations of such Borrower with respect to any Loans
outstanding to such Borrower at the time of such merger
or consolidation; maintain all properties which are
reasonably necessary for the conduct of such business,
now or hereafter owned, in good repair, working order
and condition; take all actions necessary to maintain
and keep in full force and effect its rights and
franchises; and, except as otherwise provided herein,
comply in all material respects with all applicable
statutes, rules, regulations and orders of, and all
applicable restrictions imposed by, all governmental
authorities in respect of the conduct of its business
and the ownership of its properties; <PAGE>provided
that such Borrower shall not be required by reason of
this section to comply therewith at any time while such
Borrower shall be contesting its obligations to do so
in good faith by appropriate proceedings promptly
initiated and diligently conducted, and if it shall
have set aside on its books such reserves, if any, with
respect thereto as are required by GAAP and deemed
adequate by such Borrower and its independent public
accountants.
Section 5.03. Further Assurances. From time to
time hereafter, such Borrower will execute and deliver,
or will cause to be executed and delivered, such
additional instruments, certificates or documents, and
will take all such actions, as the Agent and/or the
Majority Banks may reasonably request, for the purposes
of implementing or effectuating the provisions of this
Agreement. Upon the exercise by the Agent or any Bank
of any power, right, privilege or remedy pursuant to
this Agreement which requires any consent, approval,
registration, qualification or authorization of any
governmental authority or instrumentality, such
Borrower will execute and deliver, or will cause the
execution and delivery of, all applications,
certifications, instruments and other documents and
papers that the Agent or such Bank may be required to
obtain for such governmental consent, approval,
registration, qualification or authorization.
Section 5.04. Investment Company Status. Such
Borrower will maintain its status as an Investment
Company or a series of an Investment Company registered
under the Investment Company Act.
Section 5.05. Use of Proceeds. Such Borrower
will use the proceeds of Loans only for the purposes
specified in Section 2.14.
ARTICLE VI. NEGATIVE COVENANTS
So long as the Commitments shall remain in effect
with respect to a Borrower, and until the principal of
and interest on the Loans to such Borrower and all fees
due hereunder from such Borrower shall have been paid
in full, such Borrower agrees that:
Section 6.01. Asset Coverage.
(a) Such Borrower will not borrow amounts in
excess of the lowest of (i) the percentage of the
Borrower's net assets or total assets, as the case may
be, constituting the borrowing limit, either as set
forth in such Borrower's Prospectus and Statement of
Additional Information or Registration Statement on
Form N-2, as applicable, each as amended from time to
time, or as may be set forth in a vote adopted by the
shareholders of <PAGE>such Borrower, (ii) the amount
permitted to be borrowed by such Borrower under the
Investment Company Act, and (iii) the percentage of the
Borrower's net assets or total assets, as the case may
be, specified as the borrowing limit for such Borrower
in any agreement binding upon such Borrower or its
assets with any foreign, federal, state, or local
securities division to which the Borrower is subject.
(b) The aggregate Indebtedness of such Borrower
in respect of Loans shall at no time exceed 25% of such
Borrower's Net Assets.
The lesser of the amounts determined with respect
to a Borrower pursuant to paragraphs (a) and (b) of
this Section 6.01 is sometimes referred to herein as
such Borrower's Borrowing Base.
Section 6.02. Mortgages; Liens; Etc. Such
Borrower will not, directly or indirectly, create,
incur, assume or suffer to exist, any mortgage, lien,
charge or encumbrance on, or security interest in, or
pledge of, or conditional sale or other title retention
agreement on any of the securities or other assets
owned by the Borrower except:
(a) Any lien arising in the ordinary course of
such Borrower's business out of or in connection with
Financial Contracts;
(b) Liens for taxes not yet delinquent or being
contested in good faith; liens securing reimbursement
obligations in respect of a Letter of Credit issued or
to be issued or renewed for the benefit of ICI Mutual
Insurance Company; liens in connection with workmen's
compensation, unemployment insurance or other social
security obligations; liens securing the performance of
bids, tenders, contracts, surety and appeal bonds,
liens to secure progress or partial payments and other
liens of like nature arising in the ordinary course of
business; mechanics', workmen's, materialmen's or other
like liens arising in the ordinary course of business
in respect of obligations which are not yet due or
which are being contested in good faith; and other
liens or encumbrances incidental to the conduct of the
business of such Borrower or to the ownership of its
properties or assets, which were not incurred in
connection with the borrowing of money or the obtaining
of credit and which do not materially detract from the
value of the properties or assets of such Borrower or
materially affect the use thereof in the operation of
its business;
(c) Judgment liens in the aggregate at any time
outstanding for an amount not in excess of 5% of such
Borrower's gross assets (exclusive of amounts covered
by available insurance), provided each such lien is
discharged or the execution thereof is stayed pending
appeal within 60 days after the attachment of such lien
or such lien is discharged within 60 days after the
expiration of any such stay;
(d) In the case of a Borrower which is a closed-
end Investment Company, any lien arising in the
ordinary course of such Borrower's business out of or
in connection with short sales transactions; and
(e) Any lien granted to the custodian of such
Borrower's securities pursuant to the custodianship
agreement between the custodian and such Borrower
solely as security for such Borrower's obligations to
the custodian under such agreement, as in effect from
time to time.
ARTICLE VII. DEFAULTS; REMEDIES
Section 7.01. Events of Default; Acceleration.
If any of the following events (each an "Event of
Default") shall occur with respect to any Borrower:
(a) Such Borrower (i) shall default in the
payment of principal of or interest on any Loan after
the same becomes due and payable, whether at maturity
or by acceleration or otherwise, or (ii) shall default
in the payment of any other amount or fee due hereunder
for more than five (5) days after the same becomes due
and payable; or
(b) Such Borrower shall default in the
performance of or compliance with any term contained in
Section 6.01 (a) and such default shall have continued
for more than three (3) days (not including Sundays and
holidays), or such Borrower shall default in the
performance of or compliance with any term contained in
Sections 6.01(b) or 6.02; or
(c) Such Borrower shall default in the
performance of or compliance with any term contained
herein other than those referred to above in this
Section 7.01, and such default shall not have been
remedied within 10 days after written notice thereof
shall have been given to such Borrower by the Agent; or
(d) Such Borrower shall default in the
performance of, or compliance with, any material term
contained in any other written agreement with the Agent
or any Bank pertaining to this Agreement or such
Borrower's Loans, and such default shall continue for
more than the period of grace, if any, specified
therein and shall not have been waived pursuant
thereto; or
(e) Any written material representation or
warranty made by such Borrower herein or pursuant
hereto shall prove to have been false or incorrect in
any material respect; or
<PAGE> (f) Such Borrower shall default (other than
defaults or failures arising in the ordinary course of
business under Financial Contracts or, in the case of a
Borrower which is a closed-end Investment Company,
short sales transactions) in any payment due on
Indebtedness in respect of borrowed money or the
deferred purchase price of property, the aggregate
outstanding principal amount of which is in excess of
5% of such Borrower's gross assets, and such default
shall continue for more than the period of grace, if
any, applicable thereto and shall not have been waived
pursuant thereto and shall permit the holder of such
Indebtedness to declare such Indebtedness due and
payable before its stated maturity, or in the
performance of or compliance with any term of any
evidence of such Indebtedness or of any mortgage,
indenture or other agreement relating thereto, and any
such default shall continue for more than the period of
grace, if any, specified therein and shall not have
been waived pursuant thereto and shall permit the
holder of such Indebtedness to declare such
Indebtedness due and payable before its stated
maturity, unless such Borrower shall be contesting such
payment or obligation in good faith by appropriate
proceedings promptly initiated and diligently conducted
and such Borrower shall have set aside on its books
such reserves, if any, with respect thereto as are
required by GAAP and deemed appropriate by such
Borrower and its independent public accountants,
provided, no Event of Default pursuant to clauses (b)
or (i) of this Section 7.01 shall have occurred and be
continuing as a result of such claim having been
asserted in respect of such Indebtedness; or
(g) Such Borrower shall discontinue its business
(other than in connection with a merger or
