<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
FEBRUARY 28, 1995
1940 ACT FILE NO. 811-5912
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7 X
MFS SPECIAL VALUE 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 Special Value Trust
c/o Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
<PAGE>MFS SPECIAL VALUE 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. 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 September 29, 1989.
8.2, 8.3, and 8.4. Investment Objectives and
Policies, Risk Factors and Other Policies:
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to maintain an
annual distribution rate of 11%, based on the original
offering price of $15.00 per share, while seeking
opportunities for capital appreciation. In pursuing
this objective, the Registrant may invest in securities
issued or guaranteed by the U.S. Government, its
agencies, authorities and instrumentalities ("U.S.
Government Securities") and, when appropriate, related
options. As opportunities arise in the marketplace,
the Registrant may invest its assets in securities that
the Registrant believes represent uncommon value by
having the potential for significant capital
appreciation over a period of twelve months or longer.
The issuers of such securities may include companies
out-of-favor in the marketplace or in out-of-favor
industries, companies currently performing well but in
industries where the outlook is questionable and over-
leveraged companies with promising longer-term
prospects. Some of these companies may be experiencing
financial or operating difficulties, and certain of
those companies may be involved, at the time of
acquisition or soon thereafter, in reorganizations,
capital restructurings or bankruptcy proceedings;
however, most of these companies will not be
experiencing such financial or operating difficulties
as will, in the Investment Adviser's opinion, lead to
reorganizations, capital restructurings or bankruptcy
proceedings.
<PAGE> The Investment Adviser believes that the
risks associated with investing a portion of its assets
in the debt and equity securities described above can
be managed through proper credit, financial and legal
analysis, research and portfolio diversification. The
Investment Adviser will further attempt to manage risk
through acquisition of debt securities generally at
significant discounts to face value and near the
Investment Advisor's estimate of their liquidation
values. As a result, in the event of the issuer's
bankruptcy or liquidation, the Registrant would have a
greater possibility of recouping its initial investment
than if it had not purchased the securities at a
discount. The availability of deeply discounted debt
securities usually results from the severely reduced
credit quality of the issuer. However, such securities
offer the potential for significant capital
appreciation if the issuer is able to pay the security
at maturity or to redeem the issue at face value or if
the credit quality of the security improves.
Similarly, the Investment Adviser believes that
securities which are not current in the payment of
interest or dividends present the opportunity for
significant capital appreciation. There can be no
assurance in these situations that such capital
appreciation will occur or that it will occur in the
time frame estimated by the Investment Advisor or that
there will not be a loss of a significant portion of
the Registrant's investment in such issues.
The Trust may also invest in fixed income and
equity securities of non-U.S. issuers. To the extent
available and permissible, the Registrant may invest in
options and Futures Contracts on securities, currencies
and indices as more fully described below.
The Investment Adviser will determine, based upon
current yields and the appreciation potential of
various categories of securities, the relative
apportionment of the Registrant's assets among
particular investments. The Trust will evaluate its
degree of success in achieving its investment objective
by measuring whether it can, over time, maintain an
annual distribution rate of 11% while paying expenses,
without a substantial portion of such distributions
being a return of shareholders' capital; however, there
can be no assurance that the Registrant will achieve
its investment objective. For the risk considerations
involved, see "Risk Factors" below.
U.S. Government Securities. The U.S. Government
Securities in which the Registrant may 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 original 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, authorities or instrumentalities, some of
which are backed by the full faith and credit of the
U.S. <PAGE>Treasury, e.g., direct pass-though
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 the Federal Home Loan
Banks; and some of which are backed only by the credit
of the issuer itself, e.g., obligations of the Federal
National Mortgage Association ("FNMA"), and (iii)
interest in trusts or other entities representing
interests in obligations that are issued or guaranteed
by U.S. Government agencies, authorities or
instrumentalities. For a description of obligations
issued or guaranteed by U.S. Government agencies or
instrumentalities, see "Description of Obligations
Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities" below.
U.S. Government Securities in which the Registrant
may invest do not involve the credit risks associated
with other types of interest bearing securities,
although some are not backed by the full faith and
credit of the U.S. Treasury. 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. Longer-
term Government Securities generally are less stable
and more susceptible to principal loss than shorter-
term securities; however, longer-term securities in
most cases offer higher yields than securities with
shorter maturities.
Equity Securities. The Trust may invest in common
stocks and warrants of companies whose stock prices the
Investment Adviser expects to increase significantly
because of special factors, such as rejuvenated
management, new products, changes in consumer demand,
takeover bids or basic changes in the economic
environment. At the time the Registrant acquires such
securities, these companies may be out-of-favor in the
marketplace, in out-of-favor industries, currently
performing well but in industries where the outlook is
questionable or over-leveraged with promising longer-
term prospects for improved stock prices, improved
financial performance or reduced debt levels. Some of
these companies may be experiencing financial or
operating difficulties or they may be involved in
reorganizations, capital restructurings or bankruptcy
proceedings. See "Risk Factors" below.
The Investment Adviser's analysis of such
companies will include the industry outlook and
competitive factors, including supplier and customer
relationships, strengths and weaknesses of products,
viability of product lines and other considerations in
an effort to determine the company's business
prospects. The Investment Adviser will also consider
the depth and capabilities of the management team of an
issuer to assess its ability to lead a company through
financial or operating difficulties. A company's need
for additional capital and the potential sources of
such capital will also be considered by the Investment
Adviser. The Investment Adviser will perform credit
and financial analyses, <PAGE>emphasizing cash flow.
Generally, the Registrant will not be invested in a
distressed situation if the Investment Adviser believes
accurate financial and business information is not
available. In most cases capital appreciation will be
realized through the value inherent in the continued
operation of the company's business. When the
Registrant does invest in a company in financial
difficulties, the Investment Adviser will have
estimated the liquidation value of the company to
measure the risk of loss in case the company is unable
to continue operations; if the investment is purchased
at or below liquidation value, the ultimate risk of
loss may be reduced. In certain cases, the sale of the
company's assets may provide more value than its
continued operation. In the event of a liquidation,
the claims of creditors and bondholders to the assets
of the issuer are satisfied before any payments are
made to equity owners.
Corporate Fixed Income Securities. Corporate
fixed income securities of issuers in which the
Registrant may invest include preferred and preference
stock and all types of long-term or short-term debt
obligations, such as bonds, debentures, notes,
equipment lease certificates, equipment trust
certificates, conditional sales contracts and
commercial paper (including obligations, such as
repurchase agreements, secured by such instruments).
Corporate fixed income securities may also include zero
coupon bonds, deferred interest bonds, bonds on which
the interest is payable in kind ("PIK bonds") and zero
coupon notes with puts ("option notes"). Zero coupon
and deferred interest bonds and option notes are debt
obligations which are issued at a significant discount
from face value. The discount approximates the total
amount of interest the bonds will accrue and compound
over the period until maturity or the first interest
payment date at a rate of interest reflecting the
market rate of the security at the time of issuance.
While zero coupon bonds and option notes do not require
the periodic payment of interest, deferred interest
bonds provide for a period of delay before the regular
payment of interest begins. Option notes are generally
convertible into the issuer's common stock, at the
option of the holder, at any time prior to or on
maturity unless previously redeemed by the issuer or
surrendered to the issuer by the holder for payment in
shares of the issuer's common stock or in cash, at the
issuer's option. PIK bonds are debt obligations which
provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit
the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to
attract investors who are willing to defer receipt of
such cash. Such investments may experience greater
volatility in market value than debt obligations which
make regular payments of interest. The Trust is
required to accrue income on such investments for tax
and accounting purposes, which is distributable to
shareholders. Because such investments do not generate
cash, it may become necessary for the Registrant to
sell other securities in order to maintain its annual
distribution rate even though such sales may <PAGE>not
otherwise be advantageous to the Registrant from an
investment or tax perspective. The Trust will purchase
such securities for capital appreciation which may
result from favorable interest rate trends, improved
credit quality of the issuer, or both, consistent with
the Registrant's investment objective. See "Risk
Factors" below. Corporate fixed income securities may
involve equity features, such as conversion or exchange
rights or warrants for the acquisition of stock of the
same or a different issuer; participations based on
revenues, sales or profits; or the purchase of common
stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit).
The Registrant may invest in securities rated Baa
by Moody's Investors Service, Inc. ("Moody's") or BBB
by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") and comparable
unrated securities. These securities, while normally
exhibiting adequate protection parameters, have
speculative characteristics and changes in economic
conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and
interest payments than in the case of higher grade
fixed income securities.
The Registrant may also invest in securities rated
lower than BBB by S&P or Fitch or Baa by Moody's and
comparable unrated securities (commonly known as "junk
bonds"). These lower rated or unrated securities are
considered speculative and while generally providing
greater income than investments in higher rated
securities, usually are high risk securities involving
greater volatility of price (especially during periods
of economic uncertainty or change) and risk to
principal and income (including the possibility of
default by or bankruptcy of the issuers of such
securities) than securities in the higher rating
categories. However, since yields vary over time, no
specific level of income can ever be assured. See
"Risk Factors" below.
It is anticipated that many of the corporate fixed
income securities in which the Registrant may invest
for the sole purpose of capital appreciation and not
for the purpose of producing income may not be current
on payment of interest at the time of acquisition or
may be involved, at acquisition or thereafter, in
reorganization, restructuring or bankruptcy
proceedings. Such securities will be unrated or in the
lowest rating categories of recognized rating agencies
(that is ratings of B or lower by Moody's or BB or
lower by S&P or Fitch. Securities rated B or BB or
below (or comparable unrated securities) are considered
speculative and may be questionable as to principal and
interest payments. In some cases, such securities may
be highly speculative, have poor prospects for reaching
investment standing and may be in default. For a
description of the ratings categories, see "Description
of Bond Ratings" below. No minimum rating standard is
required for a purchase by the Registrant. The
Investment Adviser may seek an active role in
reorganization, <PAGE>restructuring or bankruptcy
proceedings of such issuers at the time of its
investments or may decide to assume such a role as a
result of subsequent events. Active participation may
involve the identification and organization of existing
debt or equity holders and acting as agent to negotiate
on their behalf. The Trust will rely on the Investment
Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. The
Investment Adviser will consider the issuer's
experience and managerial strength, changing financial
conditions, borrowing requirements, responsiveness to
changes in business conditions and interest rates, and
regulatory matters in analyzing the risk involved in
investments in such corporate fixed income securities.
The Investment Adviser also will consider relative
values among possible investments based on anticipated
cash flow, interest coverage, asset coverage and
earnings potential. See "Risk Factors" below.
The Trust may have difficulty disposing of certain
lower-rated securities because there may be a thin
trading market for such securities. Because not all
dealers maintain markets in all lower-rated, fixed
income securities, there is no established retail
secondary market for many of these securities, and the
Registrant anticipates that such securities could only
be sold to a limited number of dealers or institutional
investors. To the extent a secondary market for lower-
rated, fixed income securities does exist, it is
generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid
secondary market may have an adverse impact on market
price and the Registrant's ability to dispose of
particular issues when necessary to meet the
Registrant's liquidity needs or in response to a
specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities may also make
it more difficult for the Registrant to obtain accurate
market quotations for purposes of valuing the
Registrant's portfolio. Market quotations are
generally available on many lower-rated issues only
from a limited number of dealers and may not
necessarily represent firm bids of such dealers or
prices for actual sales.
The market value of lower-rated securities tends
to reflect individual corporate developments to a
greater extent than higher-rated securities, which
react primarily to fluctuations in the general level of
interest rates. Such lower-rated securities also tend
to be more sensitive to economic conditions than are
higher-rated securities. An economic downturn could
severely disrupt the market for lower-rated securities
and adversely affect the value of outstanding
securities and the ability of issuers to repay
principal and interest. Factors having an adverse
impact on the market value of lower-rated securities
will have an adverse impact on the Registrant's net
asset value. In addition, the Registrant may incur
additional expenses to the extent it is required to
seek recovery upon a default in the payment of
principal or interest on its portfolio holdings.
Recent adverse publicity regarding lower-<PAGE>rated
securities may have depressed the prices for such
securities to some extent. Whether investor
perceptions will continue to have a negative effect on
the price of such securities is uncertain.
Other Investments. The Trust may invest up to 10%
of its total assets in securities of foreign issuers
which are not traded on U.S. exchanges (excluding
American Depositary Receipts), including securities
issued by foreign governments considered stable by the
Investment Adviser, fixed income securities of foreign
corporations, common stocks and equivalents (such as
convertible debt securities and warrants) and preferred
stocks of foreign corporations and foreign currency.
The decision to invest in securities issued abroad
("foreign securities") will depend on the relative
yield 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 with the U.S. dollar.
Investments in foreign securities and currency will be
evaluated on the basis of fundamental economic criteria
(e.g., relative inflation levels and trends, growth
rate forecasts, balance of payments status, and
economic policies) as well as technical and political
data. In addition to the foregoing, interest rates are
evaluated on the basis of differentials or anomalies
that may exist between issuers in different countries
with similar economies. The Investment Adviser will
also consider the factors described above under "Equity
Securities" and "Corporate Fixed Income Securities" in
making decisions to invest in securities issued abroad.
The Trust may hold foreign currency for hedging
purposes to protect against declines in the U.S. dollar
value of foreign securities held by the Registrant and
against increases in the U.S. dollar value of the
foreign securities which the Registrant might purchase.
The Registrant may also hold foreign currency in
anticipation of purchasing foreign securities. For the
risk considerations involved in investing in foreign
securities, see "Risk Factors" below.
American Depositary Receipts. The Registrant may
invest in American Depositary Receipts ("ADRs") which
are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of
an underlying non-U.S. stock on deposit with a
custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository
which has an exclusive relationship with the issuer of
the underlying security. An unsponsored ADR may be
issued by any number of U.S. depositories. The
Registrant may invest in either type of ADR. Although
the U.S. investor holds a substitute receipt of
ownership rather than direct stock certificates, the
use of the depository receipts in the United States can
reduce costs and delays as well as potential currency
exchange and other difficulties. The Registrant may
purchase securities in local <PAGE>markets and direct
delivery of these ordinary shares to the local
depository of an ADR agent bank in the foreign country.
Simultaneously, the ADR agents create a certificate
which settles at the Registrant's custodian in five
days. The Registrant may also execute trades on the
U.S. markets using existing ADRs. A foreign issuer of
the security underlying an ADR is generally not subject
to the same reporting requirements in the United States
as a domestic issuer. Accordingly the information
available to a U.S. investor will be limited to the
information the foreign issuer is required to disclose
in its own country and the market value of an ADR may
not reflect undisclosed material information concerning
the issuer of the underlying security. ADRs may also
be subject to exchange rate risks if the underlying
foreign securities are traded in foreign currency.
When the Investment Adviser believes that
investing for defensive purposes is appropriate, such
as during periods of unusual market conditions, part or
all of the Registrant's assets may be temporarily
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. Such obligations
will all be at least investment grade.
The investment objective and policies described
above may be changed without shareholder approval.
INVESTMENT PRACTICES
The following investment practices apply to the
portfolio investments of the Registrant. These
practices may be changed without shareholder approval.
Options. 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.
Government Securities and may engage in such options
transactions with respect to other securities including
domestic and foreign securities indices and with
respect to foreign currencies. See "Forward Contracts
and Options on Foreign Currency" below. All such
options will be traded on either United States or
foreign securities exchanges or 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 Trust may enter into contracts for the
purchase or sale for future delivery of fixed income
securities or foreign currencies, or contracts based on
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 <PAGE>("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 are designed only to hedge against
anticipated future changes in interest or exchange
rates or securities prices 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.
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 other restrictions on the use of
Futures Contracts. The first restriction is that the
Registrant will not enter into any Futures Contracts
and Options on Futures Contracts if immediately
thereafter the amount of initial margin deposits on all
the Futures Contracts of the Registrant and premiums
paid on Options on Futures Contracts would exceed 5% of
the market value of the total assets of the Registrant.
