As filed with the Securities and Exchange Commission on February 28, 1996
1933 Act File No. 33-34502
1940 Act File No. 811-6102
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 9
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 11
MFS SERIES TRUST VI
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on February 28, 1996 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest, without par value, under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice on behalf of all of its series
for its fiscal year ended October 31, 1995 on December 29, 1995.
- --------------------------------------------------------------------------------
<PAGE>
MFS SERIES TRUST VI
MFS World Total Return Fund
MFS Utilities Fund
MFS World Equity Fund
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
1 (a),(b) Front Cover Page *
2 (a) Expense Summary *
(b),(c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares *
of the Fund - Performance
Information
(d) Condensed Financial Information *
4 (a) Front Cover Page; The Fund; *
Investment Objective and
Policies; Investment Techniques
(b) Investment Objective and *
Policies; Investment Techniques
(c) Investment Objective and *
Policies; Investment Techniques;
Additional Risk Factors
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
5 (a) The Fund; Management of the *
Fund - Investment Adviser
(b) Front Cover Page; Management *
of the Fund - Investment
Adviser; Back Cover Page
(c) Management of the Fund - *
Investment Adviser
(d) * *
(e) Management of the Fund - *
Shareholder Servicing Agent;
Back Cover Page
(f) Information Concerning the Fund - *
Expenses; Condensed Financial
Information; Expense Summary
(g) Additional Risk Factors - Portfolio *
Trading
5A (a) ** **
(b) ** **
6 (a) Information Concerning Shares *
of the Fund - Description
of Shares, Voting Rights
and Liabilities;
Information Concerning
Shares of the Fund -
Redemptions and
Repurchases; Information
Concerning Shares of the
Fund - Purchases;
Information Concerning
Shares of the Fund -
Exchang
(b), (c), (d) * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(e) Shareholder Services *
(f) Information Concerning Shares *
of the Fund - Distributions;
Shareholder Services -
Distribution Options
(g) Information Concerning Shares *
of the Fund - Tax Status;
Information Concerning Shares
of the Fund - Distributions
(h) * *
7 (a) Front Cover Page; Management *
of the Fund - Distributor; Back
Cover Page
(b) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Net Asset Value
(c) Information Concerning Shares *
of the Fund - Purchases;
Shareholder Services;
Information Concerning Shares
of the Fund - Exchanges
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases; Shareholder Services
(e) Information Concerning Shares *
of the Fund - Distribution Plans;
Expense Summary
(f) Information Concerning Shares *
of the Fund - Distribution Plans
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
8 (a) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases; Information
Concerning Shares of the
Fund - Purchases; Shareholder
Services
(b) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases
(c) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases
(d) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases
9 * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 The Fund Definitions
13 (a), (b), (c) * Investment Objective, Policies
and Restrictions;
Techniques; Investment
Restrictions
(d) * *
14 (a), (b) * Management of the Fund -
Trustees and Officer
(c) * *
15 (a) * *
(b), (c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Offices
(b) Management of the Fund - Management of the Fund -
Investment Adviser; Investment Adviser
Expenses
(c) * *
(d) * Management of the Fund -
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(f) Information Concerning Distribution Plans
Shares of the Fund -
Distribution Plans
(g) * *
(h) * Management of the Fund -
Custodian; Independent
Auditors and Financial
Statements; Back Cover Page
(i) * Management of the Fund -
Shareholder Servicing Agent
17 (a),(b),(c), * Portfolio Transactions and
(d), (e) Brokerage Commissions
18 (a) Information Concerning Description of Shares Voting
Shares of the Fund - Rights and Liabilities
Description of Shares,
Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shareholder Services
Shares of the Fund -
Purchases; Shareholder
Services
(b) Information Concernings Management of the Fund -
of the Fund - Net Asset Distributor; Determination
Information Concerning of Net Asset Value and
Shares of Fund - Performance - Net Asset
Purchases Value
(c) * *
20 * Tax Status
21 (a) * Management of the Fund -
Distributor; Distribution
Plans
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(b) * Management of the Fund -
Distributor; Distribution
Plans
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
23 * Independent Auditors
and Financial Statements
- -----------------------
* Not Applicable
** Contained in Annual Report
<PAGE>
PROSPECTUS
March 1, 1996
MFS(R) WORLD Class A Shares of Beneficial Interest
TOTAL RETURN FUND Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- -----------------------------------------------------------------------
Page
----
1. Expense Summary ................................................. 2
2. The Fund ........................................................ 3
3. Condensed Financial Information ................................. 4
4. Investment Objective and Policies ............................... 5
5. Investment Techniques ........................................... 7
6. Additional Risk Factors ......................................... 11
7. Management of the Fund .......................................... 14
8. Information Concerning Shares of the Fund ....................... 15
Purchases .................................................... 15
Exchanges .................................................... 18
Redemptions and Repurchases .................................. 19
Distribution Plans ........................................... 21
Distributions ................................................ 23
Tax Status ................................................... 23
Net Asset Value .............................................. 23
Description of Shares, Voting Rights and Liabilities ......... 24
Performance Information ...................................... 24
9. Shareholder Services ............................................ 25
Appendix A ......................................................... A-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENS E.