consolidation of such Borrower) or shall make an
assignment for the benefit of creditors, or shall fail
generally to pay its debts as such debts become due, or
shall apply for or consent to the appointment of or
taking possession by a trustee, receiver or liquidator
(or other similar official) of the Borrower or any
substantial part of the property or assets of the
Borrower or shall commence a case or have an order for
relief entered against it under the federal bankruptcy
laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or
other similar law, or if any action shall be taken to
dissolve or liquidate the Borrower (other than in
connection with a merger or consolidation of such
Borrower); or
(h) If, within 90 days after the commencement
against such Borrower of a case under the federal
bankruptcy laws, as now or hereafter constituted, or
any other applicable federal or state bankruptcy,
insolvency or other similar law, such case shall have
been consented to or shall not have been dismissed or
all orders or proceedings thereunder affecting the
operations or the business of the Borrower stayed, or
if the stay of any such order or proceeding shall
thereafter be set <PAGE>aside, or if within 60 days
after the entry of a decree appointing a trustee,
receiver or liquidator (or other similar official) of
such Borrower or any substantial part of the property
of such Borrower such appointment shall not have been
vacated; or
(i) A final judgment which, with other
outstanding final judgments against such Borrower,
exceeds an amount in the aggregate equal to 5% of such
Borrower's gross assets (exclusive of amounts covered
by available insurance) shall be rendered against the
Borrower and if, within 60 days after entry thereof,
such judgment shall not have been discharged or
execution thereof stayed pending appeal, or if, within
60 days after the expiration of any such stay, such
judgment shall not have been discharged;
then, and in any such event, and at any time
thereafter, if any Event of Default shall then be
continuing with respect to such Borrower, either or
both of the following actions may be taken. The Agent
may, and upon the written or telephonic (confirmed in
writing) request of the Majority Banks shall, by
written notice to such Borrower, (i) declare the
principal of and accrued interest in respect of such
Borrower's Loans to be forthwith due and payable,
whereupon the principal of and accrued interest in
respect of such Loans shall become forthwith due and
payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly
waived by such Borrower, and/or (ii) terminate the
Commitments as to such Borrower, whereupon the
Commitments of the Banks to make Loans hereunder to
such Borrower shall forthwith terminate without any
other notice of any kind and the percentages of the
Commitment Fee and other fees and expenses otherwise
payable by such Borrower hereunder accruing from and
after the date of termination shall be reallocated
among the remaining Borrowers pro rata on the basis of
the percentages set forth opposite such remaining
Borrowers' names on Exhibit A, as in effect at the time
of such termination.
Section 7.02. Remedies on Default; Etc. In case
any one or more Events of Default shall occur and be
continuing with respect to a Borrower, the Agent and
each Bank (acting in accordance with the determination
of the Majority Banks) may proceed to protect and
enforce their respective rights by an action at law,
suit in equity or other appropriate proceeding, whether
for the specific performance of any agreement contained
herein, or for an injunction against a violation of any
of the terms hereof, or in aid of the exercise of any
power granted hereby or by law. In case of a default
by a Borrower in the payment of any principal of or
interest on any Loan, or in the payment of any fee due
hereunder, such Borrower will pay to the Agent and the
Banks such further amount as shall be sufficient to
cover the cost and expense of collection, including,
without limitation, reasonable attorneys' fees,
expenses and <PAGE>disbursements. No course of dealing
and no delay on the part of the Agent or any Bank in
exercising any right shall operate as a waiver thereof
or otherwise prejudice the Agent's or such Bank's
rights. No right conferred hereby upon the Agent or
any Bank shall be exclusive of any other right referred
to herein or now or hereafter available at law, in
equity, by statute or otherwise.
ARTICLE VIII. SETOFFS; ETC.
Each Borrower hereby agrees that upon the
occurrence of an Event of Default hereunder with
respect to such Borrower, such Event of Default not
having been previously remedied or cured, any
Indebtedness from the Agent or any Bank to such
Borrower may be offset and applied toward the payment
of any Indebtedness from such Borrower to the Agent or
such Bank, whether or not such Indebtedness, or any
part thereof shall then be due.
ARTICLE IX. THE AGENT AND RELATIONS AMONG THE BANKS
Section 9.01. Appointment of Agent; Powers and
Immunities. Each Bank hereby irrevocably appoints and
authorizes the Agent to act as its agent hereunder with
such powers as are expressly delegated to the Agent by
the terms of this Agreement, together with such other
powers as are reasonably incidental thereto. The Agent
shall not have any duties or responsibilities or any
fiduciary relationship with any Bank except those
expressly set forth in this Agreement. Neither the
Agent nor any of its Affiliates shall be responsible to
the Banks for any recitals, statements, representations
or warranties made by any Borrower or any other Person
whether contained in this Agreement or otherwise or for
the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any
other document referred to or provided for herein or
for any failure by any Borrower or any other Person to
perform its obligations hereunder or thereunder. The
Agent may employ agents and attorneys-in-fact selected
by it with reasonable care. Neither the Agent nor any
of its directors, officers, employees or agents shall
be responsible for any action taken or omitted to be
taken by it or them hereunder or in connection
herewith, except for its or their own gross negligence
or willful misconduct. The Agent in its separate
capacity as a Bank shall have the same rights and
powers hereunder as any other Bank.
Section 9.02. Reliance by Agent. The Agent shall
be entitled to rely upon any certificate, notice or
other document (including any cable, telegram or telex)
believed by it to be genuine and correct and to have
been signed or sent by or on behalf of the proper
Person or Persons, and upon advice and <PAGE>statements
of legal advisers, independent accountants and other
experts selected by the Agent. As to any matters not
expressly provided for in this Agreement or in any
other document referred to herein, the Agent shall in
all cases be fully protected in acting, or in
refraining from acting, in accordance with the written
instructions of the Majority Banks, and such
instructions of the Majority Banks and any action taken
or failure to act pursuant thereto shall be binding on
all of the Banks.
Section 9.03. Indemnification. Without limiting
the obligations of the Borrowers under Section 2.11
hereof, the Banks agree to indemnify the Agent, ratably
in accordance with their Commitment Percentages, for
any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever which
may at any time (including, without limitation, at any
time following the termination of the Commitments) be
imposed on, incurred by or asserted against the Agent
in any way relating to or arising out of this Agreement
or any documents contemplated by or referred to herein
or therein or the transactions contemplated hereby or
thereby or the enforcement of any of the terms hereof
or thereof or of any such other documents, provided
that no Bank shall be liable for any of the foregoing
to the extent they arise from the Agent's gross
negligence or willful misconduct.
Section 9.04. Documents. Without in any way
limiting the obligation of the Borrowers to provide
documents directly to each Bank hereunder, the Agent
will forward to each Bank, promptly after the Agent's
receipt thereof, a copy of each document furnished to
the Agent for such Bank hereunder.
Section 9.05. Non-Reliance on Agent and Other
Banks. Each Bank represents that it has, independently
and without reliance on the Agent or any other Bank,
and based upon such documents and information as it has
deemed appropriate, made its own appraisal of the
financial condition and affairs of the Borrowers and
decision to enter into this Agreement and agrees that
it will, independently and without reliance upon the
Agent or any other Bank, and based upon such documents
and information as it shall deem appropriate at the
time, continue to make its own appraisals and decisions
in taking or not taking action under this Agreement.
The Agent shall not be required to keep informed as to
the performance or observance by any Borrower of this
Agreement or any other document referred to or provided
for herein or to make inquiry of, or to inspect the
properties or books of any Person. Except for notices,
reports and other documents and information expressly
required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or
other information concerning any Person which may come
into the possession of the Agent or any <PAGE>of its
Affiliates. Each Bank shall have access to all
documents relating to the Agent's performance of its
duties hereunder, at such Bank's request. Unless any
Bank shall promptly object to any action taken by the
Agent hereunder, such Bank shall conclusively be
presumed to have approved the same.
Section 9.06. Resignation or Removal of Agent.