The second restriction is that the value of the
securities and other obligations underlying all such
Futures Contracts held by the Registrant not exceed 50%
of the value of the total assets of the Registrant.
Neither of these restrictions will be changed by the
Registrant's Board of Trustees without considering the
policies and concerns of the various federal and state
regulatory agencies.
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
Securities and Exchange Commission (the "SEC"). Such
loans will usually be made only to member banks of the
Federal Reserve System and member firms (and
subsidiaries thereof) of the New York Stock Exchange
and would be required to be secured continuously by
collateral, including cash, cash equivalents or U.S.
Government Securities maintained on a current basis at
an amount at least equal to the market value of the
securities loaned. The Registrant would have the right
to call a loan and obtain the securities loaned at any
time on customary industry settlement notice. For the
duration of a loan, the Registrant would continue to
receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would
also receive either interest (through the investment of
cash collateral) or a fee (if the collateral is U.S.
Government Securities). The Trust would not, however,
have the right to vote any securities having voting
rights during the existence of the loan, but the
Registrant would <PAGE>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 be
delivered at a future date beyond customary settlement
time. The commitment to purchase a security for which
payment will be made on a future date may be deemed a
separate security. Although the Registrant is not
limited to the amount of securities for which it may
have commitments to purchase on such basis, it is
expected that under normal circumstances, the
Registrant will not commit more than 30% of its assets
to such purchases. The Trust does not pay for the
securities until received or start earning interest on
them until the contractual settlement date. In order
to invest its assets immediately, while awaiting
delivery of securities purchased on such basis, the
Registrant may 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.
The Trust has established procedures consistent
with the General Statement of Policy of the SEC
concerning such commitments. However, although the
Registrant does not intend to make such purchases for
speculative purposes and intends to adhere to the
provisions of the SEC policy, purchases of securities
on such basis may involve more risk than other types of
purchases. For example, if the Registrant determines
it is necessary to sell the "when-issued" or "forward
delivery" securities before delivery, it may incur a
gain or a loss because of market fluctuations since the
time the commitment to purchase such securities was
made. Purchasing securities on a when-issued basis
involves a risk that the yields available in the market
when delivery takes place may be higher than yields on
the securities purchased.
Repurchase Agreements. The Registrant may enter
into repurchase agreements in order to earn additional
income on available cash or as a temporary defensive
measure. Under a repurchase agreement, the Registrant
acquires securities subject to the seller's agreement
to repurchase at a specified time and price.
<PAGE> The Registrant may enter into repurchase
agreements with sellers who are member firms (or a
subsidiary thereof) of the New York Stock Exchange,
members of the Federal Reserve System, or 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 price 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 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.
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 <PAGE>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.
Interests in pools of mortgage-related securities
differ from other forms of debt securities, which
normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or
specified call dates. Instead, these securities
provide a monthly payment which consists of both
interest and principal payments. In effect, these
payments are a "pass through" of the monthly payments
of principal resulting from the sale, refinancing or
foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-
through securities (such as securities issued by the
GNMA) are described as "modified pass-through
securities." These securities entitle the holder to
receive all interests and principal payments owed on
the mortgages in the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of
whether the mortgagor actually makes the payment.
The principal government guarantor of mortgage
pass-through securities is GNMA. GNMA is a wholly-
owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized
to guarantee, with the full faith and credit of the
U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These
guarantees, however, do not apply to the market value
or yield of mortgage pass-through securities. GNMA
securities are often purchased at a premium over the
maturity value of the underlying mortgages. This
premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., whose
guarantees are not backed by the full faith and credit
of the U.S. Government) include FNMA and Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by
private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban
Development. FNMA purchases conventional residential
mortgages (i.e., mortgages not insured or guaranteed by
any governmental agency) from a list of approved
sellers/servicers which include state and federally-
chartered savings and loan associations, mutual savings
banks, commercial banks, credit unions and mortgage
bankers. Pass-through securities issued by FNMA are
guaranteed as to timely payment by FNMA of principal
and interest.
<PAGE> FHLMC was created by Congress in 1970 as a
corporate instrumentality of the U.S. Government for
the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC issues
Participation Certificates ("PCs") which represent
interests in conventional mortgages (i.e., not
federally insured or guaranteed) from FHLMC's national
portfolio. FHLMC guarantees timely payment of interest
and ultimate collection of principal regardless of the
status of the underlying mortgage loans.
Corporate Asset-Backed Securities. The Registrant
may invest in corporate asset-backed securities. These
securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as
credit card and automobile loan receivables,
representing the obligations of a number of different
parties.
Corporate asset-backed securities present certain
risks. For instance, in the case of credit card
receivables, these securities may not have the benefit
of any security interest in the related collateral.
Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of
state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance
due. Most issuers of automobile receivables permit the
servicers to retain possession of the underlying
obligations. If the servicer were to sell these
obligations to another party, there is the risk that
the purchaser would acquire an interest superior to
that of the holders of the related automobile
receivables. In addition, because of the large number
of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee
for the holders of the automobile receivables may not
have a proper security interest in all of the
obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to
support payments on these securities.
Corporate asset-backed securities are often backed
by a pool of assets representing the obligations of a
number of different parties. To lessen the effect of
failures by obligors to make payments on underlying
assets, the securities may contain elements of credit
support which fall into two categories: (1) liquidity
protection and (2) protection against losses resulting
from ultimate default by an obligor on the underlying
assets. Liquidity protection refers to the provision
of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate
default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor
from third parties. The Registrant will not pay any
additional or separate fees for credit support. The
degree of credit support provided for each issue is
generally based on historical information with
<PAGE>respect to the level of credit risk associated
with the underlying assets. Delinquency or loss in
excess of that anticipated or failure of the credit
support could adversely affect the return on an
investment in such a security.
Mortgage "Dollar Roll" Transactions. The
Registrant may enter into mortgage "dollar roll"
transactions with selected banks and broker-dealers
pursuant to which the Registrant sells mortgage-backed
securities for delivery in the future (generally within
30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity)
securities on a specified future date. The Registrant
will only enter into covered rolls. A "covered roll"
is a specific type of "dollar roll" for which there is
an offsetting cash position or a cash equivalent
security position which matures on or before the
forward settlement date of the "dollar roll"
transaction. During the roll period, the Registrant
forgoes principal and interest paid on the mortgage-
backed securities. The Registrant is compensated for
the lost interest by the difference between the current
sales price and the lower price for the future purchase
(often referred to as the "drop") as well as by the
interest earned on the cash proceeds of the initial
sale. The Registrant may also be compensated by
receipt of a commitment fee.
Forward Contracts And Options On Foreign Currency.
The Trust may enter into forward 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") and options on foreign currencies
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. By entering into
Forward Contracts and options on foreign currencies for
hedging purposes, the Registrant may be required to
forego all or a portion of the benefits of advantageous
changes in exchange rates. The Trust may also enter
into transactions in Forward Contracts and options on
foreign currencies for other than hedging purposes;
however, where exchange rates do not move in the
direction or to the extent anticipated, the Registrant
may sustain losses which will reduce its gross income.
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 the 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 <PAGE>of its commitments under
Forward Contracts entered into by the Registrant.
While Forward Contracts are not presently regulated by
the Commodity Futures Trading Commission ("CFTC"), the
CFTC may in the future assert authority to regulate
Forward Contracts. In such event the Registrant's
ability to utilize Forward Contracts in the manner set
forth above may be restricted. Forward Contracts and
options on foreign currencies 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. For further discussion
of the use, risks and costs of Forward Contracts and
options on foreign currency, see "Options and Futures"
below.
Loan Participations and Other Direct Indebtedness.
The Registrant may invest a portion of its assets in
loan participations and other direct indebtedness. By
purchasing a loan participation, the Registrant
acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower.
Many such loans are secured, and most impose
restrictive covenants which must be met by the
borrower. These loans are made generally to finance
internal growth, mergers, acquisitions, stock
repurchases, leveraged by-outs and other corporate
activities. Such loans may be in default at the time
of purchase. The Registrant may also purchase trade or
other claims against companies, which generally
represent money owed by the company to a supplier of
goods and services. These claims may also be purchased
at a time when the company is in default. Certain of
the loan participations acquired by the Registrant may
involve revolving credit facilities or other standby
financing commitments which obligate the Registrant to
pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans may
make such loans especially vulnerable to adverse
changes in economic or market conditions. Loan
participations and other direct investments may not be
in the form of securities or may be subject to
restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As
a result, the Registrant may be unable to sell such
investments at an opportune time or may have to resell
them at less than fair market value.
Certain of the loan participations acquired by the
Registrant may involve revolving credit facilities or
other standby financing commitments which obligate the
Registrant to pay additional cash on a certain date or
on demand. To the extent that the Registrant is
committed to advance additional funds, it will at all
times hold and maintain in a segregated account cash or
other high grade debt obligations in an amount
sufficient to meet such commitments.
<PAGE>The Registrant's ability to receive payments
of principal, interest and other amounts due in
connection with these investments will depend primarily
on the financial condition of the borrower. In
selecting the loan participations and other direct
investments which the Registrant will purchase, the
Investment Adviser will rely upon its (and not that of
the original lending institution's) own credit analysis
of the borrower. As the Registrant may be required to
rely upon another lending institution to collect and
pass on to the Registrant amounts payable with respect
to the loan and to enforce the Registrant's rights
under the loan, an insolvency, bankruptcy or
reorganization of the lending institution may delay or
prevent the Registrant from receiving such amounts. In
such cases, the Registrant will evaluate as well the
creditworthiness of the lending institution and will
treat both the borrower and the lending institution as
an "issuer" of the loan participation for purposes of
certain investment restrictions pertaining to the
diversification of the Registrant's portfolio
investments. The highly leveraged nature of many such
loans may make such loans especially vulnerable to
adverse changes in economic or market conditions.
Investments in such loans may involve additional risks
to the Registrant. For example, if a loan is
foreclosed, the Registrant could become part owner of
any collateral, and would bear the costs and
liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, the
Registrant could be held liable as a co-lender. It is
unclear whether loans and other forms of direct
indebtedness offer securities law protections against
fraud and misrepresentation. In the absence of
definitive regulatory guidance, the Registrant relies
on the Investment Adviser's research in an attempt to
avoid situations where fraud or misrepresentation could
adversely affect the Registrant. In addition, loan
participations and other direct investments may not be
in the form of securities or may be subject to
restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As
a result, the Registrant may be unable to sell such
investments at an opportune time or may have to resell
them at less than fair market value. To the extent
that the Investment Adviser determines that any such
investments are illiquid, the Registrant will include
them in the investment limitations described below.
Collateralized Mortgage Obligations and Multi-
Class Pass-Through Securities. The Registrant may
invest a portion of its assets in collateralized
mortgage obligations or "CMOs", which are debt
obligations collateralized by mortgage loans or
mortgage pass-through securities, which in the case of
U.S. Government Securities are issued or guaranteed by
the U.S. Government, its agencies, authorities or
instrumentalities. Typically, CMOs are collateralized
by certificates issued by 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"). The Registrant may also invest <PAGE>a
portion of its assets in multi-class pass-through
securities which are equity interests in a Registrant
composed of Mortgage Assets. Unless the context
indicates otherwise, all references herein to CMOs
include multi-class 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 multi-class pass-through
securities. CMOs may be issued by agencies or
instrumentalities of the United States 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 may be
issued in multiple classes. Each class of CMOs, often
referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity
or final distribution date. Principal prepayments on
the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or
final distribution dates resulting in a loss of all or
part of the premium if any has been paid. Interest is
paid or accrued on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal
of and interest on the Mortgage Assets may be allocated
among the several classes of a series of a CMO in
innumerable ways. In a common structure, payments of
principal, including any principal prepayments, on the
Mortgage Assets are applied to the classes of the
series of a CMO in the order of their respective stated
maturities or final distribution dates, so that no
payment of principal will be made on any class of CMOs
until all other classes having an earlier stated
maturity or final distribution date have been paid in
full. Certain CMOs may be stripped (securities which
provide only the principal or interest factor of the
underlying security). See "Stripped Mortgage-Backed
Securities" below for a discussion of the rights of
investing in these stripped securities and of investing
in classes consisting primarily of interest payments or
principal payments.
The Registrant may also invest in parallel pay
CMOs and Planned Amortization Class CMOs ("PAC Bonds").
Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class.
These simultaneous payments are taken into account in
calculating the stated maturity date or final
distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity
date or final distribution date but may be retired
earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date.
PAC Bonds are always parallel pay CMOs with the
required principal payment on such securities having
the highest priority after interest has been paid to
all classes.
<PAGE> Stripped Mortgage-Backed Securities. In
addition, the Registrant may invest a portion of its
assets in stripped mortgage-backed securities ("SMBS"),
which are derivative multi-class mortgage securities
issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors
in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks and
investment banks.
SMBS are usually structured with two classes that
receive different proportions of 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 principal payments
may be unusually volatile in response to changes in
interest rates.
Yield Curve Options. The Registrant may also
enter into options on the "spread", or differential,
between two securities, in a transaction referred to as
a "yield curve" option. In contrast to other types of
options, a yield curve option is based on the
difference between the yields of designated securities,
rather than the prices of the individual securities,
and is usually settled through cash payments.
Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a
call) or narrows (in the case of a put), regardless of
whether the yields of the underlying securities
increase or decrease.
Yield curve options may be used for the same
purposes as other options on securities. Specifically,
the Registrant may purchase or write such options in
order to protect against the adverse effects of a
potential widening or narrowing of the spreads between
securities, or other interest rate sensitive
instruments, held in the Registrant's portfolio. The
Registrant may also purchase or write yield curve
options for other than hedging purposes if, in the
judgment of the Investment Adviser, the Registrant will
be able to profit from movements in the spread between
the yields of the underlying securities. The trading
of yield curve options is subject to all of the risks
associated with the trading of other types of options.
In addition, however, such options present risk of loss
even if the yield of one of the <PAGE>underlying
securities remains constant, if the spread moves in a
direction or to an extent which was not anticipated.
Yield curve options written by the Registrant will be
covered. A call (or put) option is covered if the
Registrant holds another call (or put) option on the
spread between the same two securities and maintains in
a segregated account with its custodian cash or cash
equivalents sufficient to cover the Registrant's net
liability under the two options. Yield curve options
may also be covered in such other manner as may be in
accordance with the requirements of the counterparty
with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-
counter and because they have been only recently
introduced, established trading markets for these
securities have not yet developed.
OPTIONS AND FUTURES
Options. The Trust intends to write covered put
and call options and purchase put and call options on
securities that are traded on either United States or
foreign securities exchanges or 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
underlying security covered by the call or has an
absolute and immediate right to acquire that security
without additional cash consideration (or for
additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange
of other securities held in its portfolio. A call
option is also covered if the Registrant holds a call
on the same security and in the same principal amount
as the call written where the exercise price of the
call held is (a) equal to or less than the exercise
price of the call written or (b) greater than the
exercise price of the call written if the difference is
maintained by the Registrant in cash or cash
equivalents in a segregated account with its custodian.
A put option written is "covered" if the Registrant
maintains cash or cash equivalents 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 equal or greater
than the exercise price of the put written or 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 may also be covered in
such other manner as may be in accordance with the
requirements of the exchange on which, or the
counterparty with which, the option is traded and
applicable rules and regulations. The premium paid by
the purchaser of an option will reflect, among other
things, the relationship of the exercise <PAGE>price to
the market price and volatility of the underlying
security, the remaining term of the option, supply and
demand and interest rates.