The Agent may resign at any time by giving sixty (60)
days' prior written notice thereof to the Banks and the
Borrowers. Upon any such resignation, the Majority
Banks shall have the right to appoint a successor Agent
with the approval of the Borrowers (which approval
shall not be unreasonably withheld). If no successor
Agent shall have been so appointed by the Majority
Banks and shall have accepted such appointment within
thirty (30) days after the retiring Agent's giving of
notice of resignation, then the Borrowers may appoint a
successor Agent, which shall be a commercial banking
institution organized under the laws of the United
States of America or any state thereof, and having a
combined capital and surplus of at least $100,000,000.
Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder.
After any retiring Agent's resignation, the provisions
of this Article IX shall continue in effect for its
benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent. In the
event of a material breach of its duties hereunder, the
Agent may be removed by the Majority Banks for cause
and the provisions of this Section 9.06 shall apply to
the appointment of a successor.
ARTICLE X. ADDITIONAL BORROWERS
Other Investment Companies (or series of
Investment Companies), in addition to those Borrowers
listed on Exhibit A, may, with the written approval of
the Agent and the Banks (which shall not be
unreasonably withheld), become parties to this
Agreement and be deemed Borrowers for all purposes of
this Agreement by executing an instrument substantially
in the form of Exhibit D hereto (with such changes
therein as may be approved by the Agent and the Banks),
which instrument shall (i) have attached to it a copy
of this Agreement (as the same may have been amended)
with a revised Exhibit A reflecting the participation
of such additional Investment Company (or series of an
Investment Company) and any prior revisions to Exhibit
A effected in accordance with the terms hereof and (ii)
be accompanied by the documents and instruments
required to be delivered by the Borrower pursuant to
Section 4.01 hereof, including, without limitation, an
opinion of in-house counsel <PAGE>for MFS, in the form
of Exhibit E, satisfactory to the Agent and the Banks
and their respective counsel.
No Investment Company (or series of an Investment
Company) shall be admitted as a party to this Agreement
as a Borrower unless at the time of such admission and
after giving effect thereto: (i) the representations
and warranties set forth in Article III hereof shall be
true and correct with respect to such Borrower; (ii)
such Borrower shall be in compliance in all material
respects with all of the terms and provisions set forth
herein on its part to be observed or performed at the
time of the admission and after giving effect thereto;
and (iii) no Event of Default with respect to such
Borrower, nor any event which with the giving of notice
or expiration of any applicable grace period or both
would constitute such an Event of Default with respect
to such Borrower, shall have occurred and be
continuing.
ARTICLE XI. TERM AND TERMINATION
Section 11.01. Term and Termination of Agreement.
This Agreement and the Commitments shall continue for
an initial term of 364 days from the date of this
Agreement, unless terminated earlier in accordance with
Sections 2.02, 7.01 or 11.03 hereof, and may, at the
discretion of the Banks, be renewed for successive
terms of 364 days as hereinafter provided. The Agent,
on behalf of the Banks, shall notify the Borrower
Agents in writing not less than 60 days prior to the
expiration of any such term (an "Expiration Date") if
the Banks are willing to renew the Commitments
hereunder (a "Renewal Notice"), in which event this
Agreement and the Commitments shall continue for an
additional term of 364 days measured from the date of
such Renewal Notice, unless terminated earlier in
accordance with Sections 2.02, 7.01 or 11.03. If the
Agent does not furnish a Renewal Notice to the Borrower
Agents at least 60 days prior to any Expiration Date as
aforesaid, the Commitments and the Banks' obligations
to make Loans hereunder shall terminate on such
Expiration Date and this Agreement shall terminate and
be of no further force and effect except for (i) the
obligations of the Borrowers to pay any and all of
their obligations incurred hereunder or in respect
hereof (including the payment of the entire unpaid
principal of and accrued interest on the Loans and the
payment in full of all fees and expenses provided for
herein), and (ii) the rights of the Borrowers pursuant
to Section 2.13 hereof to be reimbursed costs, if any,
recovered by the Banks.
Section 11.02. Termination as to a Borrower.
Each Borrower shall cause a Borrower Agent for such
Borrower to give the Agent not less than thirty (30)
days' prior written notice (with copies to each Bank)
of the occurrence of any of the following events which
notice shall specify the nature of the <PAGE>event in
question unless no Borrower Agent for such Borrower
shall have known more than thirty (30) days in advance
that such event was to occur, in which case a Borrower
Agent for such Borrower shall give the Agent written
notice of such event (with copies to each Bank)
promptly after a Borrower Agent for such Borrower first
obtains knowledge of its occurrence:
(i) A change by such Borrower which results in
MFS or an Affiliate of MFS not being retained in at
least one of the following capacities: (A) Investment
Adviser; (B) Shareholder Servicing Agent; (C)
Distributor; or (D) Administrator;
(ii) A merger or consolidation of such Borrower if
the conditions specified in paragraphs (b) and (c) of
Section 4.02 hereof are not satisfied by the successor
entity immediately following such merger or
consolidation or if such merger or consolidation
results in a change or occurrence specified in clause
(i) above, provided, however, that in any event the non
surviving entity in such merger or consolidation shall
not continue to be a Borrower under or a party to this
Agreement following such merger or consolidation;
(iii) A merger or consolidation of such
Borrower if such merger or consolidation results in one
or more of the changes or occurrences specified in
clause (iv) below, provided, however, that in any event
the non-surviving entity in such merger or
consolidation shall not continue to be a Borrower under
or a party to this Agreement following such merger or
consolidation; and
(iv) The occurrence of any of the following:
(A) such Borrower, if an open-end Investment
Company, becoming a closed-end Investment
Company;
(B) such Borrower changing the independent public
accountants responsible for auditing the
books and records and certifying the
financial statements of such Borrower to a
Person other than Touche Ross & Co. or other
independent public accountants of recognized
standing; or
(C) a majority of the members of the Board of
Trustees of such Borrower resigning or being
removed within a period of thirty (30) days
and being replaced with Persons other than
Persons who are then or will be
contemporaneously therewith members of the
Board of Trustees of another Investment
Company of which MFS or an Affiliate of MFS
is serving in any one of the capacities
specified in Section 11.02(i);
<PAGE>and shall provide the Agent and each Bank with
such information as the Agent or the Banks may
reasonably request regarding the pending event. Any
notice furnished to the Agent pursuant to this Section
11.02 may, at the option of the Borrower furnishing
such notice, be accompanied by a request that the Agent
acknowledge in writing that the events specified in
such notice shall not constitute an event permitting
termination of the Commitments as hereinafter provided.
Upon the occurrence of any of the events specified
in clauses (i) or (ii) above with respect to a
Borrower, unless the Agent shall have acknowledged in
writing that such event shall not constitute an event
permitting termination of the Commitments as
hereinafter provided, the Agent may, and upon the
written or telephonic (confirmed in writing) request of
the Majority Banks shall, upon five (5) days' prior
written notice from the Agent to the Borrower Agents
terminate the Commitments with respect to such
Borrower. Upon the occurrence of any of the events
specified in clauses (iii) or (iv) above with respect
to a Borrower, unless the Agent shall have acknowledged
in writing that such event shall not constitute an
event permitting termination of the Commitments as
hereinafter provided, the Agent may, and upon the
written or telephonic (confirmed in writing) request of
the Majority Banks shall, upon five (5) days' prior
written notice from the Agent to the Borrower Agents
(but in no event following the later to occur of the
sixtieth day following the occurrence of the specified
event and ninety (90) days' following receipt by the
Agent of written notice of the occurrence of such
event) terminate the Commitments with respect to such
Borrower. In the event of any such termination of the
Commitments with respect to any Borrower as aforesaid,
the Banks' obligations to make Loans to such Borrower
hereunder shall terminate on the date specified in such
notice, such Borrower shall cease to be a party to this
Agreement and this Agreement shall be of no further
force and effect as to such Borrower except for (i) the
obligations of such Borrower to pay any and all of its
obligations incurred hereunder or in respect hereof
(including the payment of the entire unpaid principal
of and accrued interest on the Loans and the payment in
full of all fees and expenses provided for herein to be
paid by such Borrower), and (ii) the rights of such
Borrower pursuant to Section 2.13 to be reimbursed
costs, if any, recovered by the Banks, provided that
this Agreement shall otherwise remain in full force and
effect as to all other Borrowers, including the
Commitments. Upon the termination of this Agreement
with respect to such Borrower, the percentages of the
Commitment Fee and other fees and expenses otherwise
payable by such Borrower hereunder accruing from and
after the date of termination shall be reallocated
among the remaining Borrowers pro rata on the basis of
the percentages set forth opposite such remaining
Borrowers' names on Exhibit A, as in effect at the time
of such termination.