The writer of an option may have no control over
when the underlying securities must be sold, in the
case of a call option, or purchased, in the case of a
put option, since with regard to certain options, the
writer may be assigned an exercise notice at any time
prior to the termination of the obligation. Whether or
not an option expires unexercised, the writer retains
the amount of the premium. This amount of course, may,
in the case of a covered call option, be offset of a
decline in the market value of the underlying security
during the option period. If a call option is
exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option
is exercised, the writer must fulfill the obligation to
purchase the underlying security at the exercise price,
which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate
its obligation may effect a "closing purchase
transaction". This is accomplished by buying an option
of the same series as the option previously written.
The effect of the purchase is that the writer's
position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an
option. Likewise, an investor who is the holder of an
option may liquidate its position by effecting a
"closing sale transaction". This is accomplished by
selling an option of the same series as the option
previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction
can be effected.
Effecting a closing transaction in the case of a
written call will permit the Registrant to write
another 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 Trust investments. If
the Registrant desires to sell a particular security
from its portfolio on which it has written a call
option, it will effect a closing transaction prior to
or concurrent with the sale of the security.
The Trust 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 <PAGE>market price of a call
option will generally reflect increases in the market
price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be
offset in whole or in part by appreciation of the
underlying security owned by the Registrant.
An option position may be closed out only where
there exists a secondary market for an option of the
same series. If a secondary market does not exist, it
might not be possible to effect closing transactions in
particular options with the result that the Registrant
would have to exercise the options in order to realize
any profit. If the Registrant is unable to effect a
closing purchase transaction in a secondary market, it
will not be able to sell the underlying security until
the option expires or it delivers the underlying
security upon exercise. Reasons for the absence of a
liquid secondary market include the following: (i)
there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening
transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal
operations on an Exchange; (v) the facilities of an
Exchange or the Options Clearing Corporation ("OCC")
may not at all times be adequate to handle current
trading volume; or (vi) one or more Exchange 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 OCC as a result of trades on the
Exchange would continue to be exercisable in accordance
with their terms.
The Trust 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 <PAGE>price of the underlying security alone. If
the call options are exercised in such transactions,
the Registrant's maximum gain will be the premium
received by it for writing the option, adjusted upwards
or downwards by the difference between the Registrant's
purchase price of the security and the exercise price.
If the options are not exercised and the price of the
underlying security declines, the amount of such
decline will be offset in part, or entirely, by the
premium received.
The writing of covered put options is similar in
terms of risk return characteristics to buy-and-write
transactions. If the market price of the underlying
security rises or otherwise is above the exercise
price, the put option will expire worthless and the
Registrant's gain will be limited to the premium
received. If the market price of the underlying
security declines or otherwise is below the exercise
price, the Registrant may elect to close the position
or take delivery of the security at the exercise price
and the Registrant's return will be the premium
received from the put options minus the amount by which
the market price of the security is below the exercise
price. Out-of-the-money, at-the-money and in-the-money
put options may be used by the Registrant in the same
market environments that call options are used in
equivalent buy-and-write transactions.
The Trust 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 Trust may purchase call options to hedge
against an increase in the price of fixed income
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.
The staff of the SEC has taken the position that
purchased over-the-counter options and assets used to
cover written over-the-counter options are illiquid.
Therefore, such options and assets, together with other
illiquid securities, cannot exceed 20% of the
Registrant's assets under its investment restrictions.
Although the Investment Adviser disagrees with the
position, the Investment Adviser intends to limit the
Registrant's writing of over-the-counter options in
accordance with the following procedure. Except as
provided below, the Registrant intends to write over-
the-counter options only with primary U.S. Government
securities dealers recognized by the Federal Reserve
Bank of New York. Also, the contracts which the trust
has in place with such primary dealers will provide
that the Registrant has the absolute right to
repurchase an option it writes at any time at a price
which represents the fair market value, as determined
in good <PAGE>faith through negotiation between the
parties, but which in no event will exceed a price
determined pursuant to a formula in the contract.
Although the specific formula may vary between
contracts with different primary dealers, the formula
will generally be based on a multiple of the premium
received by the Registrant for writing the option, plus
the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money).
The formula may also include a factor to account for
the difference between the price of the security and
the strike price of the option if the option is written
out-of-the-money. The Trust will treat all or a
portion of the formula price as illiquid for purposes
of its investment restrictions. The Trust may also
write over-the-counter options with non-primary
dealers, including foreign dealers, and will treat the
assets used to cover these options as illiquid for
purposes of such 20% test.
Futures Contracts. The Trust may enter into
contracts for the purchase or sale for future delivery
of fixed income securities or foreign currencies or
contracts based on bonds or on 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 on a specified
date or, in the case of a Futures Contract on an index,
a contractual obligation to make or receive a cash
settlement. A "purchase" of a Futures Contract means a
contractual obligation to acquire the securities or
foreign currencies called for by the contract at a
specified price on a specified date or, in the case of
a Futures Contract on an index, a contractual
obligation to make or receive a cash settlement. U.S.
Futures Contracts have been designated by exchanges
which have been designated "contracts markets" by the
CFTC, and must also be executed through a futures
commission merchant, or brokerage firm, which is a
member or the relevant contract market. Existing
contract markets include the Chicago Board of Trade and
International Monetary Market of the Chicago Mercantile
Exchange. Futures Contracts trade on these markets,
and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the
clearing members of the exchange. The Trust will enter
into Futures Contracts which are based on debt
securities that are backed by the full faith and credit
of the U.S. Government, such as long-term U.S. Treasury
Bonds, Treasury Notes, and three-month U.S. Treasury
Bills. The Registrant may also enter into Futures
Contracts which are based on financial indices,
corporate securities, non-U.S. Governmental bonds and
Eurodollar deposits.
At the same time a Futures Contract is purchased
or sold, the Registrant must allocate cash or
securities as a deposit payment ("initial deposit").
The initial deposit varies, but may be as low as 5% or
less of a contract's face value. Daily thereafter the
Futures Contract is valued and the payment of
"variation margin" may be required, since each day the
Registrant <PAGE>would provide or receive cash that
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.
A Futures Contract based on an index of securities
provides for a payment, in cash, equal to the amount,
if any, by which the value of the index at maturity is
above or below the value of the index at the time the
contract was entered into, times a fixed index
"multiplier". The index underlying such a Futures
Contract is generally a broad based index of securities
designed to reflect movements in the relevant market as
a whole. The index assigns weighted values to the
securities included in the index, and its composition
is changed periodically. Futures Contracts on
Eurodollar deposits also require the making and
acceptance of a cash payment, based on the change in
value of the underlying instrument.
Although Futures Contracts by their terms call for
the actual delivery or acquisition of securities,
foreign currencies or, in the case of Futures Contracts
based on an index, the making or acceptance of a cash
settlement at a specified future time, in most cases
the contractual obligation if fulfilled before the date
of the contract by buying (or selling, as the case may
be) on a commodities exchange an identical Futures
Contract calling for delivery in the same month,
subject to the availability of a liquid secondary
market. Such a transaction cancels the obligation
incurred by the Futures Contract. The Trust will incur
brokerage fees when if purchases and sells Futures
Contracts.
The purpose of the purchase or sale of a Futures
Contract, in the case of a portfolio such as that of
the Registrant, which holds or intends to acquire long-
term fixed income securities, is to attempt to protect
the Registrant from fluctuations in interest 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 bonds with short maturities
when interest rates are expected to <PAGE>increase.
However, since the futures market is more liquid than
the cash market, the use of futures 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 has 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 high quality debt
securities from its portfolio in an amount equal to the
difference between the fluctuating market value of such
Futures Contract 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 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. A Futures Contract entered into by the
Registrant may be closed out only where there exists a
secondary market for such contract.
In addition, Futures Contracts entail risks.
Although the Registrant believes that the 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 <PAGE>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
position. In addition, in such situations, if the
Registrant had 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 Trust may have to sell securities
at a time when it may be disadvantageous to do so.
Options on Futures Contracts. The Trust 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 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 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 position, 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 writer of an option on a
Futures Contract is subject to the risks of commodity
futures trading, including the requirement of initial
and variation margin payments, and both parties are
subject to the additional risk that movements in price
of the option may not correlate with movements <PAGE>in
the price of the underlying security, currency, index
or Futures Contracts.
The Trust 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 Trust 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.
The Trust's ability to engage in the options and
futures strategies described above will depend on the
availability of liquid markets in such instruments.
Therefore no assurance can be given that the Registrant
will be able to utilize these instruments effectively
for the purposes set forth above.
Forward Contracts on Foreign Currency. The Trust
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 Trust will
enter into Forward Contracts for hedging purposes as
well as for <PAGE>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 Trust 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.
Options on Foreign Currencies. The Trust may
purchase and write options on foreign currencies for
hedging purposes in a manner similar to that in which
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 such 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.
<PAGE> 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 Trust 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 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
currency 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
trust has a call on the same foreign currency and in
the same principal amount as the call written where the
exercise price of the call held is (a) <PAGE>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 or cash equivalents in a segregated account with
its custodian. A put option written on foreign
currency by the Registrant is covered if the Registrant
has a put on the same foreign currency 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 or cash
equivalents in a segregated account with its custodian.
Put and call options on foreign currencies may also be
covered in such other manner as may be in accordance
with the requirements of the exchange on which, or the
counterparty with which, the option is traded and
applicable rules and regulations.
Additional Risks of Options on 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 Exchanges, subject to SEC
regulation. Similarly, options on securities and on
stock indices may be traded over-the-counter. In an
over-the-counter trading environment, many of the
protections afforded to exchange participants will not
be available. For example, there are no daily price
fluctuation limits, and adverse market movements could
therefore continue to an unlimited extent over a period
of time. Although the 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 could lose amounts
substantially in excess of their initial investments,
due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the
SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to
traders on organized exchanges will be available with
respect to such transactions. In particular, all
foreign currency option positions entered into on a
national securities exchange are cleared and guaranteed
by the 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.
<PAGE> The purchase and sale of exchange-traded
foreign currency options, however, is subject to the
risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse
market movements, margining of options written, the
nature of the foreign currency market, possible
intervention by governmental authorities and the
effects of other political and economic events. In
addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement
of such options must be made exclusively through the
OCC, which has established banking relationships in
applicable foreign countries for the purpose. As a
result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC,
or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in
the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions, on exercise.
In addition, options on securities, Futures
Contracts, Options on Futures Contracts and options on
foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of
governmental actions affecting trading in or the prices
of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii)
the availability of data on which to make trading
decisions, (iii) delays in the Registrant's ability to
act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv)
the imposition of different exercise and settlement
terms and procedures and margin requirements than in
the United States, and (v) less trading volume.
In order to assure that the Registrant will not be
deemed a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that the
Registrant enter into transactions in Futures Contracts
and Options on Futures Contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or
(ii) for non-hedging purposes, provided that the
aggregate initial margin and premiums on such non-
hedging positions does not exceed 5% of the liquidation
value of the Registrant's assets. In addition, the
Registrant must comply with the requirements of various
state securities laws in connection with such
transactions.
Future Developments. The Trust proposes to take
advantage of opportunities in the area of options,
Futures Contracts, Options on Futures Contracts and
Forward 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 <PAGE>objective and legally
permissible for the Registrant. Such opportunities, if
they arise, may involve risks which exceed those in the
options and futures activities described above.
RISK FACTORS
The Trust is designed primarily as a long-term
investment and not as a trading vehicle. The value of
shares of the Registrant will vary as the aggregate
value of the Registrant's portfolio securities
increases or decreases. The net asset value of the
Registrant may change as the general levels of interest
rates fluctuate. When interest rates decline, the
value of fixed income portfolio securities invested at
higher yields can be expected to rise. Conversely,
when interest rates rise, the value of fixed income
portfolio securities invested at lower yields can be
expected to decline. Moreover the value of the lower-
rated fixed income securities that the Registrant
purchases will fluctuate more than the value of higher-
rated fixed income securities. These lower-rated fixed
income securities generally tend to reflect short-term
corporate and market developments to a greater extent
than higher-rated securities, which react primarily to
fluctuations in the general level of interest rates.
If the Investment Adviser'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.
The Registrant may invest in fixed income
securities rated Baa by Moody's or BBB by S&P or Fitch
and comparable unrated securities. These securities,
while normally exhibiting adequate protection
parameters, have speculative characteristics and
changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of
higher grade fixed income securities.
The Registrant may also invest in corporate fixed
income securities rated Ba or lower by Moody's or BB or
lower by S&P or Fitch and comparable unrated securities
(commonly known as "junk bonds"). No minimum rating
standard is required by the Registrant. These
securities are considered speculative and, while
generally providing greater income than investments in
higher rated securities, will involve greater risk of
principal and income (including the possibility of
default or bankruptcy of the issuers of such
securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or
change) than securities in the higher rating categories
and because yields vary over time, no specific level of
income can ever be assured.
During certain periods, the higher yields on the
Registrant's lower rated high yielding fixed income
securities are <PAGE>paid primarily because of the
increased risk of loss of principal and income, arising
from such factors as the heightened possibility of
default or bankruptcy of the issuers of such
securities. Due to the fixed income payments of these
securities, the Registrant may continue to earn the
same level of interest income while its net asset value
declines due to portfolio losses, which could result in
an increase in the Registrant's yield despite the
actual loss of principal.
These lower rated high yielding fixed income
securities generally tend to reflect economic changes
(and the outlook for economic growth), short-term
corporate and industry developments and the market's
perception of their credit quality (especially during
times of adverse publicity) to a greater extent than
higher rated securities which react primarily to
fluctuations in the general level of interest rates
although they are also affected by changes in interest
rates. In the past, economic downturns or an increase
in interest rates have, under certain circumstances,
caused a higher incidence of default by the issuers of
these securities and may do so in the future,
especially in the case of highly leveraged issuers.
The prices for these securities may be affected by
legislative and regulatory developments. For example,
federal rules require that savings and loan
associations gradually reduce their holdings of high-
yield securities. An effect of such legislation may be
to depress the prices of outstanding lower rated high
yielding fixed income securities.
The market for these lower rated fixed income
securities may be less liquid than the market for
investment grade fixed income securities. Furthermore,
the liquidity of these lower rated securities may be
affected by the market's perception of their credit
quality. Therefore, the Investment Adviser's judgment
may at times play a greater role in valuing these
securities than in the case of investment grade fixed
income securities, and it also may be more difficult
during times of certain adverse market conditions to
sell these lower rated securities to respond to changes
in the market. While the Investment Adviser may refer
to ratings issued by established credit rating
agencies, it is not the Registrant's policy to rely
exclusively on ratings issued by these rating agencies,
but rather to supplement such ratings with the
Investment Adviser's own independent and ongoing review
of credit quality. To the extent the Registrant
invests in these lower rated securities, the
achievement of its investment objectives may be more
dependent on the Investment Adviser's own credit
analysis than in the case of a fund investing in higher
quality fixed income securities. These lower rated
securities may also include zero coupon bonds, deferred
interest bonds and PIK bonds which are described above.
While Futures Contracts and Options on Futures
Contracts will be used solely for hedging purposes and
Options and Forward <PAGE>Contracts will be used in
part for hedging purposes, the trading of such
instruments involve certain risks, including risk of
loss arising from adverse price or rate movements,
margin requirements, market illiquidity and the
potential default of a broker, counterparty or
clearinghouse. A further discussion of these risks is
set forth in Appendix C.
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 accept 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. In such
instances as well, the Registrant may promptly convert
the foreign currencies to dollars at the then current
exchange rate, or may hold such currencies for an
indefinite period of time.
While the holding of currencies may permit the
Registrant to take advantage of favorable movements in
the applicable exchange rate, it also exposes the
Registrant to risk of loss if such rates move in a
direction adverse to the Registrant's position. Such
losses could reduce any profits or increase any losses
sustained by the Registrant from the sale or redemption
of securities, and could reduce the dollar value of
interest or dividend payments received. In addition,
the holding of currencies could adversely affect the
Registrant's profit or loss on currency options or
Forward Contracts, as well as its hedging strategies.
Where the Registrant enters into Forward Contacts as a
"cross hedge" (i.e., the purchase or sale of a Forward
Contract on one currency to hedge against the risk of
loss arising from changes in value of a second
currency), the Registrant incurs the risk of imperfect
correlation between changes in the values of the two
currencies, which could result in losses.
The portion of the Registrant's portfolio directed
toward capital appreciation will be aggressively
managed with a higher risk of loss than that of more
conservatively managed portfolios. Many of the
securities offering the capital appreciation sought by
the Registrant will involve a high degree of risk. The
Trust will seek to reduce risk by investing its assets
in a number of securities markets (e.g., U.S.
Government, corporate fixed income, equity and foreign)
and issuers, performing credit analyses of potential
investments and monitoring current developments and
trends in both the economy and financial markets.
Some of the Registrant's assets may be invested in
securities whose issuers have operating losses,
substantial capital needs, negative net worths, are
insolvent or are involved in bankruptcy or
reorganization proceedings. It is difficult to value
financially distressed issuers and to estimate
prospects for <PAGE>their financial recovery. The
issuers may be unable to meet debt service requirements
and the investments may take considerable time to
appreciate in value. Some of the securities acquired
by the Registrant may not be current on payment of
interest or dividends. In the event that issuers of
securities owned by the Registrant become involved in
bankruptcy or other insolvency proceedings, additional
risks will be present. Bankruptcy or other insolvency
proceedings are highly complex, can be very costly and
may result in unpredictable outcomes. The bankruptcy
court has extensive powers and under certain
circumstances may alter contractual obligations of the
bankrupt company.
Since there may be no public market or only
inactive trading markets for some of the securities in
which the Registrant invests, the Registrant may be
required to retain such investments for indefinite
periods or to sell them at substantial losses. Such
securities may involve greater risks, often related to
creditworthiness, solvency, relative liquidity of the
secondary market, potential market losses,
vulnerability to rising interest rates and economic
downturns and market price volatility based upon
interest rate sensitivity, all of which may adversely
affect the Registrant's net asset value. This may be
particularly true of lower rated or unrated securities
in which the Registrant may invest. See the sub-
section "Corporate Fixed Income Securities" of the
section "Investment Objective and Policies" above.
To the extent the Registrant holds zero coupon or
deferred interest bonds or option notes in its
portfolio or bonds paying interest in the form of
additional debt obligations, the Registrant would
recognize income currently even though the Registrant
received no cash payments of interest and would raise
cash to satisfy its obligation to distribute such
income to shareholders from sales of portfolio
securities. See Item 10.4 for a discussion of the tax
treatment regarding these investments.
Although change 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
portion of distributions paid by the Registrant that
are comprised of income 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. To the extent that the
Registrant uses options, Futures Contracts, Options on
Futures Contracts, Forward Contracts and options on
foreign currencies, such techniques may result in the
loss of principal under certain market conditions. See
"Options and Futures" above.
The Registrant may invest in foreign securities.
Investing in securities of foreign issuers generally
involves risks not ordinarily associated with investing
in securities of domestic <PAGE>issuers. These include
changes in currency rates, exchange control
regulations, governmental administration or economic or
monetary policy (in the United States or abroad) or
circumstances in dealings between nations. Costs may
be incurred in connection with conversions between
various currencies. Special considerations may also
include more limited information about foreign issuers,
higher brokerage costs, different accounting standards
and thinner trading markets. Foreign securities
markets may also be less liquid, more volatile and less
subject to government supervision than in the United
States. Investments in foreign countries could be
affected by other factors including expropriation,
confiscatory taxation and potential difficulties in
enforcing contractual obligations and could be subject
to extended settlement periods. As a result of its
investment in foreign securities, the Registrant may
receive interest or dividend payments, or the proceeds
of the sale or redemption of such securities, in the
foreign currencies in which the securities are
denominated. Under certain circumstances, such as
where the Investment Adviser believes that the
applicable exchange rate is unfavorable at the time the
currencies are received or the Investment Adviser
anticipates, for any reason that the exchange rate
will improve, the Registrant may hold such currencies
for an indefinite period of time. The Registrant may
also hold foreign currency in anticipation of
purchasing foreign securities. While the holding of
currencies will permit the Registrant to take advantage
of favorable movements in the applicable exchange rate,
such strategy also exposes the Registrant to risk of
loss if 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.
The Trust has registered as a "non-diversified"
investment company. As a result, the Registrant may
invest up to 25% of its assets in the securities of any
one issuer, subject only to the requirements of the
Internal Revenue Code of 1986, as amended. U.S.
Government Securities are not subject to any such
investment limitations. Since the Registrant may
invest a relatively high percentage of its assets in
the securities of a limited number of issues, the
Registrant may be more susceptible to any single
economic, political or regulatory occurrence and to the
financial conditions of the issuers in which it
invests.
The Trust is a closed-end investment company.
Shares of a closed-end investment company frequently
trade at a discount to net asset value. Also, since
the Registrant is a closed-end investment company, the
shareholders do not have the right to cause the
Registrant to repurchase their shares at net asset
value.
<PAGE> An investment in shares of the Registrant
should not constitute a complete investment program and
may not be appropriate for all investors.
INVESTMENT RESTRICTIONS
The Registrant has adopted the following
restrictions which cannot be changed without the
approval of the holders of a majority of the 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 Trust may not:
(1) borrow money, except (i) as a temporary
measure for extraordinary or emergency purposes, (ii)
for a tender offer or otherwise to repurchase its
shares or (iii) in connection with making short sales
or maintaining a short position, and in no event shall
the Registrant borrow in excess of 1/3 of its assets;
(2) purchase any security or evidence of interest
therein on margin, except that the Registrant may
obtain such short-term credit as may be necessary for
the clearance of purchases and sales of securities and
except that the Registrant may make deposits on margin
in connection with options, Futures Contracts, Options
on Futures Contracts, Forward Contracts and options on
foreign currencies;
(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, where
no market makers exist or where market makers will not
accept offers), unless the Board of Trustees has
determined that such securities are liquid based upon
trading markets for the specific security, if more than
20% 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 other interests therein),
interests in oil, gas or <PAGE>mineral leases,
commodities or commodity contracts (except currencies,
currency options, Forward Contracts, Futures Contracts
and Options on Futures Contracts) in the ordinary
course of the business of the Registrant (the
Registrant reserves the freedom of action to hold and
to sell real estate acquired (such as through
liquidation) as a result of the ownership of
securities);
(6) issue any senior security (as that term is
defined in the 1940 Act), except as permitted under
clause (1) above (for the purchase of this restriction,
collateral arrangements with respect to options,
Futures Contracts, Options on Futures Contracts,
Forward Contracts and options on foreign currencies and
collateral arrangements with respect to initial and
variation margin are not deemed to be the issuance of a
senior security);
(7) make loans to other persons except through
the lending of its portfolio securities not in excess
of 30% of its total assets (taken at market value) and
except through the use of repurchase agreements, the
purchase of commercial paper or the purchase of all or
a portion of an issue of debt securities in accordance
with its investment objective, policies and
restrictions; or
(8) invest more than 25% of the value of its
total assets in any industry.
The Registrant may not, with respect to 50% of the
Registrant's assets, 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. This investment restriction is
not fundamental and may be changed without shareholder
approval.
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds _
are bonds issued by a cooperatively owned
nationwide system of banks and associations
supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These
bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds _
are bonds issued by the Department of
Transportation of the U.S. Government and are
guaranteed by the United States.
<PAGE>FHA Debentures _
are debentures issued by the Federal Housing
Administration of the U.S. Government and are
guaranteed by the United States.
GNMA Certificates _
are mortgage backed securities which represent a
partial ownership interest in a pool of mortgage
loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan
associations. Each mortgage loan included in the
pool is either insured by the Federal Housing
Administration or guaranteed by the Veteran's
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.
<PAGE>
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be
of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is
secure. While the various protective elements are
likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa
group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
[FN]
____________________________
*The ratings indicated herein are believed to be
the most recent ratings available at the date of this
Prospectus for the securities listed. Ratings are
generally given to securities at the time of issuance.
While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so,
and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the
date of the Registrant's fiscal year end.
<PAGE> Ba: Bonds which are rated Ba are judged to
have speculative elements; their future cannot be
considered as well assured. Often the protection of
interest and principal payments may be very moderate
and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of
other terms of the contract over any long period of
time may be small.
Caa: Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may
be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent
obligations which are speculative in a high degree.
Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.
Unrated: Where no rating has been assigned or
where a rating has been suspended or withdrawn, it may
be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of
the following:
1. An application for rating was not received or
accepted.
2. The issue or issuer belongs to a group of
securities or companies that are not rated as a matter
of policy.
3. There is a lack of essential data pertaining
to the issue or issuer.
4. The issue was privately placed, in which case
the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and
material circumstances arise, the effects of which
preclude satisfactory analysis; if there is no longer
available reasonably up-to-date data to permit a
judgment to be formed; if a bond is called for
redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and
3 in each generic rating classification from Aa through
B in its corporate bond rating system. The modifier 1
indicates that the security ranks in higher end of its
generic rating category; the modifier 2 <PAGE>indicates
a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating
category.
STANDARD AND POOR'S RATINGS GROUP*
AAA: Debt rated AAA has the highest rating
assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to
pay interest and repay principal and differs from the
higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB: Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
BB: Debt rated BB has less near-term
vulnerability to default than other speculative issues.
However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB-
rating.
B: Debt rated B has a greater vulnerability to
default but currently has the capacity to meet interest
payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
[FN]
*Rates all governmental bodies having $1,000,000
or more debt outstanding, unless adequate information
is not available.
<PAGE>
CCC: Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of
principal. In the event of adverse business,
financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal.
The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied B or B- rating.
CC: The rating CC is typically applied to debt
subordinated to senior debt that is assigned an actual
or implied CCC rating.
C: The rating C is typically applied to debt
subordinated to senior debt which is assigned an actual
or implied CCC- debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI: The rating CI is reserved for income bonds on
which no interest is being paid.
D: Debt rated D is in payment default. The D
rating category is used when interest payments or
principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P
believes that such payments will be made during such
grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC
may be modified by the addition of a plus or minus sign
to show relative standing within the major rating
categories.
NR: Indicates that no public rating has been
requested, that there is insufficient information on
which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
FITCH INVESTORS SERVICES, INC.
AAA: Bonds considered to be investment grade and
of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by
reasonably foreseeable events.
AA: Bonds considered to be investment grade and
of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are
not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is
generally rated F-1+.
<PAGE> A: Bonds considered to be investment grade
and of high credit quality. The obligor's ability to
pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds
with higher ratings.
BBB: Bonds considered to be investment grade and
of satisfactory credit quality. The obligor's ability
to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than
for bonds with higher ratings.
BB: Bonds are considered speculative. The
obligor's ability to pay interest and repay principal
may be affected over time by adverse economic changes.
However, business and financial alternatives can be
identified which could assist the obligor in satisfying
its debt service requirements.
B: Bonds are considered highly speculative.
While bonds in this class are currently meeting debt
service requirements, the probability of continued
timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for
reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable
characteristics which, if not remedied, may lead to
default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in
payment of interest and/or principal seems probable
over time.
C: Bonds are in imminent default in payment of
interest or principal.
Plus (+) Minus (-): Plus and minus signs are used
with a rating symbol to indicate the relative position
of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category.
NR: Indicates that Fitch does not rate the
specific issue.
Conditional: A conditional rating is premised on
the successful completion of a project or the
occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems
the amount of information available from the issuer to
be inadequate for rating purposes.
<PAGE> Withdrawn: A rating will be withdrawn when
an issue matures or is called or refinanced, and, at
Fitch's discretion, when an issuer fails to furnish
proper and timely information.
FitchAlert: Ratings are placed on FitchAlert to
notify investors of an occurrence that is likely to
result in a rating change and the likely direction of
such change. These are designated as "Positive",
indicating a potential upgrade, "Negative", for
potential downgrade, or "Evolving", where ratings may
be raised or lowered. FitchAlert is relatively short-
term, and should be resolved within 12 months.
8.5. Share Price Data: Not applicable.
Item 9. Management:
9.1.a. General - Board of Trustees: Management of
the Registrant's business and affairs is the
responsibility of the Board of Trustees of the
Registrant.
9.1.b. General - Investment Advisers: MFS is the
Registrant's Investment Adviser. MFS and its
predecessor organizations have a history of money
management dating from 1924, thus making MFS America's
oldest mutual fund organization. MFS is a subsidiary
of Sun Life Assurance Company of Canada (U.S.) ("Sun
Life of Canada (U.S.)") which in turn is a subsidiary
of Sun Life Assurance Company of Canada ("Sun Life").
Sun Life, a mutual life insurance company, is one of
the largest international life insurance companies and
has been operating in the United States since 1895.
The executive officers of MFS report to the Chairman of
Sun Life. The principal business address of MFS is 500
Boylston Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser to each of
the funds in the MFS Family of Funds (the "MFS Funds"),
which includes 24 funds, MFS Municipal Income Trust,
MFS Multimarket Income Trust, MFS Government Markets
Income Trust, MFS Intermediate Income Trust, MFS
Charter Income Trust, Public Funds Investment Trust,
MFS/Sun Life Series Trust, Sun Growth Variable Annuity
Fund, Inc. and seven variable accounts, each of which
is a registered investment company established by Sun
Life of Canada (U.S.) in connection with the sale of
Compass-2 and Compass-3 combination fixed/variable
annuity contracts. MFS and its wholly-owned
subsidiary, MFS Asset Management Inc., provide
investment advice to substantial private clients. Net
assets under the management of the MFS organization
were approximately $33.4 billion on behalf of
approximately 1.8 million investors as of January 31,
1995. As of such date, the MFS organization managed
approximately $18.7 billion of assets in fixed income
funds and fixed income portfolios of MFS Asset
Management Inc., including approximately $6.8 billion
in U.S. Government securities and approximately $3.1
billion in fixed income securities of foreign issuers
and non-U.S. dollar denominated fixed income securities
of U.S. issuers.
<PAGE>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 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.
Advisory Fee. For the services provided by MFS
under the Advisory Agreement, the Registrant will pay
MFS an annual fee computed and paid monthly in an
amount equal to the sum of .68% of the average daily
net assets of the Registrant and 3.40% of the daily
gross income (i.e., income other than gains from the
sale of securities, gains from options and futures
transactions, premium income from options written and
gains from foreign exchange transactions) of the
Registrant for the Registrant's then-current fiscal
year. This advisory fee is greater than that paid by
most other funds.
Payment of Expenses. The Trust pays the
compensation of the Trustees who are not affiliated
with MFS and all the Registrant's expenses (other than
those assumed by MFS), including governmental fees,
interest charges, taxes, membership dues in the
Investment Company Institute allocable to the
Registrant, fees and expenses of independent auditors,
of legal counsel, and of any transfer agent, registrar
or dividend disbursing agent of the Registrant,
expenses of repurchasing shares, expenses of preparing,
printing and mailing share certificates, shareholder
reports, notices, proxy statements and reports to
governmental officers and commissions; brokerage and
other expenses connected with the execution, recording
and settlement of portfolio security
<PAGE>transactions; insurance premiums, fees and
expenses of the trust's custodian for all services to
the Registrant, including safekeeping of funds and
securities and maintaining required books and accounts,
listing fees; 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 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: Robert J.
Manning, a Vice President of the Registrant and a
Senior Vice President of MFS, joined MFS in 1984. He
became the portfolio manager of the Registrant in 1992.
9.1.d. General - Administrators: Inapplicable.