<PAGE> Section 11.03. Termination Due to Change in
Control. Each Borrower shall cause a Borrower Agent
for such Borrower to give the Agent not less than
thirty (30) days' prior written notice (with copies to
each Bank) of a change which results in Sun Life
Assurance Company of Canada ceasing to be the
beneficial owner, directly or indirectly through a
wholly-owned subsidiary, and ceasing to have the right
to direct the voting of shares of the capital stock of
MFS which in the aggregate entitle the holder thereof
to at least 51% of all votes entitled to be cast by
stockholders of MFS on all matters on which
stockholders of MFS have the right to vote, provided,
however, that if no Borrower Agent for a Borrower shall
have known more than thirty (30) days in advance that
such change was to occur, a Borrower Agent for such
Borrower shall instead give the Agent written notice of
such change (with copies to each Bank) promptly after a
Borrower Agent for such Borrower first obtains
knowledge of its occurrence. Any notice furnished to
the Agent pursuant to this Section 11.03 may, at the
option of the Borrowers, be accompanied by a request
that the Agent acknowledge in writing that the change
specified in such notice shall not constitute an event
permitting termination of the Commitments as
hereinafter provided.
Upon the occurrence of the change specified above,
unless the Agent shall have acknowledged in writing
that such change shall not constitute an event
permitting termination of the Commitments as
hereinafter provided, the Agent may, and upon the
written or telephonic (confirmed in writing) request of
the Majority Banks shall, upon five (5) days' prior
written notice from the Agent to the Borrower Agents
(but in no event following the later to occur of the
sixtieth day following the occurrence of such change
and ninety days following receipt by the Agent of
written notice of the occurrence of such change)
terminate the Commitments with respect to all the
Borrowers in which event the Commitments and the Banks'
obligations to make Loans hereunder shall terminate on
the date specified in such notice and this Agreement
shall terminate and be of no further force and effect
except for (i) the obligations of the Borrowers to pay
any and all of their obligations incurred hereunder or
in respect hereof (including the payment of the entire
unpaid principal of and accrued interest on the Loans
and the payment in full of all fees and expenses
provided for herein); and (ii) the rights of the
Borrowers pursuant to Section 2.13 to be reimbursed
costs, if any, recovered by the Banks.
ARTICLE XII. PROVISIONS OF GENERAL APPLICATION
Section 12.01. Expenses. Whether or not the
transactions contemplated hereby shall be consummated,
the Borrowers agree to pay, in proportion to the
percentages set forth opposite each Borrower's name on
Exhibit A, as revised <PAGE>from time to time, all
reasonable expenses (including reasonable fees and
disbursements of Kellogg & George, P.C., counsel for
the Agent) which the Agent has incurred or may
hereafter incur in connection with the preparation of
this Agreement and all other documents related hereto
(including any amendment, consent or waiver hereafter
requested by any Borrower hereunder or thereunder) and
the transactions contemplated hereby, and all
reasonable expenses (including reasonable fees and
disbursements of counsel) which the Agent and each Bank
may hereafter incur in connection with the enforcement
of the rights of the Agent or the Banks hereunder upon
the occurrence of an Event of Default or an event which
with notice or the passage of time would constitute an
Event of Default.
Section 12.02. Amendments and Waivers; Etc.
(a) Except as otherwise expressly set forth
herein, any term of this Agreement may be amended and
the observance of any term of this Agreement may be
waived (either generally or in a particular instance
and either retroactively or prospectively) only with
the written consent of each Borrower and the Majority
Banks; provided, however, that without the consent of
the Agent, no amendment to Article IX shall be
effected, and further provided that without the written
consent of such Banks as hold 100% of the aggregate
outstanding principal amount of all Loans or, if no
Loans are outstanding, of the Commitments (which
consent, in the case of clause (v) hereinbelow, shall
not be unreasonably withheld),
(i) no compromise of the principal amount of, or
change in the interest rate on, any Loan shall be made;
(ii) no change in the amount of Commitment Fees or
other fees or expenses payable hereunder shall be made;
(iii) no extension or postponement of the
stated time of payment of the principal amount of, or
interest on, any Loan, nor of any Commitment Fees or
other fees or expenses payable hereunder, shall be
made;
(iv) no increase in the amount, or extension of
the term, of the Commitments beyond that provided for
hereunder shall be made;
(v) no Investment Company (or series of an
Investment Company) other than the Borrowers shall be
admitted as a Borrower hereunder.
Any amendment or waiver effected in accordance
with this Section 12.02(a) shall be binding upon all
parties to this Agreement, their respective successors
and assigns.
<PAGE> (b) The Agent's or any Bank's failure to
insist upon the strict performance of any term,
condition or other provision of this Agreement or to
exercise any right or remedy hereunder shall not
constitute a waiver by the Agent or such Bank of any
such term, condition or other provision or default or
Event of Default in connection therewith; and any
waiver of any such term, condition or other provision
or of any such default or Event of Default shall not
affect or alter this Agreement, and each and every
term, condition and other provision of this Agreement
shall, in such event, continue in full force and effect
and shall be operative with respect to any other then
existing or subsequent default or Event of Default in
connection therewith.
Section 12.03. Nature of Obligations. The
obligations of all Borrowers shall be several and not
joint.
Section 12.04. Notices; Etc. Except as otherwise
provided herein with respect to Borrowing Requests or
otherwise, all notices and other communications
hereunder shall be in writing and shall be personally
delivered, sent by overnight delivery service or mailed
by first class mail, postage prepaid as follows:
(a) if to any Bank, at the address or addresses
set forth on Exhibit F hereto;
(b) if to the Borrower Agents, the Borrowers or
any
Borrower:
[Name of Borrower or Borrower Agent]
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
with copies to:
General Counsel
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
(c) if to the Agent:
The First National Bank of Boston
Financial Institutions
100 Federal Street, 01-15-01
Boston, Massachusetts 02110
Attention: Nancy E. Fuller, Director
<PAGE> with copies to:
Joel H. Peterson, Esquire
Kellogg & George, P.C.
20 William Street, Suite 150
Wellesley, MA 02181
or to such other address or addresses as the party to
whom such notice is directed may have designated in
writing to the other parties hereto. A notice shall be
deemed to have been given upon the earlier to occur of
(i) seven (7) Banking Days after the date on which it
is deposited in the U.S. mails or (ii) receipt by the
party to whom such notice is directed.
Section 12.05. Calculations; Etc. Except as
otherwise provided herein, calculations hereunder shall
be made and financial data required hereby shall be
prepared, both as to classification of items and as to
amounts, in accordance with GAAP which principles shall
be consistently applied and in conformity with those
used in the preparation of the financial statements
referred to herein.
Section 12.06. Survival of Covenants; Etc. All
covenants, agreements, representations and warranties
made herein or in any documents or other papers
delivered by or on behalf of the Borrowers, or any of
them, pursuant hereto shall be deemed to have been
relied upon by the Agent and the Banks, notwithstanding
any investigation heretofore or hereafter made by them,
and shall survive the execution and delivery of this
Agreement and the making by the Banks of the Loans as
herein contemplated, and shall continue in full force
and effect so long as any amount due under this
Agreement remains outstanding and unpaid or the Banks
have any obligations to make any Loans hereunder
(except to the extent that such representations and
warranties expressly relate to an earlier date or are
affected by the consummation of transactions permitted
under this Agreement) . All statements contained in
any certificate or document delivered to the Agent or
any Bank at any time by or on behalf of the Borrowers,
or any of them, pursuant hereto or in connection with
the transactions contemplated hereby shall constitute
representations and warranties by the Borrowers or such
Borrower hereunder.
Section 12.07. Parties in Interest; Assignments;
Participations.
(a) All of the terms of this Agreement shall be
binding upon and inure to the benefit of and be
enforceable by the respective successors and permitted
assigns of the parties hereto and thereto; provided
that none of the Borrowers may assign or transfer their
respective rights hereunder or any interest herein
without the prior written consent of the Banks.