9.1.e. Custodians: State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts
02110 is the custodian and dividend disbursing agent
for the Registrant. MFS Services Center, Inc., 500
Boylston Street, Boston, Massachusetts 02116 is the
shareholder servicing agent.
9.1.f. General - Expenses: See Item 9.1.b.
9.1.g. General - Affiliated Brokerage:
Inapplicable.
9.2. Non-resident Managers: 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 <PAGE>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 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 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".
The 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 Trust has
no present intention of offering additional shares,
except that additional shares may be issued under the
Plan. Other offerings of its shares, if made, will
require approval of the Registrant's Board of Trustees.
Any additional offering will be subject to the
requirements of the 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 Trust may enter into a merger or
consolidation, or sell all or substantially all of its
assets, if approved by the vote of the holders of two-
thirds of its outstanding shares, except that if the
Trustees recommend such transaction, the approval by
the vote of the holders of a majority of its
outstanding shares will be sufficient. The Trust may
also be terminated upon liquidation and distribution of
its assets, if approved by the vote of the holders of
two-thirds of its outstanding shares. If not so
terminated, the Registrant will continue indefinitely.
Upon liquidation of the Registrant, the Registrant's
shareholders are <PAGE>entitled to share pro rata in
the Registrant's net assets available for distribution
to its shareholders.
Certain Provisions of the Declaration of Trust.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners
for its obligations. However, the Declaration of Trust
contains an express disclaimer of shareholder liability
for acts or obligations of the Registrant and provides
for indemnification and reimbursement of expenses out
of the Registrant's 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
actions or failure to act, but nothing in the
Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties
involved in the conduct of his office.
Anti-Takeover Provisions. The Trust 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 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;
(ii) issuance of any securities of the Registrant
to any person or entity for cash;
<PAGE> (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 assets
sold in the ordinary course of business); 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
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 interest 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.
Market or Private Repurchases. Since the
Registrant is a closed-end management investment
company, its shareholders do not, and will not, have
the right to redeem their shares of the Registrant.
The Trust, however, may purchase its shares from time
to time in the open market or otherwise as and when it
is deemed advisable by the Trustees. Such repurchases
will be made only when the Registrant's shares are
trading at a discount of 3% or more from the net asset
value of the shares. Shares repurchased by the
Registrant will be held in treasury. The Trust may
incur debt to finance share repurchase transactions.
Within six months preceding any such repurchase, the
Registrant will notify shareholders by letter or
report. See the section "Investment Restrictions" of
Item 8.2, 8.3 and 8.4.
The shares of the Registrant trade in the open
market at a price which is 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 <PAGE>shares that remain outstanding
will be enhanced, but this does not necessarily mean
that the market price of those outstanding shares will
be affected, either positively or negatively. Further,
interest on borrowings to finance share repurchase
transactions will reduce the Registrant's net income.
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 (non-
capital gain income less expense). Net short-term
capital gains, if any, from the sale of securities or
other assets are expected to be distributed monthly.
Undistributed net short-term capital gains and net long-
term capital gains, if any, will be distributed at
least annually. See Item 10.4. If, for any monthly
distribution, net investment income and net realized
short-term capital gains are less than the amount of
the distribution, the difference will be distributed
from other Trust assets. The Trust's final
distribution for each calendar year will include any
remaining net investment income and net realized short-
term capital gains deemed, for federal income tax
purposes, undistributed during the year, as well as any
net long-realized capital gains, the excess,
distributed from other Trust assets, will generally be
treated as a tax-free return of capital (up to the
amount of the shareholder's tax basis in his shares)
which would be, in effect, a return of the
shareholder's investment. Such excess, however, will
be treated as ordinary dividend income up to the amount
of the Registrant's current and accumulated earnings
and profits. The amount treated as a tax-free return
of capital will reduce a shareholder's adjusted basis
in his shares, thereby increasing his potential gain or
reducing his potential loss on the sale of his shares.
Such distribution policy may, under certain
circumstances, have certain adverse consequences to the
Registrant and its shareholders. Shareholders will be
sent annual notices reporting the tax status of such
distributions. The notices will indicate whether any
portion of such distributions represent a return of
capital. See Item 10.4.
Shareholders holding shares in their own names may
elect to have all income dividend and/or other
distributions automatically reinvested by State Street
Bank and Trust Company ("State Street"), as Plan agent,
pursuant to the Registrant's Dividend Reinvestment and
Cash Purchase Plan (the "Plan"), the provisions of
which are set forth below. After this offering,
shareholders of record will be mailed supplemental
information regarding the Plan, including a form by
which they may elect to participate in the Plan.
Shareholders not making such election will receive all
such amounts in cash paid by check mailed directly to
the shareholder by State Street, as dividend paying
agent. <PAGE>Shareholders whose shares are held in the
name of a broker or nominee, if a dividend reinvestment
service is provided by the broker or nominee, may elect
to have dividends and/or distributions automatically
reinvested by the broker under the Plan. Shareholders
whose shares are held by a broker or nominee which does
not provide a dividend reinvestment service will be
required to have their shares registered in their own
names to participate in the Plan.
Under the Plan, if the Trustees of the Registrant
declare a dividend from net investment income or other
distribution, the non participants in the Plan will
receive such dividend or distribution in cash and
participants in the Plan will receive the equivalent of
such dividend and/or distribution 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 on that date,
participants will be issued shares of the Registrant at
the higher of net asset value or 95% of the market
price. This discount reflects savings in underwriting
and other costs which the Registrant would otherwise be
required to incur to raise additional capital. If net
asset value exceeds the market price of Trust shares at
such time or if the Registrant should declare a
dividend or other distribution payable only in cash,
State Street will, if possible, as agent for the
participants, buy Trust shares in the open market, on
the New York Stock Exchange or elsewhere, for the
participants' accounts. If, before State Street has
completed its purchases, the market price exceeds the
net asset value of the Registrant's shares, the average
per share purchase price paid by State Street may
exceed the net asset value of the Registrant's shares,
resulting in the acquisition of fewer shares than if
the dividend or distribution had been paid in shares
issued by the Registrant.
Participants in the Plan may withdraw from the
Plan upon written notice to State Street. When a
participant withdraws from the Plan or upon termination
of the Plan as provided below, certificates for whole
shares credited to his account under the Plan will be
issued and a cash payment will be made for any fraction
of a share credited to such account.
Participants in the Plan have the option of making
additional cash payments to State Street, semi-
annually, for investment in the Registrant's shares.
Such payments may be made in any amount from $100 to
$500. State Street will use all funds received from
participants to purchase Trust shares in the open
market semi-annually. Interest will not be paid on any
uninvested cash payments.
State Street maintains all shareholders' 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 <PAGE>shareholder's proxy will include those
shares purchased pursuant to the Plan. While the
Registrant has no plans to issue additional shares
other than pursuant to the Plan, if participants in the
Plan desire to exercise any rights which may be issued
or granted with respect to shares, they should request
that certificates for whole shares be issued to them.
Each participant nevertheless has the right to receive
certificates for whole shares owned by him.
The Trust 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 and/or distributions, except for certain
brokerage commissions, as described below. State
Street's fees will be paid by the Registrant for the
handling of the reinvestment of dividends and/or
distributions and by the participants for the handling
of voluntary cash payments. State Street will charge a
service fee of $0.75 for each cash purchase. There
will be no brokerage charges with respect to shares
issued directly by the Registrant as a result of
dividends and/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 and/or
distributions as well as from voluntary cash payments.
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 prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and/or
distributions will not relieve participants of any
income tax which may be payable or required to be
withheld on such dividends and/or distributions.
Experience under the Plan may indicate that
changes are desirable. Accordingly, the Registrant
reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any
dividend and/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 and/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 Bank and Trust Company at P.O. Box 366,
Boston, Massachusetts 02101.
10.2. Long-term debt: Inapplicable.
10.3. General: Inapplicable.
10.4. Taxes: The Trust has elected to be treated
and intends to qualify each year as a regulated
investment company <PAGE>under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code")
by meeting all applicable Code requirements, including
requirements as to the nature of the Registrant's gross
income, the amount of Registrant distributions, and the
composition and holding period of the Registrant's
portfolio assets. Because the Registrant intends to
distribute all of its net investment income and net
realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is
not expected that the Registrant will be required to
pay any federal income or excise taxes.
Distributions of net investment income and the
excess of net short-term capital gain over net long-
term capital loss will be treated as ordinary income in
the hands of shareholders. It is expected that a
portion of such distributions will be eligible for the
dividends-received deduction for corporate shareholders
if the recipient otherwise qualifies for that deduction
with respect to its holding of Registrant shares.
Deducted amounts may be subject to the alternative
minimum tax and may result in adjustments in the tax
basis of a shareholder's shares. Distributions of the
excess of net long-term capital gain over net short-
term capital loss are taxable to shareholders as long-
term capital gain, regardless of the length of time the
shares of the Registrant have been held by such
shareholder. Such distributions are not eligible for
the dividends-received deduction. Monthly
distributions by the Registrant of net short-term
capital gains may, to the extent capital losses are
subsequently realized, be treated as a return of
capital. Distributions that are treated for federal
income tax purposes as a return of capital will reduce
each shareholder's basis in his shares and, to the
extent the return of capital exceeds such basis, will
be treated as gain to the shareholder from a sale of
shares. Distributions declared by the Registrant in
October, November and December to shareholders of
record in such a month and paid the following January
will be reportable by shareholders as if received on
December 31.
Distributions will be taxable as described above,
whether received in cash or in shares under the
Dividend Reinvestment and Cash Purchase Plan (the
"Plan"). With respect to distributions received in
cash or reinvested in shares purchased on the open
market, the amount of the distribution for tax purposes
is the amount of cash distributed or allocated to the
shareholder. However, with respect to distributions
made in shares issued by the Registrant pursuant to the
Plan, the amount of the distribution for tax purposes
is the fair market value of the issued shares on the
payment date and a portion of such 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.
<PAGE> In general, any gain or loss realized upon a
taxable disposition of shares of the Registrant by a
shareholder that holds such shares as a capital asset
will be treated as long-term capital gain or loss if
the shares have been held for more than twelve months
and otherwise as short-term capital gain or loss.
However, any loss realized upon a taxable disposition
of shares within (or deemed to be within) six months
from the date of their purchase will be treated as a
long-term capital loss to the extent of any amounts
treated by shareholders as long-term capital gains
during such six-month period. All or a portion of any
loss realized upon a taxable disposition of Trust
shares may be disallowed if other Trust shares are
purchased (whether under the Plan or otherwise) within
30 days before or after such disposition.
The Trust's investment in zero coupon bonds,
deferred interest bonds, option notes or bonds that
provide for payment of interest in kind are subject to
special tax rules that will affect the amount, timing
and character of distributions to shareholders by
causing the Registrant to recognize income prior to the
receipt of cash payments. For example, with respect to
zero coupon bonds, option notes and deferred interest
bonds, the Registrant will be required to accrue as
income each year a portion of the discount (or deemed
discount) at which the securities were issued and to
distribute such income each year in order to maintain
its qualification as a regulated investment company and
to avoid income and excise taxes. The Trust may also
elect to accrue market discount on a current basis and
be required to distribute any such accrued discount.
In order to generate cash to satisfy these distribution
requirements, the Registrant may have to dispose of
portfolio securities which it would otherwise have
continued to hold, potentially resulting in additional
taxable gain or loss to the Registrant.
The Trust's transactions in options, Futures
Contracts, Options on Futures Contracts and Forward
Contracts will be subject to special tax rules that
could affect the amount, timing and character of
distributions to shareholders. For example, certain
positions held by the Registrant on the last business
day of each taxable year will be marked to market
(i.e., treated as if closed out) on that day, and any
gain or loss associated with the positions will be
treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by the Registrant
that substantially diminish its risk of loss with
respect to other positions in its portfolio will
constitute "straddles," which are subject to special
tax rules that may cause deferral of Registrant losses,
adjustments in the holding periods of Registrant
securities and conversion of short-term into long-term
capital losses. Certain tax elections exist for
straddles that could alter the effects of these rules.
In order to qualify as a regulated investment company,
the Registrant must derive less than 30% of its annual
gross income from the sale or other disposition of
securities or other investments held less than three
months and will limit its activities in options,
Futures Contracts, Options <PAGE>on Futures Contracts
and Forward Contracts to the extent necessary to comply
with this requirement.
Foreign exchange gains and losses realized by the
Registrant generally will be treated as ordinary income
and losses rather than capital gains and losses. In
order to qualify as a regulated investment company, at
least 90% of the Registrant's annual gross income must
consist of dividends, interest and certain other types
of qualifying income. Foreign exchange gains and
certain other gains are qualifying income, unless such
gains are deemed not directly related to the
Registrant's principal business of investing in
securities. In addition, foreign exchange gains
relating to investments held less than three months are
subject to the 30% limitation described above if such
gains are deemed not directly related to the
Registrant's principal business of investing in
securities. Use of Forward Contracts for non-hedging
purposes may generate gains deemed to be not directly
related to the Registrant's principal business of
investing in securities. The Trust will limit its
activities involving foreign exchange gains to the
extent necessary to comply with these requirements.
Distributions by the Registrant generally result
in a reduction in the fair market value of the
Registrant's shares. Should a distribution reduce the
fair market value below a shareholder's cost basis,
such distribution nevertheless would be taxable to the
shareholder as described above, even though, from an
investment standpoint, it may constitute a partial
return of capital. In particular, since the price of
shares purchased shortly before a distribution includes
the amount of the forthcoming distribution, investors
purchasing shares at that time should be aware that the
distribution may be taxable to them even though it
represents a return of their investment.
Monthly distributions by the Registrant of current
year net short-term capital gains will, to the extent
of the Registrant's net capital loss carryovers, be
taxable to shareholders even though such distributions
will represent an economic return of their investment.
Investment in residual interests of a CMO that has
elected to be treated as a real estate mortgage
investment conduit, or "REMIC," can create complex tax
problems, especially if the Registrant has state or
local governments or other tax-exempt organizations as
shareholders.
The Registrant may be subject to foreign taxes
withheld at the source on income received from foreign
securities to the extent such taxes are not reduced or
eliminated by tax treaties, and will be unable to pass
through to shareholders foreign tax credits or
deductions with respect to these taxes.
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%. <PAGE>The Registrant
intends to withhold 30% on any payments made to Non-
U.S. Persons that are subject to withholding,
regardless of whether a lower rate may be permitted.
Any amounts overwithheld may be recovered 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. The Registrant is also
required in certain circumstances to withhold 31% of
taxable dividends and redemption proceeds paid to any
shareholder (including a shareholder who is 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 which have
been subject to 30% withholding.
Under present law, the Registrant will not be
subject to any excise or income taxes in Massachusetts
as long as it qualifies as a regulated investment
company under the Code.
Shareholders will normally have to pay state
and/or local taxes on the dividends and net capital
gain distributions that they receive from the
Registrant. Distributions of the Registrant which are
derived from interest on obligations of the U.S.
Government and certain of its agencies and
instrumentalities may be exempt from state and local
taxes in certain states. The Trust intends to advise
shareholders of the proportion of its dividends which
consists of such interest. Residents of certain states
may be subject to an intangibles tax or a personal
property tax on all or a portion of the value of their
shares. Shareholders should consult their tax advisers
regarding the possible exclusion of such portion of
their dividends for state and local income tax purposes
as well as regarding the tax consequences of an
investment in the Registrant.
The Trust will send written notices to
shareholders regarding the federal income tax status of
all distributions made during each calendar year.
10.5. Outstanding Securities: The following
information is furnished as of February 1, 1995:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Class
Amount
Authorized
Amount Held by
Registrant or for
its Account Amount
Outstanding
Exclusive
of Amount Shown
Under (3)
<S>
Shares of
Beneficial Interest,
without par value <C>
Unlimited <C>
256,600*
<C>
6,000,930
shares
</TABLE>
*Treasury Shares
<PAGE>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 75%. For fiscal year 1993,
the Registrant's portfolio turnover rate was 151%.
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 Trust will engage in portfolio
trading if it believes that a transaction, net of costs
(including custodian transaction charges), will help in
achieving its investment objective.
Item 18. Management:
18.1. Trustees, Officers and Advisory Board
Members: The Trustees and officers of the Registrant
and their principal occupations for at least the last
five years are set forth below. (Their titles may have
varied during that period.) Unless otherwise noted,
the address of each Trustee and officer is 500 Boylston
Street, Boston, Massachusetts 02116. Trustees and
officers who are "interested persons" of the
Registrant, as defined in the Investment Company Act of
1940, are denoted by an asterisk (*). The Board of
Trustees is divided into three classes, each class
having a term of three years ending with the annual
meeting of shareholders (or any adjournment thereof)
held in the year of expiration, or until the election
of a successor. Each year the term of office of one
class expires: Messrs. Cohan, Gibbons and Robb will
continue in office until 1995, Messrs. Bailey and
Sherratt will continue in office until 1996 and Messrs.
Brodkin, Cohn, Scott, Shames, Smith and Ms. O'Neill
will continue in office until 1997.
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position(s) Held with
Registrant Principal Occupation(s) During Past 5 years
<S>
A. Keith Brodkin,*
<C>
Chairman, President and
Trustee <C>
Massachusetts Financial 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
2524 Bedford Mews Drive
Wellington, Florida Trustee Private Investor
Lawrence H. Cohn, M.D.
75 Francis Street
Boston, Massachusetts Trustee Brigham and Women's
Hospital, Chief of Cardiac Surgery; Harvard Medical
School, Professor of Surgery
The Hon. Sir J. David Gibbons,
KBE
21 Reid Street
Hamilton, Bermuda HM 12
Trustee Edmund Gibbons Limited, Chief Executive
Officer;
The Bank of N.T. Butterfield & Son Limited, Chairman
Abby M. O'Neill
30 Rockefeller Plaza, Room 5600
New York, New York Trustee Private Investor;
Rockefeller Financial Services, Inc. (investment
advisers), Director
Walter E. Robb, III
110 Broad Street
Boston, Massachusetts Trustee Benchmark Advisors, Inc.,
(corporate financial consultants), President and
Treasurer
Arnold D. Scott* Trustee Massachusetts Financial
Services Company, Director, Senior Executive Vice
President and Secretary
Jeffrey L. Shames* Trustee and Vice
President Massachusetts Financial Services Company,
Director, President and Chief Equity Officer
J. Dale Sherratt
One Liberty Square
Boston, Massachusetts Trustee Insight Resources, Inc.
(acquisition planning specialists), President
<PAGE>
Ward Smith
5875 Landerbrook Drive,
Mayfield Heights, Ohio Trustee NACCO Industries
(holding company), Chairman (prior to 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 Zlotin* Vice President Massachusetts Financial
Services Company, Executive Vice President
Robert J. Manning* Vice President Massachusetts
Financial Services Company, Senior Vice President
W. Thomas London* Treasurer Massachusetts Financial
Services Company, Senior Vice President and Assistant
Treasurer
Stephen E. Cavan* Secretary and Clerk Massachusetts
Financial Services Company, Senior Vice President,
General Counsel and Assistant Secretary
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
Each Trustee and officer holds comparable
positions with certain MFS affiliates or with certain
other funds of which MFS or a subsidiary of MFS is the
investment adviser or distributor.
18.2. Each Trustee is also a Trustee of
MFS 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 Government
Markets Income Trust, MFS Intermediate Income Trust and
MFS Charter Income Trust. Mr. Brodkin is the Chairman,
President and a Trustee of each of the funds in the MFS
Family of Funds (the "MFS Funds"), MFS Multimarket
Income Trust <PAGE>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.
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").
(1) (2) (3) (4) (5)
Name of Person, Position (Estimated Credited Years of
Service(2)(5)) Aggregate Compensation From Registrant
(1) Pension or Retirement Benefits Accrued As Part of
Registrant Expenses (1) Estimated Annual Benefits Upon
Retirement (2) Total Compensation From Registrant and
Fund Complex Paid to Directors (3)
A. Keith Brodkin, Chairman, President and
Trustee None None None None
Richard B. Bailey, Trustee
(8) $10,916.65 450 (4) $226,221
Marshall N. Cohan, Trustee
(8) $12,916.65 $500 (4) $147,274
Lawrence H. Cohn, M.D., Trustee
(22) $11,416.65 $3,375 (4) $133,524
The Hon. Sir J. David Gibbons, KBE, Trustee
(8) $11,416.65 $450 (4) $132,024
Abby M. O'Neill, Trustee
(9) $10,416.65 $450 (4) $125,924
<PAGE>
Walter E. Robb, III, Trustee
(8) $12,916.65 500 (4) $147,274
Arnold D. Scott, Trustee None None None None
Jeffrey L. Shames, Trustee and Vice
President None None None None
J. Dale Sherratt, Trustee
(24) $12,916.65 $3,417 (4) $147,274
Ward Smith, Trustee (12) $12,916.65 $500 (4) $147,274
(1) For fiscal year ended October 31, 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, other than
Messrs. Brodkin, Scott and Shames, a fee of $5,000 per
year plus $500 per meeting and committee meeting
attended. For attendance at meetings, the Trustees of
the Registrant as a group received $116,965 from the
Registrant for the fiscal year ended October 31, 1994.
18.4.(b). The Registrant has adopted a retirement
plan for non-interested Trustees. Under this plan, a
Trustee will retire upon reaching age 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 age 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, who
<PAGE>retired as Chairman of MFS as of September 30,
1991, will eventually become eligible for retirement
benefits. The Registrant will accrue compensation
expenses each year to cover current year's service and
amortize past service cost.
The following table sets forth the estimated
annual benefits payable by the Registrant to the non-
interested Trustees and Mr. Bailey upon retirement.
Estimated Annual Benefits Payable by
Registrant upon Retirement (1)
Average Years of Service
Trustee Fees 3 5 7 10 or more
$9,500 $1,425 $2,375 $3,325 $4,750
$10,500 $1,575 $2,625 $3,675 $5,250
$11,500 $1,725 $2,875 $4,025 $5,750
$12,500 $1,875 $3,125 $4,375 $6,250
$13,500 $2,025 $3,375 $4,725 $6,750
$14,500 $2,175 $3,625 $5,075 $7,250
(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 February 1, 1995, Cede & Co., c/o The
Depository Trust Company, P.O. Box 20, Bowling Green
Station, New York, New York 10004, (as nominee for The
Depository Trust Company, 7 Hanover Square, New York,
New York 10004), was the record owner of approximately
77.22% of the outstanding shares of the Registrant.
As of February 1, 1995, all Trustees and officers
of the Registrant as a group owned less than 1% of the
outstanding shares of the Registrant.
Item 20. Investment Advisory and Other Services:
Items 20.1.a. through 20.5. See Item 9.1.b. For
the fiscal year ended October 31, 1994, MFS received
fees under the Registrant's Investment Advisory
Agreement of $668,372. For the fiscal year ended
October 31, 1993, MFS received fees under the
Investment Advisory Agreement of $792,390. For the
fiscal year ended October 31, 1992, MFS received fees
under the Registrant's Investment Advisory Agreement of
$780,803.
20.6. See Item 9.1.e. The custodian has
contracted with the Investment Adviser for the
Investment Adviser to perform certain accounting
functions related to options transactions for which the
Investment Adviser receives remuneration on a cost
basis.
<PAGE>20.7. The principal business address of
Ernst & Young LLP is 200 Clarendon Street, Boston, MA
02116. Ernst & Young LLP certifies financial
statements of the Registrant as required to be
certified by any law or regulation and provides other
tax related services for the Registrant (such as tax
return preparation and assistant and consultation with
respect to the preparation of filings with the SEC).
20.8. Pursuant to the Registrar, Transfer Agency
and Service Agreement between the Registrant and MFS
Service Center, Inc., MFS Service Center, Inc. ("MFSC")
acts as the Registrant's registrar and transfer agent
for the Registrant's authorized and issued shares of
beneficial interest, as well as dividend disbursing
agent for the Registrant, and agent in connection with
the Dividend Reinvestment and Cash Purchase Plan of the
Registrant. For account maintenance, the Registrant
currently pays MFSC a fee based on the total number of
accounts for all closed-end funds advised by MFS for
which MFSC acts as registrar and transfer agent. If
the total number of accounts is less than 75,000, the
annual account fee is $9.00. If the total number of
accounts is 75,000 or more, the annual account fee is
$8.00. For dividend services, MFSC charges $0.75 per
dividend reinvestment and $0.75 per cash infusion. If
the total amount of fees related to dividend services
is less than $1,000 per month for all closed-end funds
advised by MFS for which MFSC acts as registrar and
transfer agent, the minimum fee for the Registrant for
these services will be $167 per month. The Registrant
will reimburse MFSC for reasonable out-of-pocket
expenses and advances incurred by MFSC and for any
other expenses incurred by MFSC at the request, or with
the consent, of the Registrant.
Item 21. Brokerage Allocation and Other Practices:
Specific decisions to purchase or sell securities for
the Registrant are made by employees of MFS who are
appointed and supervised by its senior officers.
Changes in the Registrant's investments are reviewed by
the Board of Trustees. Such employees may serve other
clients of the investment Adviser or any subsidiary in
a similar capacity.
Presently, the primary consideration in portfolio
security transactions is execution at the most
favorable prices and in the most effective manner
("best execution"). However, this may change as noted
below. The Investment Adviser attempts to achieve this
result by selecting broker-dealers to execute portfolio
transactions on behalf of the Registrant and other
clients of the Investment Adviser on the basis of their
professional capability, the value and quality of their
brokerage services, and the general level of their
brokerage commissions. In the case of securities
traded in the over-the-counter market (where no stated
commissions are paid but the prices include a dealer's
markup or markdown), the Investment Adviser normally
seeks to deal directly with the primary market makers,
unless in its opinion, best execution is available
elsewhere. In the case of securities purchased from
<PAGE>underwriters, the cost of such securities
generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees
are available to the Investment Adviser on the tender
of the Registrant's portfolio securities in so-called
tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for the Registrant by the
investment Adviser. At present no other recapture
arrangements are in effect.
US. Government Securities and, in the United
States and in certain other countries, other securities
are traded principally in the over-the-counter market
on a net basis through dealers acting for their own
account and not as brokers. In other countries,
securities may be traded on exchanges at fixed
commission rates. In transactions involving these
securities the Investment Adviser normally seeks to
deal directly with the primary market maker or on major
exchanges, unless in its opinion, best execution is
available elsewhere. Securities firms may receive
brokerage commissions on transactions involving
options, Futures Contracts and Options on Futures
Contracts and the purchase and sale of underlying
securities upon exercise of options. The brokerage
commissions associated with buying and selling options
may be proportionately higher than those associated
with general securities transactions.
Consistent with the foregoing primary
consideration, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and
such other policies as the Trustees may determine, the
Investment Adviser may consider sales of shares of the
trust as a factor in the selection of broker-dealers to
execute the trust's portfolio transactions.
In the future, as permitted by Section 28(e) of
the Securities Exchange Act of 1934, the Investment
Adviser may cause the Registrant to pay a broker-dealer
which provides brokerage and research services to the
Investment Adviser an amount of commission for
effecting a securities transaction for the Registrant
in excess of the amount other broker-dealers would have
charged for the transaction if the Investment Adviser
determines in good faith that the greater commission is
reasonable in relation to the value of the brokerage
and research services provided by the executing
broker-dealer viewed in terms of either a particular
transaction or the Investment Adviser's overall
responsibilities to the Registrant or to its other
clients. Not all of such services will be useful or of
value in advising the Registrant.
The term "brokerage and research services"
includes advice as to the value of securities, the
advisability of investing in, purchasing, or selling
securities, and the availability of securities or of
purchasers or sellers of securities; furnishing
analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio
strategy and the performance of accounts; and effecting
securities transactions and <PAGE>performing functions
incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish
statistical, research and other factual information or
services ("Research") to the Investment Adviser for no
consideration other than brokerage or underwriting
commissions. Securities may be bought or sold through
such broker-dealers, but at present, unless otherwise
directed by the Registrant, a commission higher than
one charged elsewhere will not be paid to such a firm
solely because it provided Research to the Investment
Adviser. The Trustees of the Registrant (together with
the Trustees of the other MFS Funds) have directed the
Investment Adviser to allocate a total of $20,000 of
commission business from the MFS Funds to the Pershing
Division of Donaldson, Lufkin & Jenrette as
consideration for the annual renewal of the Lipper
Directors' Analytical Data Service (which provides
information useful to the Trustees in reviewing the
relationship between the Registrant and the Investment
Adviser).
The Investment Adviser's investment management
personnel attempt to evaluate the quality of Research
provided by brokers. The Investment Adviser sometimes
uses evaluations resulting from this effort as
consideration in the selection of brokers to execute
portfolio transactions. However, the Investment
Adviser is unable to quantify the amount of commissions
that might be paid as a result of such Research because
certain transactions might be effected through brokers
which provide Research but which would be selected
principally because of their execution capabilities.
The management fee that the Registrant pays to the
Investment Adviser will not be reduced as a consequence
of the Investment Adviser's receipt of brokerage and
research services. To the extent the Registrant's
portfolio transactions are used to obtain such
services, the brokerage commissions paid by the
Registrant will exceed those that might otherwise be
paid, by an amount which cannot be presently
determined. Such services would be useful and of value
to the Investment Adviser in serving both the
Registrant and other clients and, conversely, such
services obtained by the placement of brokerage
business of other clients would be useful to the
Investment Adviser in carrying out its obligations to
the Registrant. While such services are not expected
to reduce the expenses of the Investment Adviser, the
Investment Adviser would, through use of the services,
avoid the additional expenses which would be incurred
if it should attempt to develop comparable information
through its own staff.
In certain instances, there may be securities
which are suitable for the Registrant's portfolio as
well as for that of one or more of the advisory clients
of the Investment Adviser or any subsidiary.
Investment decisions for the Registrant and for the
advisory clients of the Investment Adviser or any
subsidiary are made with a view to achieving their
respective investment objectives. It may develop that a
particular security is bought or <PAGE>sold for only
one client even through it might be held by, or bought
or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one
or more other clients are selling that same security.
Some simultaneous transactions are inevitable when
several clients receive investment advice from the same
investment adviser, particularly when the same security
is suitable for the investment objectives of more than
one client. When two or more clients are
simultaneously engaged in the purchase of sale of the
same security, the securities are allocated among
clients in a manner believed by the investment Adviser
to be equitable to each on a case by case basis. It is
recognized that in some cases this system could have
detrimental effect on the price or volume of the
security as far as the Registrant is concerned. In
other cases, however, it is believed that the ability
of the Registrant to participate in volume transactions
will produce better executions for the Registrant.
For the fiscal year ended October 31, 1994, the
Registrant paid brokerage commissions of $118,113 on
non-U.S. government securities' transactions of a total
dollar amount of $137,936,403. For the fiscal year
ended October 31, 1993, the Registrant paid brokerage
commissions of $70,486. For the fiscal year ended
October 31, 1992, the Registrant paid brokerage
commissions of $60,300.
During the fiscal year ended October 31, 1994, the
Registrant purchased and sold securities of affiliates
of Salomon Brothers Inc. and Dean Witter Discover,
which are regular broker-dealers of the Registrant.
During the fiscal year ended October 31, 1994, the
Registrant purchased and retained securities of Salomon
Brothers Inc., a regular broker-dealer of the
Registrant, which securities had a value of $588,750,
at October 31, 1994.