<PAGE> (b) Any Bank may assign its interest in this
Agreement and the other Loan Documents, in part, with
the prior written consent of the Borrowers (which
consent will not be unreasonably withheld); provided
that each such assignment shall be in a minimum amount
of $20,000,000 and to a banking or other financial
institution having a combined capital and surplus of at
least $100,000,000; and further provided that each Bank
retains a minimum Commitment of at least $20,000,000.
All assignments shall be effected pursuant to an
assignment and consent agreement substantially in the
form of Exhibit G attached hereto. Upon the effective
date of any assignment by a Bank hereunder, the Agent
shall revise Exhibit F to reflect the necessary
adjustments in the Commitment Percentage of the
assigning Bank and the assignment to such banking or
other financial institution. The Agent shall forward a
copy of the revised Exhibit F to each Bank and the
Borrowers.
(c) Any Bank may grant participations in its
rights and benefits hereunder and under the other Loan
Documents, in part, to any banking or other financial
institution having a combined capital and surplus of at
least $100,000,000; provided that each such
participation shall be in a minimum amount of
$5,000,000;
and further provided that each Bank shall retain a
minimum Commitment (net of participations) of at least
$5,000,000. Subparticipations shall not be permitted.
No participant shall be deemed a party to this
Agreement or be entitled to exercise the rights of a
Bank under this Agreement, including the right to vote,
to consent to amendments to, or waivers of, the
provisions of this Agreement, or to enforce the
obligations of the Borrower hereunder, except that any
Bank may agree with any of its participants that such
Bank will not agree, without the consent of the
participant, to any amendment or waiver of any
provision of this Agreement which, pursuant to Section
12.02(a), requires the consent of such Banks as hold
100% of the aggregate outstanding principal amount of
all Loans or, if no Loans are outstanding, of the
Commitments.
(d) Nothing herein shall prohibit any Bank from
pledging or assigning any Loan to any Federal Reserve
Bank to the extent required by applicable law. In the
event of any such assignment, the applicable
Borrower(s) will execute and deliver a promissory note
payable to such Federal Reserve Bank in the principal
amount of the Loan being assigned, which note shall be
subject to the terms and conditions of this Agreement.
Section 12.08. Counterparts; Etc. This Agreement
may be executed in any number of counterparts and by
the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be
an original, but all the counterparts shall together
constitute one and the same instrument.
<PAGE>
Section 12.09. Entire Agreement: Etc. This
Agreement constitutes the entire contract between the
parties hereto and shall supersede and take the place
of any other instrument purporting to be an agreement
of the parties hereto relating to the transactions
contemplated hereby.
Section 12.10. Severability. If any of the
provisions of this Agreement or of any of the other
Loan Documents or the application thereof to any party
hereto or to any Person or circumstance is held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not
effect any other term or provision hereof or thereof or
the application thereof to any other party hereto or to
any other Person or circumstance.
Section 12.11. Governing Law; Jurisdiction;
Waiver. This Agreement, including the validity hereof
and the rights and obligations of the parties
hereunder, shall be construed in accordance with and
governed by the laws of the Commonwealth of
Massachusetts (without giving effect to the conflict of
laws principles thereof). Each of the Borrowers, to
the extent that it may lawfully do so, hereby consents
to service of process, and to be sued, in the
Commonwealth of Massachusetts and consents to the
jurisdiction of the courts of the Commonwealth of
Massachusetts and the United States District Court for
the District of Massachusetts, as well as to the
jurisdiction of all courts from which an appeal may be
taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of its
obligations hereunder or with respect to the
transactions contemplated hereby, and expressly waives
any and all objections it may have as to venue in any
such courts. Each of the Borrowers further agrees that
a summons and complaint commencing an action or
proceeding in any of such courts shall be properly
served and shall confer personal jurisdiction if served
personally or by certified mail to it at its address
provided in Section 12.04 hereof or as otherwise
provided under the laws of the Commonwealth of
Massachusetts. Each of the Borrowers irrevocably
waives all right to a trial by jury in any proceeding
hereafter instituted by or against such Borrower in
respect of this Agreement or any other documents
executed by or on behalf of such Borrower in connection
herewith or therewith.
Section 12.12. Indemnification. Each Borrower
severally agrees to indemnify and hold harmless the
Agent and the Banks from and against any and all
claims, actions and suits whether groundless or
otherwise, and from and against any and all
liabilities, losses, damages and expenses of every
nature and character arising out of this Agreement, the
other Loan Documents or the transactions evidenced
hereby or thereby insofar as the same may pertain to
such Borrower; provided that the Agent and the Banks
shall have no right to be indemnified <PAGE>hereunder
with respect to any such claim, action, suit,
liability, loss, damage or expense to the extent, but
only to the extent, that its gross negligence or
willful misconduct shall have contributed to such
claim, action, suit, liability, loss, damage or
expense; and further provided that no Borrower shall be
liable for any settlement, compromise or consent to the
entry of any order adjudicating or otherwise disposing
of any liability, loss, damage or expense effected
without the consent of such Borrower.
Section 12.13. Miscellaneous. Any instruments
required by any of the provisions hereof to be in the
form annexed hereto as an exhibit shall be
substantially in such form with such changes therefrom,
if any, as may be approved by the Banks and the
Borrowers. The captions in this Agreement are for
convenience of reference only and shall not define or
limit the provisions hereof.
ARTICLE XIII. LIMITATION OF LIABILITY
Notice is hereby given that this Agreement has
been executed by an officer of each Borrower, in that
capacity and not individually. The Banks acknowledge
that the obligations of or arising out of this
Agreement are not binding upon any of the Borrowers'
trustees, officers, employees, agents or shareholders
individually, but are binding solely upon the assets
and property of the Borrowers. To the extent that this
Agreement is executed by a Trust on behalf of one or
more series of such Trust, as a Borrower(s) hereunder,
the Banks further acknowledge that the obligations of
or arising out of this Agreement are binding upon the
assets and property of the series on whose behalf a
Trust has executed this instrument and that, with
respect to each such series, such obligations are
several but not joint. A copy of the Declaration of
Trust for each of the Trusts executing this Agreement
as a Borrower hereunder, or on behalf of one or more
series of such Trust as a Borrower(s) hereunder, is on
file with the Secretary of State of The Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as a sealed instrument as of
the date first above written.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK
FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS GOVERNMENT LIMITED MATURITY FUND
<PAGE>
MFS GOVERNMENT MORTGAGE FUND
MFS SERIES TRUST I, on behalf of MFS
Managed
Sectors Fund, MFS Cash Reserve Fund, and
MFS World Asset Allocation Fund
MFS SERIES TRUST II, on behalf of MFS
Emerging Growth Fund, MFS Capital Growth
Fund, MFS Gold & Natural Resources Fund,
and MFS Intermediate Income Fund
MFS SERIES TRUST III, on behalf of MFS
High Income Fund and MFS Municipal High
Income Fund
MFS SERIES TRUST IV, on behalf of MFS
Money Market Fund, MFS Government Money
Market Fund, MFS Municipal Bond Fund,
and MFS OTC Fund
MFS SERIES TRUST V, on behalf of MFS
Research Fund and MFS Total Return Fund
MFS SERIES TRUST VI, on behalf of MFS
Utilities Fund, MFS World Total Return
Fund, and MFS World Equity Fund
MFS SERIES TRUST VII, on behalf of MFS
Value Fund and MFS World Governments
Fund
MFS SERIES TRUST VIII, on behalf of MFS
Strategic Income Fund and MFS World
Growth Fund
MFS FIXED INCOME TRUST, on behalf of MFS
Bond Fund, MFS Limited Maturity Fund,
and MFS Municipal Limited Maturity Fund
MFS MUNICIPAL SERIES TRUST, on behalf of
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 <PAGE>Municipal
Bond Fund, and MFS Municipal Income Fund
MFS SPECIAL VALUE TRUST
MFS CHARTER INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
MFS GOVERNMENT MARKETS INCOME TRUST
MFS MUNICIPAL INCOME TRUST
MFS VARIABLE INSURANCE TRUST, on behalf
of MFS OTC Series, MFS Growth Series,
MFS Research Series, MFS Growth with
Income Series, MFS Total Return Series,
MFS Utilities Series, MFS High Income
Series, MFS World Government Series, MFS
Strategic Fixed-Income Series, MFS Bond
Series, MFS Limited Maturity Series, and
MFS Money Market Series
MFS INSTITUTIONAL TRUST, on behalf of
MFS Worldwide Fixed-Income Fund and MFS
Emerging Equities Fund
MFS UNION STANDARD TRUST, on behalf of
MFS Union Standard Equity Fund and MFS
Union Standard Fixed Income Fund
By: /s/ W. Thomas London
W. Thomas London
Treasurer
THE FIRST NATIONAL BANK OF ABN AMRO BANK N.V.
BOSTON NEW YORK BRANCH
By: /s/ Nancy E. Fuller By: /s/ David Eastep
Nancy E. Fuller David Eastep
Director
By: /s/ Eisso Vandermeulen
Eisso Vandermeulen
<PAGE>
THE CHASE MANHATTAN BANK, N.A. CHEMICAL BANK
By: /s/ David J. Cintron By: /s/ M. Luisa Hunnewell
David J. Cintron M. Luisa Hunnewell
Second Vice President
UNION BANK STATE STREET BANK AND
TRUST COMPANY
By: /s/ David C. Hants By: /s/ David V. Cox
David C. Hants David V. Cox
Vice President Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By: /s/ Nancy E. Fuller
Nancy E. Fuller
Director
<PAGE>EXHIBIT A
Revision No. ______ Dated as of ________________,
199___
To
Loan Agreement, dated as of February ___, 1995 (as
amended and in effect from time to time, the "Loan
Agreement"), among the Borrowers listed on Exhibit A to
the Loan Agreement [as heretofore revised]; the Banks
listed on Exhibit F to the Loan Agreement [as
heretofore revised]; and The First National Bank of
Boston, as agent
Name and Percentage
Address of Form of Jurisdiction of Fees &
Borrower Organization of Expenses
Organization Payable
[To be executed on behalf
of each Borrower by one
or more Borrower Agents
for such Borrower as
follows:
[NAME OF BORROWER]
By:______________________
___
As Borrower Agent
Title:
_________________________
___
<PAGE>
EXHIBIT B
Borrowing Request
TO: The First National Bank of Boston, as Agent
Financial Institutions
100 Federal Street, 01-15-01
Boston, Massachusetts 02110
Attention: Nancy E. Fuller
Karen Andon
This Borrowing Request is being delivered pursuant
to Section 2.04 of the Loan Agreement, dated as of
February ___ 1995 (as amended and in effect from time
to time, the "Loan Agreement") among the Borrowers
listed on Exhibit A to the Loan Agreement [as
heretofore revised], including the undersigned
Borrower; the Banks listed on Exhibit F to the Loan
Agreement [as heretofore revised] (collectively, the
"Banks"); and The First National Bank of Boston, as
agent (the "Agent"). Capitalized terms used herein
shall have the meanings described to them in the Loan
Agreement. The undersigned Borrower requests that a
Loan be made by the Banks to such Borrower on this date
in the aggregate amount and for the maturity set forth
below:
Name of Borrower: _____________________________
Amount of Base Rate Loan
requested [minimum of
$350,000];
$____________________________
Interest Period of Base
Rate Loan requested
[not more than 30 days;
maturity date must be
a Banking Day]; _____ day(s); maturing on
________
Amount of Fed Funds Loan
requested [minimum of
$10,000,000]; $____________________________
<PAGE>Interest Period of Fed
Funds Loan requested
[not more than 30 days;
not more than three
consecutive one-day
rollovers; maturity date
must be a Banking Day] _____ day(s); maturing on
___________
Please transfer loan proceeds to our operating account
in accordance with the following wire instructions:
Account Name:
Account Number:
Bank:
ABA No.:
Attn:
In connection with the foregoing Borrowing
Request, the undersigned hereby certifies to the Agent
and the Banks as follows:
(a) The value of the Borrower's portfolio
securities is $______________ and the value of the
Borrower's Net Assets is $_____________, computed as of
the close of business on the previous business day of
the Borrower, in each case in accordance with the terms
of the Loan Agreement. [NOTE: Aggregate borrowings of
Borrower from Banks cannot exceed 25% of value of
Borrower's Net Assets.]
(b) After giving effect to the transactions
contemplated by this Borrowing Request on the date
hereof, each of the conditions specified in Section
4.02 of the Loan Agreement has been fulfilled.
(c) The Borrower will use the proceeds of the
Loans requested hereunder solely for the purposes
permitted under Section 2.14 of the Loan Agreement.
<PAGE> (d) The undersigned Borrower Agent is an
Authorized Officer of the Borrower. [Chairman of the
Board, President, any Vice President, Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary.]
DATE:____________________
(Name of Borrower)
By:
As Borrower Agent
Title:
<PAGE>EXHIBIT C
Daily Valuation Report
TO: The First National Bank of Boston, as Agent,
and the Banks party to that certain Loan
Agreement, dated as of February ___, 1995,
among the Borrowers, the Banks and the Agent
This report is being delivered pursuant to Section
5.01(d) of the Loan Agreement, dated as of February
___, 1995 (as amended and in effect from time to time,
the "Loan Agreement"), among the Borrowers listed on
Exhibit A to the Loan Agreement [as heretofore
revised], including the undersigned Borrower; the Banks
listed on Exhibit F to the Loan Agreement [as
heretofore revised] (collectively, the "Banks"); and
The First National Bank of Boston, as agent (the
"Agent"). Capitalized terms used herein shall have the
meanings ascribed to them in the Loan Agreement.
The undersigned hereby certifies to the Agent and
the Banks as follows:
(a) The value of the Borrower's portfolio
securities is $_____________ and the value of the
Borrower's Net Assets is $______________ (in each case,
computed as of the close of business on the previous
business day of the Borrower, in accordance with the
Loan Agreement).
(b) The undersigned Borrower Agent is an
authorized officer of the Borrower. [Chairman of the
Board, President, any Vice President, Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary.]
Date:
(Name of Borrower)
By:
As Borrower Agent
Title:
[NOTE: This report must be furnished to the Agent and
each Bank on any Banking Day when Loans are
outstanding to the Borrower.]
<PAGE>EXHIBIT D
Form for Additional Borrower
, 199
To: The First National Bank of Boston, as Agent,
and the Banks party to that certain Loan
Agreement, dated as of February ___, 1995,
among the Borrowers, the Banks and the Agent
Ladies and Gentlemen:
The undersigned [Borrower] (the "Company") hereby
requests pursuant to Article X of the Loan Agreement,
dated as of February ___, 1995 (as amended and in
effect from time to time, the "Loan Agreement"), among
the Borrowers listed on Exhibit A to the Loan Agreement
[as heretofore revised] (the "Borrowers"); the Banks
listed on Exhibit F to the Loan Agreement [as
heretofore revised] (collectively, the "Banks"); and
The First National Bank of Boston, as agent (the
"Agent"), that it be admitted as an additional Borrower
under the Loan Agreement and that Exhibit A to the Loan
Agreement be revised in accordance with Section 2.15 of
the Loan Agreement to include the Company as such in
the form attached hereto which has been signed by one
or more Borrower Agents on behalf of each Borrower.
Capitalized terms used herein shall have the meanings
ascribed to them in the Loan Agreement.
The Company hereby represents and warrants to the
Agent and the Banks that as of the date hereof and
after giving effect to the admission of the Company as
an additional Borrower under the Loan Agreement: (i)
the representations and warranties set forth in Article
III of the Loan Agreement with respect to the existing
Borrowers are true and correct with respect to the
Company after giving effect to the admission of the
Company as a Borrower; (ii) the Company is in
compliance in all material respects with all of the
terms and provisions set forth in the Loan Agreement on
its part to be observed or performed as of the date
hereof and after giving effect to the admission; (iii)
no Event of Default with respect to the Company
specified in Section 7.01 of the Loan Agreement, nor
any event which with the giving of notice or expiration
of any applicable grace period or both would constitute
such an Event of Default with respect to the Company
has occurred and is continuing.