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 October 31, 1994, copies of which have been filed
with the SEC:
Portfolio of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31,
1994
Statement of Operations for the year ended October
31, 1994
Statement of Changes in Net Assets for the years
ended October 31, 1994 and 1993, Per Share and
Other Data for the period from the commencement
operations, November 24, 1989, to October 31,
1990 and for the years ended October 31, 1991,
1992, 1993 and 1994.
Notes to Financial Statements
Independent Auditors' Report
<PAGE>PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
1. Financial Statements:
The following have been incorporated by
reference in Item 23:
Portfolio of Investments at October 31,
1994
Statement of Assets and Liabilities at
October 31, 1994
Statement of Operations for year ended
October 31, 1994
Statement of Changes in Net Assets for
the years ended October 31, 1994 and
1993 Per Share and Other Data for the
period from the commencement of
operations, November 24, 1989, to
October 31, 1990 and for the years
ended October 31, 1991, 1992, 1993
and 1994
Notes to Financial Statements
Independent Auditors' Report
2. Exhibits:
(a) Declaration of Trust, dated
September 29, 1989, (previously
filed as Exhibit (1) to the
Registrant's Registration
Statement on Form N-2 (Investment
Company Act File No. 811-5912),
filed with the SEC on September
29, 1989 (the "Registration
Statement")) incorporated herein
by reference.
(b)(1) Amended and restated By-
Laws, dated December 11, 1991
(previously filed as Exhibit (2)
to Amendment No. 6 to the
Registration Statement
("Amendment No. 2")) 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. 2 to
the Registration Statement, filed
with the SEC on November 15, 1989
("Amendment No. 2")) incorporated
herein by reference.
<PAGE>
(e) The section "Dividend
Reinvestment and Cash Purchase
Plan" on page 2 of the
Registrant's Annual Report to its
Shareholders, for its fiscal year
ended October 31, 1994,
incorporated herein by reference.
(f) Inapplicable.
(g) Investment Advisory Agreement,
dated November 10, 1989,
(previously filed as Exhibit (6)
to Amendment No. 1 to the
Registration Statement, filed
with the SEC on November 7, 1989
("Amendment No. 1")) incorporated
herein by reference.
(h) Omitted pursuant to General
Instruction G.3 to Form N-2.
(i) Form of Retirement Plan for Non-
Interested Person Trustees, dated
January 1, 1991 (previously filed
as Exhibit (8) to Amendment No.
6) incorporated herein by
reference.
(j)(1) Custodian Agreement
(previously filed as Exhibit (9)
to Amendment No. 1) and Amended
and Restated Custodian Agreement
dated December 29, 1989,
(previously filed as Exhibit (9)
to Amendment No. 4 to the
Registration Statement, filed
with the SEC on February 24, 1990
("Amendment No. 4")) incorporated
herein by reference.
(j)(2) Amendment to Custodian
Contract, dated September 11,
1991 (previously filed as Exhibit
(9)(b) to Amendment No. 6)
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 December
29, 1989 together with a letter
agreement dated January 2, 1990
between the Registrant and The
First National Bank of Boston
(previously filed as Exhibit (10)
to Amendment No. 4) incorporated
herein by reference.
(k)(2) Registrar, Transfer Agency
and Service Agreement between
Registrant and MFS <PAGE>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.
(1) 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. 2) 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 1,422
(without par value)
(as at February 1, 1995)
<PAGE>Item 29. Indemnification: Article V of the
Registrant's Declaration of Trust provides that the
Registrant will indemnify its Trustees and officers
against liabilities and expenses incurred in connection
with litigation in which they may be involved because
of their offices with the Registrant, unless as to
liabilities to the Registrant or its shareholders, it
is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or
with respect to any matter unless it is adjudicated
that they did not act in good faith in the reasonable
belief that their actions were in the best interest of
the Registrant. In the case of a settlement, such
indemnification will not be provided unless it has been
determined in accordance with the Declaration of Trust
that such officers or Trustees have not engaged in
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices.
The Trustees and officers of the Registrant and
the personnel of the Registrant's Investment Adviser
are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule
17g-1 under the Investment Company Act of 1940.
Item 30. Business and Other Connections of Investment
Adviser: Massachusetts Financial Services Company
("MFS") serves as investment adviser to the following
open-end funds comprising the MFS Family of Funds:
Massachusetts Investors Trust, Massachusetts Investors
Growth Stock Fund, MFS Growth Opportunities Fund, MFS
Government Securities Fund, MFS Government Mortgage
Fund, MFS Government Limited Maturity Fund, MFS Series
Trust I (which has three series: MFS Managed Sectors
Fund, MFS Cash Reserve Fund and MFS World Asset
Allocation Fund), MFS Series Trust II (which has four
series: MFS Emerging Growth Fund, MFS Capital Growth
Fund, MFS Intermediate Income Fund and MFS Gold &
Natural Resources Fund), MFS Series Trust III (which
has two series: MFS High Income Fund and MFS Municipal
High Income Fund), MFS Series Trust IV (which has four
series: MFS Money Market Fund, MFS Government Money
Market Fund, MFS Municipal Bond Fund and MFS OTC Fund),
MFS Series Trust V (which has two series: MFS Total
Return Fund and MFS Research Fund), MFS Series Trust VI
(which has three series: MFS World Total Return Fund,
MFS Utilities Fund and MFS World Equity Fund), MFS
Series Trust VII (which has two series: MFS World
Governments Fund and MFS Value Fund), MFS Series Trust
VIII (which has two series: MFS Strategic Income Fund
and MFS World Growth Fund), MFS Municipal Series Trust
(which has 19 series: MFS Alabama Municipal Bond Fund,
MFS Arkansas Municipal Bond Fund, MFS California
Municipal Bond Fund, MFS Florida Municipal Bond Fund,
MFS Georgia Municipal Bond Fund, MFS Louisiana
Municipal Bond Fund, MFS Maryland Municipal Bond Fund,
MFS Massachusetts Municipal Bond Fund, MFS Mississippi
Municipal Bond Fund, MFS New York Municipal Bond Fund,
MFS North Carolina Municipal Bond Fund, MFS
Pennsylvania Municipal Bond Fund, MFS South Carolina
Municipal Bond Fund, MFS Tennessee Municipal Bond Fund,
MFS Texas Municipal <PAGE>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", collectively). The principal
business address of each of the aforementioned funds is
500 Boylston Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser to 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 Government
Markets Income Trust, MFS Intermediate Income Trust and
MFS Charter Income 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 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 <PAGE>Funds is organized as an
exempt company under the laws of the Cayman Islands.
The principal business address of each of the MFS
Meridian Funds is P.O. Box 309, Grand Cayman, Cayman
Islands, British West Indies.
MFS Fund Distributors, Inc. ("MFD"), a wholly
owned subsidiary of MFS, serves as distributor for the
MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a
wholly owned subsidiary of MFS, serves as distributor
for certain life insurance and annuity contracts issued
by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned
subsidiary of MFS, serves as shareholder servicing
agent to the MFS Funds, the MFS Closed-End Funds, MFS
Institutional Trust, MFS Variable Insurance Trust and
MFS Union Standard Trust.
MFS Asset Management, Inc. ("AMI"), a wholly owned
subsidiary of MFS, provides investment advice to
substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly
owned subsidiary of MFS, markets MFS products to
retirement plans and provides administrative and record
keeping services for retirement plans.
The Directors of MFS are A. Keith Brodkin, Jeffrey
L. Shames, Arnold D. Scott, John R. Gardner and John D.
McNeil. Mr. Brodkin is the Chairman, Mr. Shames is the
President, Mr. Scott is a Senior Executive Vice
President and Secretary, James E. Russell is a Senior
Vice President and the Treasurer, Stephen E. Cavan is a
Senior Vice President, General Counsel and an Assistant
Secretary, Robert T. Burns is a Vice President and an
Assistant Secretary, and W. Thomas London is a Senior
Vice President and an Assistant Treasurer of MFS.
In addition, the following persons, Directors or
officers of MFS, have the affiliations indicated:
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)
<PAGE>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
Services Company 500 Boylston Street
Boston, Massachusetts 02116
State Street Bank and
Trust Company State Street South, 5-West
North Quincy, Massachusetts 02171
Item 32. Management Services: Inapplicable.
Item 33. Undertakings: Inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment
Company Act of 1940, the Registrant has duly caused
this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of
Massachusetts on the day of February, 1995.
MFS SPECIAL VALUE TRUST
By:
A. Keith Brodkin
Chairman and
President
<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
</TABLE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS SPECIAL VALUE TRUST
DECEMBER 14, 1994
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS SPECIAL VALUE 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 Special Value Trust,
dated September 29, 1989, 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 <PAGE>Declaration or
these By-Laws for approval of such matter) consent to
the action in writing and the written consents are
filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
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 <PAGE>three (3) members.
Members of such Advisory Board shall not be Trustees or
officers and need not be Shareholders. A member of
such Advisory Board shall hold office for such period
as the Trustees may by resolution provide. Any member
of such board may resign therefrom by a written
instrument signed by him which shall take effect upon
delivery to the Trustees. The Advisory Board shall
have no legal powers and shall not perform the
functions of Trustees in any manner, such Advisory
Board being intended merely to act in an advisory
capacity. Such Advisory Board shall meet at such times
and upon such notice as the Trustees may by resolution
provide.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of
the Trust shall be a Chairman, a President, a Treasurer
and a Clerk, who shall be elected by the Trustees. The
Trustees may elect or appoint such other officers or
agents as the business of the Trust may require,
including one or more Vice Presidents, a Secretary and
one or more Assistant Secretaries, one or more
Assistant Treasurers, and one or more Assistant Clerks.
The Trustees may delegate to any officer or Committee
the power to appoint any subordinate officers or
agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS.
Except as otherwise provided by law, the Declaration or
these By-Laws, the Chairman, the President, the
Treasurer and the Clerk shall hold office until his
resignation has been accepted by the Trustees or until
his respective successor shall have been duly elected
and qualified, and all other officers shall hold office
at the pleasure of the Trustees. Any two or more
offices may be held by the same person. Any officer
may be, but none need be, a Trustee or Shareholder.
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 <PAGE>to grant, issue, execute or sign such
powers of attorney, proxies or other documents as may
be deemed advisable or necessary in furtherance of the
interests of the Trust. The Chairman shall have such
other powers and duties as, from time to time, may be
conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT.
In the absence or disability of the Chairman, the
President shall perform all the duties and may exercise
any of the powers of the Chairman, subject to the
control of the Trustees. The President shall perform
such other duties as may be assigned to him from time
to time by the Trustees or the Chairman.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS.
In the absence or disability of the President, the Vice
President or, if there be more than one Vice President,
any Vice President designated by the Trustees shall
perform all the duties and may exercise any of the
powers of the President, subject to the control of the
Trustees. Each Vice President shall perform such other
duties as may be assigned to him from time to time by
the Trustees or the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER.
The Treasurer shall be the principal financial and
accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his
hands to such custodian as the Trustees may employ
pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the
Trust to the Trustees as often as they shall require
the same and shall in general perform all the duties
incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by
the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so
by the Trustees, in such sum and with such surety or
sureties as the Trustees shall require.
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 <PAGE>Secretary
or Assistant Secretary, the Clerk shall perform the
duties of Secretary.
SECTION 10. POWERS AND DUTIES OF ASSISTANT
TREASURERS. In the absence or disability of the
Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise
any of the powers, of the Treasurer. Each Assistant
Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each
Assistant Treasurer shall give a bond for the faithful
discharge of his duties, if required to do so by the
Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
SECTION 11. POWERS AND DUTIES OF ASSISTANT
CLERKS. In the absence or disability of the Clerk, any
Assistant Clerk designated by the Trustees shall
perform all the duties, and may exercise any of the
powers, of the Clerk. The Assistant Clerks shall
perform such other duties as from time to time may be
assigned to them by the Trustees.
SECTION 12. POWERS AND DUTIES OF ASSISTANT
SECRETARIES. In the absence or disability of the
Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may
exercise any of the powers, of the Secretary. The
Assistant Secretaries shall perform such other duties
as from time to time may be assigned to them by the
Trustees.
SECTION 13. COMPENSATION OF OFFICERS AND TRUSTEES
AND MEMBERS OF THE ADVISORY BOARD. Subject to any
applicable law or provision of the Declaration, the
compensation of the officers and Trustees and members
of the Advisory Board shall be fixed from time to time
by the Trustees or, in the case of officers, by any
Committee or officer upon whom such power may be
conferred by the Trustees. No officer shall be
prevented from receiving such compensation as such
officer by reason of the fact that he is also a
Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the
first day of November in each year and shall end on the
last day of October in that year, provided, however,
that the Trustees may from time to time change the
fiscal year.
<PAGE>ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in
such form and shall have such inscription thereon as
the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by
law, the Declaration or these By-Laws, a waiver thereof
in writing, signed by the person or persons entitled to
such notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice
shall be deemed to have been telegraphed, cabled or
wirelessed or sent by facsimile or other electronic
means for the purposes of these By-Laws when it has
been delivered to a representative of any telegraph,
cable or wireless company with instruction that it be
telegraphed, cabled or wirelessed or when a
confirmation of such facsimile having been sent, or a
confirmation that such electronic means has sent the
notice being transmitted, is generated. Any notice
shall be deemed to be given at the time when the same
shall be mailed, telegraphed, cabled or wirelessed or
when sent by facsimile or other electronic means.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees
shall at all times employ a bank or trust company
having a capital, surplus and undivided profits of at
least five million dollars ($5,000,000.00) as custodian
with authority as its agent, but subject to such
restrictions, limitations and other requirements, if
any, as may be contained in the Declaration, these By-
Laws and the 1940 Act:
(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
<PAGE>
(v) if authorized to do so by the Trustees,
to compute the net income of the Trust;
all upon such basis of compensation as may be agreed
upon between the Trustees and the custodian. If so
directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all Trust Property held by
it as specified in such vote.
The Trustees may also authorize the custodian to
employ one or more sub-custodians from time to time to
perform such of the acts and services of the custodian
and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and
approved by the Trustees, provided that in every case
such sub-custodian shall be a bank or trust company
organized under the laws of the United States or one of
the states thereof and having capital, surplus and
undivided profits of at least five million dollars
($5,000,000.00) or such foreign banks and securities
depositories as meet the requirements of applicable
provisions of the 1940 Act or the rules and regulations
thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject
to such rules, regulations and orders as the Commission
may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the
Trust in a system for the central handling of
securities established by a national securities
exchange or a national securities association
registered with the Commission under the Securities
Exchange Act of 1934, or such other person as may be
permitted by the Commission, or otherwise in accordance
with the 1940 Act, pursuant to which system all
securities of any particular class or series of any
issuer deposited within the system are treated as
fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust
or its custodian.
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:
<PAGE>(i) The Trustees shall cause to be
delivered to the custodian all
securities owned by the Trust or to
which it may become entitled, and shall
order the same to be delivered by the
custodian only upon completion of a
sale, exchange, transfer, pledge, or
other disposition thereof, and upon
receipt by the custodian of the
consideration therefor or a certificate
of deposit or a receipt of an issuer or
of its Transfer Agent, all as the
Trustees may generally or from time to
time require or approve, or to a
successor custodian; and the Trustees
shall cause all funds owned by the Trust
or to which it may become entitled to be
paid to the custodian, and shall order
the same disbursed only for investment
against delivery of the securities
acquired, or in payment of expenses,
including management compensation, and
liabilities of the Trust, including
distributions to Shareholders, or to a
successor custodian; provided, however,
that nothing herein shall prevent the
custodian from paying for securities
before such securities are received by
the custodian or the custodian from
delivering securities prior to receiving
payment therefor in accordance with the
payment and delivery customs of the
market in which such securities are
being purchased or sold .