The Company agrees to be bound by the terms and
conditions of the Loan Agreement in all respects as a
Borrower thereunder and hereby assumes all of the
obligations of a Borrower thereunder.
<PAGE>
Please indicate your assent to the admission of
the Company as an additional Borrower under the Loan
Agreement by signing below where indicated.
[BORROWER]
By__________________________
(Title)
AGREED AND ACCEPTED:
[ ]
By:
(Title)
[ ]
By:
(Title)
[ ]
By:
(Title)
[ ]
By:
(Title)
[ ]
By:
(Title)
[ ]
By:
(Title)
<PAGE>EXHIBIT E
[Date]
The First National Bank of Boston, as Agent
100 Federal Street
Boston, Massachusetts 0211&
Ladies and Gentlemen:
This opinion is being furnished to you pursuant to
Article X of the Loan Agreement, dated as of February
___, 1995 ([as amended and in effect on the date
hereof,] the "Loan Agreement") among the Borrowers
originally named on Exhibit A thereto, [as the same has
heretofore been revised through ________________,] for
which Massachusetts Financial Services Company, a
Delaware corporation ("MFS"), serves either as the
Administrator, Distributor, Investment Adviser or
Shareholder Servicing Agent; the Banks named on Exhibit
F thereto [as the same has heretofore been revised
through _______________________] (collectively, the
"Banks"); and The First National Bank of Boston, as
agent (the "Agent") . _________________, a
Massachusetts business trust (the "Company"), for which
MFS acts as _________________, has executed a request,
a copy of which is annexed hereto as Exhibit I
(including Revision No. ___________ of said Exhibit A
annexed thereto, the "Request") to be admitted as an
additional Borrower under the Loan Agreement. I am the
[title of in-house counsel] of MFS. Capitalized terms
used herein without definition have the respective
meanings ascribed to them in the Loan Agreement.
I have examined originals or copies, certified or
otherwise identified to my satisfaction, of such trust
records, documents, certificates of public officials
and other instruments and have made such investigation
of fact and law as I have deemed necessary or advisable
to render this opinion. I have assumed that the Banks
have all requisite power and authority and have taken
all necessary action to admit the Company as an
additional Borrower under the Loan Agreement in
accordance with the terms thereof.
Based upon and subject to the foregoing and to the
qualifications hereinafter set forth, it is my opinion
that:
1. The Request accurately and completely lists
the full legal name of the Company and its
principal business address. The Company is a
business trust, duly organized, validly
existing and in good standing under the laws
of The Commonwealth of <PAGE>Massachusetts,
and has all requisite power and authority all
material governmental licenses,
authorizations, consents and approvals
required to carry on its business as now
conducted and as proposed to be conducted in
accordance with its Investment Practices (as
hereinafter defined) to enter into the Loan
Agreement and to carry out the terms thereof.
The Company is not required to qualify to do
business as a foreign organization in any
other jurisdiction of the United States of
America, except for compliance with
applicable state blue sky laws.
2. The Company is an Investment Company
registered as such under the Investment
Company Act of 1940, as amended, and has
registered the sale of its shares of
beneficial interest under the Securities Act
of 1933, as amended.
3. The execution, delivery and performance by
the Company of the Request are within its
powers, have been duly authorized by all
necessary action of the Company, require no
consent, approval, authorization of, or other
action by, or in respect of, or declaration
or filing with, any governmental body, agency
or official, other than routine filings under
federal and state securities laws, and will
not result in any violation of, or be in
conflict with, or constitute a default under,
any provision of the declaration of trust or
bylaws of the Company or its Investment
Practices, or of any provision of any
agreement, instrument, judgment, decree,
order, statute, rule or governmental
regulation applicable to it, or result in the
creation or imposition of any mortgage, lien,
charge or encumbrance on any asset of the
Company pursuant to any such provision.
"Investment Practices", as used herein, means
the investment objectives and fundamental
investment policies and fundamental
investment restrictions presently in effect
with respect to the Company, as set forth in
its Prospectus and Statement of Additional
Information [its Registration Statement on
Form N-2], as amended to date, [or as set
forth in a vote adopted by the shareholders
of the Company]. The Company is not in
material violation of any provision of its
declaration of trust or by-laws or its
Investment Practices, or of any agreement or
instrument to which it is a party, or, to my
knowledge, of any judgment, decree, order,
statute, rule or governmental regulation
applicable to it. Without limiting the
generality of the foregoing, to my knowledge,
the Company is in compliance in <PAGE>all
material respects with all federal and state
securities or similar laws and regulations,
including all material rules, regulations and
administrative orders of the SEC and
applicable blue sky authorities.
4. There is no action, proceeding or
investigation pending or, to my knowledge,
threatened (or any basis therefor known to
me) against the Company which questions the
validity of the Loan Agreement as to the
Company, or any action taken or to be taken
pursuant thereto, in which there is a
reasonable possibility of an adverse decision
and which could, either in any case or in the
aggregate, materially affect adversely the
ability of the Company to perform its
obligations thereunder.
5. The Request has been duly executed and
delivered by the Company and the Loan
Agreement constitutes the legal, valid and
binding obligation of the Company enforceable
against it in accordance with its terms.
6. Based on the covenants, representations and
warranties contained in the Loan Agreement as
to the use of the proceeds of the Loans, such
proceeds will not be used for any purpose
which might cause, as respects loans to the
Company, the Loan Agreement to violate the
provisions of Regulation U of the Board of
Governors of the Federal Reserve System.
The opinions expressed above are qualified to the
extent that the enforceability of any provision of the
Loan Agreement with respect to the Company, or any
rights granted pursuant thereto or obligations incurred
thereunder, may be subject to and affected by:
(a) applicable bankruptcy, receivership,
insolvency, reorganization, moratorium and
similar laws from time to time in effect
affecting the rights of creditors generally;
and such duties and standards as are or may
be imposed on creditors, including, without
limitation, good faith, reasonableness and
fair dealing under applicable law; and
(b) general principles of equity (regardless of
whether such enforceability is considered in
a proceeding in equity or at law) and the
exercise of equitable powers by a court of
competent jurisdiction.
<PAGE> I call to your attention that the officer of
the Company executing the Request is signing such
Request not individually but in his capacity as an
officer of the Company and that the obligations of the
Company under the Request and the Loan Agreement are
not binding upon any of the Trustees, officers, agents,
employees or shareholders of the Company individually,
but bind only the assets of the Company.
I call to your attention that although the maximum
principal amount of the Loans available to the Borrower
is equal to the Maximum Commitment Amount, the
Investment Practices of the Company may restrict the
borrowing by it to a lesser maximum amount.
This opinion applies only to the laws of The
Commonwealth of Massachusetts and the federal laws of
the United States of America and relates only to the
matters expressly addressed above. I express no
opinion with respect to any other matters. This opinion
is rendered only to you and the Banks and is solely for
your benefit and that of the Banks in connection with
the transactions contemplated by the admission of the
Company as an additional Borrower under the Loan
Agreement and the transactions contemplated thereby
after giving effect to such admission, may not be
relied upon by you or the Banks for any other purpose
and may not be furnished or quoted to, or relied upon
by, any other Person for any purpose without my prior
written consent.
Very truly yours,
[Title of in-house
counsel] of Massachusetts
Financial Services
Company
[Appropriate minor changes must be made
if
the Company is a corporation.]
<PAGE>EXHIBIT F
Banks; Addresses; Commitments
The First National Bank of Boston
Financial Institutions
100 Federal Street, 01-15-01
Boston, MA 02110
Attention: Nancy E. Fuller
Director
Commitment Amount: $ 75,000,000
Commitment Percentage: 21.4286%
ABN AMRO Bank N.V.
New York Branch
500 Park Avenue, 2nd Floor
New York, NY 10022
Attention: John Kirk
Vice President
Commitment Amount: $ 75,000,000
Commitment Percentage: 21.4286%
The Chase Manhattan Bank, N.A.
4 Metrotech Center, 19th Floor
Brooklyn, NY 11245
Attention: Doug Wallingford
Commitment Amount: $ 50,000,000
Commitment Percentage: 14.2857%
Chemical Bank
270 Park Avenue, 9th Floor
New York, NY 10017-2070
Attention: Richard H. Klein
Managing Director
Commitment Amount: $ 50,000,000
Commitment Percentage: 14.2857%
<PAGE>State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Attention: David V. Cox
Vice President
Commitment Amount: $ 50,000,000
Commitment Percentage: 14.2857%
Union Bank
350 California Street, 11th Floor
San Francisco, CA 94104
Attention: David C. Hants
Vice President
Commitment Amount: $ 50,000,000
Commitment Percentage: 14.2857%
<PAGE>EXHIBIT G
ASSIGNMENT AND ACCEPTANCE
Dated as of __________,
19__
Reference is made to the Loan Agreement, dated as
of February ___, 1995 (as from time to time amended and
in effect, the "Loan Agreement"), by and among the
Persons listed on Exhibit A attached thereto, as
revised from time to time (collectively, the
"Borrowers" and each individually a "Borrower"); the
Banks listed on Exhibit F attached thereto, as revised
from time to time (collectively, the "Banks" and each
individually a "Bank"); and The First National Bank of
Boston, not individually but in its separate capacity
as agent for the Banks (in such capacity, the "Agent").
Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to such terms in the
Loan Agreement.
[ ] (the "Assignor") and [ ]
(the "Assignee") hereby agree as follows:
1. Assignment. Subject to the terms and
conditions of this Assignment and Acceptance, the
Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes without
recourse to the Assignor, a $ interest in
and to the rights, benefits, indemnities and
obligations of the Assignor under the Loan Agreement
equal to .00% in respect of the Maximum
Commitment Amount immediately prior to the Effective
Date (as hereinafter defined).
2. Assignor's Representations. The Assignor (i)
represents and warrants that (A) it is legally
authorized to enter into this Assignment and
Acceptance, (B) as of the date hereof, its Commitment
is $ , its Commitment Percentage is .00%, the
aggregate outstanding principal balance of its Loans
equals $ , (in each case after giving effect to
the assignment contemplated hereby but without giving
effect to any contemplated assignments which have not
yet become effective), and (C) immediately after giving
effect to all assignments which have not yet become
effective, the Assignor's Commitment Percentage will be
sufficient to give effect to this Assignment and
Acceptance; (ii) makes no representation or warranty,
express or implied, and assumes no responsibility with
respect to any statements, warranties or
representations made in or in connection with the Loan
Agreement or any of the other Loan Documents or the
execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan
Agreement, the other Loan Documents or any other
instrument or document furnished pursuant thereto,
other than that it is the <PAGE>legal and beneficial
owner of the interest being assigned by it hereunder
free and clear of any claim or encumbrance; and (iii)
makes no representation or warranty and assumes no
responsibility with respect to the financial condition
of any Borrower or any other Person primarily or
secondarily liable in respect of any of the obligations
of the Borrowers under or in respect of the Loan
Agreement, the other Loan Documents, and any other
instrument or document executed and/or delivered
pursuant thereto, including, without limitation, the
Loans (the "Obligations"), or the performance or
observance by any Borrower or any other Person
primarily or secondarily liable in respect of any of
the Obligations.
3. Assignee's Representations. The Assignee (i)
represents and warrants that (A) it is duly and legally
authorized to enter into this Assignment and
Acceptance, (B) the execution, delivery and performance
of this Assignment and Acceptance do not conflict with
any provision of law or of the charter or by-laws of
the Assignee, or of any agreement binding on the
Assignee, (C) all acts, conditions and things required
to be done and performed and to have occurred prior to
the execution, delivery and performance of this
Assignment and Acceptance, and to render the same the
legal, valid and binding obligation of the Assignee,
enforceable against it in accordance with its terms,
have been done and performed and have occurred in due
and strict compliance with all applicable laws; (ii)
confirms that it has received a copy of the Loan
Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.01
thereof and such other documents and information as it
has deemed appropriate to make its own credit analysis
and decision to enter into this Assignment and
Acceptance; (iii) agrees that it will, independently
and without reliance upon the Assignor, the Agent or
any other Bank and based on such documents and
information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or
not taking action under the Loan Agreement; (iv)
represents and warrants that it meets the criteria of
an eligible assignee set forth in subsection 12.07(b)
of the Loan Agreement; (v) appoints and authorizes the
Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Agreement and the
other Loan Documents as are delegated to the Agent by
the terms thereof, together with such powers as are
reasonably incidental thereto; and (vi) agrees that it
will perform in accordance with their terms all the
obligations which by the terms of the Loan Agreement
are required to be performed by it as a Bank.
4. Effective Date. The effective date for this
Assignment and Acceptance shall be (the
"Effective Date"). Following the execution of this
Assignment and Acceptance and the consent of the
Borrowers hereto having been obtained, each party
hereto shall deliver its duly executed counterpart
hereof to the Agent for acceptance by the <PAGE>Agent.
[Exhibit F to the Loan Agreement shall thereupon be
replaced as of the Effective Date by the Exhibit F
annexed hereto]
5. Rights under Loan Agreement. Upon such
acceptance and recording, from and after the Effective
Date, (i) the Assignee shall be a party to the Loan
Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and
obligations of a Bank thereunder, and (ii) the Assignor
shall, with respect to that portion of its interest
under the Loan Agreement assigned hereunder, relinquish
its rights and be released from its obligations under
the Loan Agreement; provided, however, that the
Assignor shall retain its rights to be indemnified
pursuant to Section 12.12 of the Loan Agreement with
respect to any claims or actions arising prior to the
Effective Date.
6. Payments. Upon such acceptance of this
Assignment and Acceptance by the Agent, from and after
the Effective Date, the Agent shall make all payments
in respect of the rights and interests assigned hereby
(including payments of principal, interest, fees and
other amounts) to the Assignee. The Assignor and the
Assignee shall make any appropriate adjustments in
payments for periods prior to the Effective Date by the
Agent or with respect to the making of this assignment
directly between themselves.
7. Governing Law. THIS ASSIGNMENT AND ACCEPTANCE
IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT TO BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE OF
(WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES).
8. Counterparts. This Assignment and Acceptance
may be executed in any number of counterparts which
shall together constitute but one and the same
agreement.
IN WITNESS WHEREOF, intending to be legally bound,
each of the undersigned has caused this Assignment and
Acceptance to be executed on its behalf by its officer
thereunto duly authorized, as of the date first above
written.
***
By:
(Title)
<PAGE> ***
By:
(Title)
CONSENTED TO:
***
By:
(Title)
***
By:
(Title)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS GOVERNMENT MRAKETS INCOME TRUST AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 640,296,309
<INVESTMENTS-AT-VALUE> 614,868,392
<RECEIVABLES> 34,961,673
<ASSETS-OTHER> 9,899
<OTHER-ITEMS-ASSETS> 384,344
<TOTAL-ASSETS> 650,224,308
<PAYABLE-FOR-SECURITIES> 15,490,854
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,944,510
<TOTAL-LIABILITIES> 32,435,364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 682,179,623
<SHARES-COMMON-STOCK> 89,552,155
<SHARES-COMMON-PRIOR> 95,048,255
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,520,830)
<ACCUMULATED-NET-GAINS> (36,105,049)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (26,764,800)
<NET-ASSETS> 617,788,944
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 51,636,077
<OTHER-INCOME> 0
<EXPENSES-NET> 6,688,473
<NET-INVESTMENT-INCOME> 44,947,604
<REALIZED-GAINS-CURRENT> (73,606,300)
<APPREC-INCREASE-CURRENT> (13,123,884)
<NET-CHANGE-FROM-OPS> (41,782,580)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,290,258)
<DISTRIBUTIONS-OF-GAINS> (6,168,960)
<DISTRIBUTIONS-OTHER> (30,501,844)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (5,496,100)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (126,658,660)
<ACCUMULATED-NII-PRIOR> 1,137,821
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 9,564,062
<GROSS-ADVISORY-FEES> 4,973,389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,688,473
<AVERAGE-NET-ASSETS> 694,120,655
<PER-SHARE-NAV-BEGIN> 7.83
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> (0.88)
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> (0.32)
<PER-SHARE-NAV-END> 6.90
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