(ii) In case of the resignation, removal or
inability to serve of any such
custodian, the Trust shall promptly
appoint another bank or trust company
meeting the requirements of this Article
X as successor custodian. The agreement
with the custodian shall provide that
the retiring custodian shall, upon
receipt of notice of such appointment,
deliver the funds and property of the
Trust in its possession to and only to
such successor, and that pending
appointment of a successor custodian, or
a vote of the Shareholders to function
without a custodian, the custodian shall
not deliver funds and property of the
Trust to the Trust, but may deliver all
or any part of them to a bank or trust
company doing business in Boston,
Massachusetts, of its own selection,
having an aggregate capital, surplus and
undivided profits (as shown in its last
published report) of at least
$5,000,000, as the property of the Trust
to be held under terms similar to those
on which they were held by the retiring
custodian.
<PAGE>ARTICLE XI
SALE OF SHARES OF THE TRUST
The Trustees may from time to time issue and sell
or cause to be issued and sold Shares for cash or other
property, which shall in every case be paid or
delivered to the Custodian as agent of the Trust before
the delivery of any certificate for such shares. The
Shares, including additional Shares which may have been
repurchased by the Trust (herein sometimes referred to
as "treasury shares"), may not be sold at a price less
than the net asset value thereof (as defined in Article
XII hereof) determined by or on behalf of the Trustees
next after the sale is made or at some later time after
such sale.
No Shares need be offered to existing Shareholders
before being offered to others. No Shares shall be
sold by the Trust (although Shares previously
contracted to be sold may be issued upon payment
therefor) during any period when the determination of
net asset value is suspended by declaration of the
Trustees pursuant to the provisions of Article XII
hereof. In connection with the acquisition by merger
or otherwise of all or substantially all the assets of
an investment company (whether a regulated or private
investment company or a personal holding company), the
Trustees may issue or cause to be issued Shares and
accept in payment therefor such assets valued at not
more than market value thereof in lieu of cash,
notwithstanding that the federal income tax basis to
the Trust of any assets so acquired may be less than
the market value, provided that such assets are of the
character in which the Trustees are permitted to invest
the funds of the Trust.
The Trustees, in their sole discretion, may cause
the Trust to redeem all of the Shares of the Trust held
by any Shareholder if the value of such Shares is less
than a minimum amount established from time to time by
the Trustees.
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
<PAGE>Trustees, provided, however, that the Trustees,
without shareholder approval, may alter the method of
appraising portfolio securities insofar as permitted
under the 1940 Act, and the rules, regulations and
interpretations thereof promulgated or issued by the
Securities and Exchange Commission or insofar as
permitted by any order of the Securities and Exchange
commission. The Trustees may delegate any powers and
duties under this Article XII with respect to appraisal
of assets and liabilities. At any time the Trustees
may cause the value per share last determined to be
determined again in a similar manner and may fix the
time when such predetermined value shall become
effective.
ARTICLE XIII
DIVIDENDS AND DISTRIBUTIONS
SECTION 1. LIMITATIONS ON DISTRIBUTIONS. The
total of distributions to Shareholders of a particular
series or class paid in respect of any one fiscal year,
subject to the exceptions noted below, shall, when and
as declared by the Trustees, be approximately equal to
the sum of:
(i) the net income, exclusive of the profits
or losses realized upon the sale of
securities or other property, of such
series or class for such fiscal year,
determined in accordance with generally
accepted accounting principles (which,
if the Trustees so determine, may be
adjusted for net amounts included as
such accrued net income in the price of
Shares of such series or class issued or
repurchased), but if the net income of
such series or class exceeds the amount
distributed by less than one cent per
share outstanding at the record date for
the final dividend, the excess shall be
treated as distributable income of such
series or class for the following fiscal
year; and
(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 <PAGE>limitation imposed by this
Section 1, Shares issued pursuant to Section 2 of this
Article XIII shall be valued at the amount of cash
which the Shareholders would have received if they had
elected to receive cash in lieu of such Shares.
Inasmuch as the computation of net income and
gains for federal income tax purposes may vary from the
computation thereof on the books, the above provisions
shall be interpreted to give to the Trustees the power
in their discretion to distribute for any fiscal year
as ordinary dividends and as capital gains
distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce
liability for taxes. Any payment made to Shareholders
pursuant to clause (ii) of this Section 1 shall be
accompanied by a written statement showing the source
or sources of such payment, and the basis of
computation thereof.
SECTION 2. DISTRIBUTIONS PAYABLE IN CASH OR
SHARES. The Trustees shall have power, to the fullest
extent permitted by the laws of The Commonwealth of
Massachusetts but subject to the limitation as to cash
distributions imposed by Section 1 of this Article
XIII, at any time or from time to time to declare and
cause to be paid distributions payable at the election
of any Shareholder of any series or class (whether
exercised before or after the declaration of the
distribution) either in cash or in Shares of such
series, provided that the sum of:
(i) the cash distribution actually paid to
any Shareholder, and
(ii) the net asset value of the Shares which
that Shareholder elects to receive, in
effect at such time at or after the
election as the Trustees may specify,
shall not exceed the full amount of cash
to which that Shareholder would be
entitled if he elected to receive only
cash.
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 <PAGE>address of record, the Trustees, in
their sole discretion, may cause the Trust to require
that such Shareholder's distribution option will be
converted to having all distributions reinvested in
additional shares.
SECTION 3. STOCK DIVIDENDS. Anything in these By-
Laws to the contrary notwithstanding, the Trustees may
at any time declare and distribute pro rata among the
Shareholders of any series or class a "stock dividend"
out of either authorized but unissued Shares of such
series or class or treasury Shares of such series or
class or both.
ARTICLE XIV
DERIVATIVE CLAIMS
No Shareholder shall have the right to bring or
maintain any court action, proceeding or claim on
behalf of the Trust or any series or class thereof
without first making demand on the Trustees requesting
the Trustees to bring or maintain such action,
proceeding or claim. Such demand shall be excused only
when the plaintiff makes a specific showing that
irreparable injury to the Trust or any series or class
thereof would otherwise result. Such demand shall be
mailed to the Clerk of the Trust at the Trust's
principal office and shall set forth in reasonable
detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon
by the Shareholder to support the allegations made in
the demand. The Trustees shall consider such demand
within 45 days of its receipt by the Trust. In their
sole discretion, the Trustees may submit the matter to
a vote of Shareholders of the Trust or any series or
class thereof, as appropriate. Any decision by the
Trustees to bring, maintain or settle (or not to bring,
maintain or settle) such court action, proceeding or
claim, or to submit the matter to a vote of
Shareholders, shall be made by the Trustees in their
business judgment and shall be binding upon the
Shareholders. Any decision by the Trustees to bring or
maintain a court action, proceeding or suit on behalf
of the Trust or any series or class thereof shall be
subject to the right of the Shareholders under Article
VI, Section 6.8 of the Declaration to vote on whether
or not such court action, proceeding or suit should or
should not be brought or maintained.
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
<PAGE>(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 SPECIAL VALUE 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 SPECIAL VALUE
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:
(i) issue and record the appropriate number of Shares
and hold such Shares in the appropriate shareholder
account;
<PAGE>
(ii) effect transfers on the books of the Fund of
Shares by the registered owners thereof upon receipt of
appropriate documentation;
(iii) prepare and transmit payments for dividends
and distributions declared by the Fund; and
(iv) act as agent, or arrange for an independent party
to act as agent, for shareholders pursuant to the
dividend reinvestment and cash purchase plan as amended
from time to time.
(b) In addition to and not in lieu of the services set
forth in the above Article l.02.(a), MFSC agrees that
it will perform all of the customary services of a
registrar, transfer agent, dividend disbursing agent
and agent of a dividend reinvestment and cash purchase
plan. Such services shall include, but are not limited
to: maintaining all shareholder accounts, preparing
shareholder meeting lists, mailing proxies, receiving
and tabulating proxies, mailing shareholder reports and
other material to current shareholders, withholding
taxes on U.S. resident and non-resident alien accounts
where applicable, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by
federal authorities for all registered shareholders,
preparing and mailing confirmation forms and statements
of account to shareholders for all confirmable
transactions in shareholder accounts, and providing
shareholder account information.
ARTICLE 2. FEES AND EXPENSES
2.01. For the performance by MFSC of services
pursuant to this Agreement, the Fund agrees to pay MFSC
a fee as set out in the fee schedule attached hereto.
Such fee may be changed from time to time subject to
mutual written agreement between the Fund and MFSC.
2.02(a). In addition to the fee paid under Article
2.01 above, the Fund agrees to reimburse MFSC for
reasonable out-of pocket expenses and advances incurred
by MFSC on behalf of the Fund. In addition, any other
expenses incurred by MFSC at the request, or with the
consent, of the Fund will be reimbursed by the Fund.
(b) The Fund agrees to pay all fees and
reimbursable expenses within thirty (30) days following
the receipt of the relevant billing notice. Postage
and the cost of materials for mailing of dividends,
proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to MFSC by the
Fund at least seven (7) days prior to the mailing date
of such materials.
<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:
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 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
<PAGE>
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 inhouse counsel), or as
a result of acting in accordance with any instrument or
share certificate reasonably believed by MFSC to have
been genuine and signed, countersigned or executed by
any person or persons authorized to sign, countersign
or execute the same (unless contributed to by MFSC's
negligence or bad faith). In any case in which the Fund
may be asked to indemnify MFSC or hold MFSC harmless,
the Fund shall be advised of all pertinent facts
concerning the situation in question and MFSC will use
reasonable care to identify and notify the Fund
promptly concerning any situation which presents or
appears likely to present a claim for indemnification
against the Fund. The Fund shall have the option to
defend MFSC against any claim which may be the subject
of this indemnification, and in the event that the Fund
so elects such defense shall be conducted by counsel
chosen by the Fund and satisfactory to MFSC. The Fund
will so notify MFSC and thereupon the Fund shall take
over complete defense of the claim and MFSC shall
sustain no further legal or other expenses in such
situation for which MFSC seeks indemnification under
this Article, except the expense of any additional
counsel retained by MFSC. MFSC will in no case confess
any claim or make any compromise in any case in which
the Fund will be asked to indemnify MFSC except with
the Fund's prior written consent. The obligations of
the parties hereto under this Article shall survive the
termination of this Agreement.
5.02. If any officer of the Fund shall no
longer be vested with authority to execute any
instrument or share certificate of the Fund, written
notice thereof shall forthwith be given to MFSC by the
Fund and until receipt of such notice by MFSC, MFSC
shall be fully indemnified and held harmless by the
Fund in recognizing and acting upon certificates or
other instruments bearing the signatures or facsimile
signatures of such officer.
ARTICLE 6. COVENANTS OF MFSC
6.01. MFSC hereby agrees to establish and
maintain facilities and procedures reasonably
acceptable to the Fund for safekeeping of share
certificates, check forms and facsimile signature
imprinting devices, if any; and for the preparation
<PAGE>
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 compelled to do so by order of a
court or regulatory authority of competent
jurisdiction.
ARTICLE 7. NOTICES
All notices or other communications hereunder
shall be in writing and shall be deemed sufficient if
mailed to either party at the addresses set forth in
this Agreement, or at such other addresses as the
parties hereto may designate by notice to each other.
ARTICLE 8. USE OF A SUB- OR CO-TRANSFER AGENT
Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that
MFSC is authorized in the performance of its duties
hereunder to employ, from time to time, one or more sub-
transfer agents, co-transfer agents and/or other agents
to perform any of its duties hereunder, including,
without limitation, preparing shareholder meeting
lists, mailing proxies, and receiving and tabulating
proxies; provided, however, that MFSC shall be as fully
responsible to the Fund for the acts and omissions of
any such agent as it is for its own acts and omissions.
ARTICLE 9. TERMINATION OF AGREEMENT
9.01. Termination. Neither this Agreement nor
any provision hereof may be changed, waived, discharged
or terminated orally, but only by an instrument in
writing, which, except in the case of termination,
shall be signed by the party <PAGE>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 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.
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.
<PAGE>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.
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 SPECIAL VALUE TRUST
By:
Name: A. Keith Brodkin Address: 500 Boylston Street
Title: Chairman Boston, MA 02116
MFS SERVICE CENTER, INC.
By:
Name: Joseph A. Recomendes Address: 500 Boylston Street
Title: President, MFS Service Boston, MA 02116
Center, Inc.
<PAGE>FEE SCHEDULE
1. ACCOUNT MAINTENANCE
Total number of accounts for
all closed-end funds advised
by MFS for which MFSC acts as
Registrar and Transfer Agent: Annual Account Fee:
Less than 75,000 $9.00
75,000 and over $8.00
2. DIVIDEND SERVICES
Dividend Services include: calculation,
preparation and mailing of monthly dividend
checks; establishing and funding dividend
accounts; paying and reconciling the paid checks;
and the filing of Forms 1099 with the Internal
Revenue Service.
Fee Charged Will Be As Follows:
$ .75 per Dividend Reinvestment
$ .75 per Cash Infusion
If the fees charged in this Section 2 are less
than $1,000 per month for all closed-end funds
advised by MFS for which MFSC acts as Registrar
and Transfer Agent, then the minimum fee for the
Fund for these services will be $167 per month.
-1-
BOS-BUS:138979.1
<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:_________________________
W. Thomas London
Treasurer
THE FIRST NATIONAL BANK OF ABN AMRO BANK N.V.
BOSTON NEW YORK BRANCH
By:__________________________ By:
Nancy E. Fuller David Eastep
Director
By:
Eisso Vandermeulen
<PAGE>THE CHASE MANHATTAN BANK, N.A. CHEMICAL BANK
By:__________________________ By:
David J. Cintron M. Luisa Hunnewell
Second Vice President
UNION BANK STATE STREET BANK AND
TRUST COMPANY
By:__________________________ By:
David C. Hants David V. Cox
Vice President Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By:________________________________
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Percentage
Address of Form of Jurisdiction of Fees &
Borrower Organization of Organization Expenses Payable
</TABLE>
[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 information extracted
from the financial statements of MFS Special Value
Trust for the year ended October 31, 1994, and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 70,515,097
<INVESTMENTS-AT-VALUE> 75,777,736
<RECEIVABLES> 4,111,737
<ASSETS-OTHER> 2,998
<OTHER-ITEMS-ASSETS> 1,055,040
<TOTAL-ASSETS> 80,947,511
<PAYABLE-FOR-SECURITIES> 540,390
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 428,227
<TOTAL-LIABILITIES> 968,617
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,295,515
<SHARES-COMMON-STOCK> 5,967,746
<SHARES-COMMON-PRIOR> 5,876,618
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,543,759)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (35,501)
<ACCUM-APPREC-OR-DEPREC> 5,262,639
<NET-ASSETS> 79,978,894
<DIVIDEND-INCOME> 376,521
<INTEREST-INCOME> 1,706,723
<OTHER-INCOME> 0
<EXPENSES-NET> 1,040,666
<NET-INVESTMENT-INCOME> 1,042,578
<REALIZED-GAINS-CURRENT> 3,740,071
<APPREC-INCREASE-CURRENT> (1,741,963)
<NET-CHANGE-FROM-OPS> 3,040,686
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,981,081)
<DISTRIBUTIONS-OF-GAINS> (14,268,321)
<DISTRIBUTIONS-OTHER> (5,186,565)
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 91,128
<PAGE>
<NET-CHANGE-IN-ASSETS> (16,952,645)
<ACCUMULATED-NII-PRIOR> (154,302)
<ACCUMULATED-GAINS-PRIOR> 9,966,123
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 668,372
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,040,666
<AVERAGE-NET-ASSETS> 86,832,343
<PER-SHARE-NAV-BEGIN> 16.49
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.35
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (2.40)
<RETURNS-OF-CAPITAL> (0.88)
<PER-SHARE-NAV-END> 13.40
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