MFS WORLD TOTAL RETURN FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
This Prospectus pertains to MFS World Total Return Fund (the "Fund") a non-
diversified series of MFS Series Trust VI (the "Trust"), an open-end
management investment company presently consisting of three series. The Fund's
investment objective is to seek total return by investing in securities which
will provide above-average current income (compared to a portfolio invested
entirely in equity securities) and opportunities for long-term growth of
capital and income. The Fund will invest primarily in global equity and fixed
income securities (i.e., those of U.S. and non-U.S. issuers). THE FUND IS
DESIGNED FOR INVESTORS WHO WISH TO SPREAD THEIR INVESTMENTS BEYOND THE UNITED
STATES AND WHO ARE PREPARED TO ACCEPT THE RISKS ENTAILED IN SUCH INVESTMENTS,
WHICH MAY BE HIGHER THAN THOSE ASSOCIATED WITH CERTAIN U.S. INVESTMENTS (see
"Investment Objective and Policies"). The minimum initial investment generally
is $1,000 per account (see "Purchases"). The Fund's investment adviser and
distributor are Massachusetts Financial Services Company ("MFS" or the
"Adviser") and MFS Fund Distributors, Inc. ("MFD"), respectively, both of
which are located at 500 Boylston Street, Boston, Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY,
AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL
INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU
MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
This Prospectus sets forth concisely the information concerning the Fund and
the Trust that a prospective investor ought to know before investing. The
Trust, on behalf of the Fund, has filed with the Securities and Exchange
Commission (the "SEC") a Statement of Additional Information, dated March 1,
1996, as amended or supplemented from time to time (the "SAI"), which contains
more detailed information about the Trust and the Fund and is incorporated
into this Prospectus by reference. See page 26 for a further description of
the information set forth in the SAI. A copy of the SAI may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover
for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as a
percentage of offering price) .......................................... 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) .................. See Below(1) 4.00% 0.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees .......................................................... 0.89% 0.89% 0.89%
Rule 12b-1 Fees .......................................................... 0.35%(2) 1.00%(3) 1.00%(3)
Other Expenses ........................................................... 0.53% 0.60% 0.53%
---- ---- ----
Total Operating Expenses ................................................. 1.77% 2.49% 2.42%
- ----------
(1) Purchases of $1 million or more are not subject to an initial sales charge; however, a contingent deferred sales charge
("CDSC") of 1% will be imposed on such purchases in the event of certain redemption transactions within 12 months
following such purchases (see "Information Concerning Shares of the Fund -- Purchases" below).
(2) The Fund has adopted a Distribution Plan for its Class A shares in accordance with Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"), which provides that it will pay distribution/ service fees aggregating
up to (but not necessarily all of) 0.35% per annum of the average daily net assets attributable to the Class A shares
(see "Information Concerning Shares of the Fund -- Distribution Plans" below). Distribution expenses under this Plan,
together with the initial sales charge, may cause long-term shareholders to pay more than the maximum sales charge that
would have been permissible if imposed entirely as an initial sales charge.
(3) The Fund has adopted separate Distribution Plans for its Class B and its Class C shares in accordance with Rule 12b-1
under the 1940 Act, which provide that it will pay distribution/service fees aggregating up to (but not necessarily all
of) 1.00% per annum of the average daily net assets attributable to the Class B shares under the Class B Distribution
Plan and the Class C shares under the Class C Distribution Plan (see "Information Concerning Shares of the Fund --
Distribution Plans" below). Distribution expenses paid under these Plans, together with any CDSC payable upon redemption
of Class B shares, may cause long-term shareholders to pay more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
</TABLE>
<PAGE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
------ ------- --------------------- --------
(1)
1 year .............. $ 65 $ 65 $ 25 $ 25
3 years ............. 101 108 78 75
5 years ............. 139 153 133 129
10 years ............. 246 265(2) 265(2) 276
- ----------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections of the Prospectus: (i) varying
sales charges on share purchases -- "Purchases"; (ii) varying CDSCs --
"Purchases"; (iii) management fees -- "Investment Adviser"; and (iv) Rule 12b- 1
(i.e., distribution plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
2. THE FUND
The Fund is a non-diversified series of the Trust, an open-end management
investment company which was organized as a business trust under the laws of
The Commonwealth of Massachusetts on April 30, 1990. The Trust presently
consists of three series, each of which represents a portfolio with separate
investment objectives and policies. Shares of the Fund are continuously sold
to the public and the Fund then uses the proceeds to buy securities (primarily
equity and debt securities) for its portfolio. Three classes of shares of the
Fund currently are offered to the general public. Class A shares are offered
at net asset value plus an initial sales charge (or a CDSC in the case of
certain purchases of $1 million or more) and subject to a Distribution Plan,
providing for an annual distribution fee and service fee. Class B shares are
offered at net asset value without an initial sales charge but subject to a
CDSC and a Distribution Plan providing for an annual distribution fee and
service fee which are greater than the Class A annual distribution fee and
service fee. Class B shares will convert to Class A shares approximately eight
years after purchase. Class C shares are offered at net asset value without an
initial sales charge or a CDSC but subject to a Distribution Plan providing
for an annual distribution fee and service fee which are equal to the Class B
annual distribution fee and service fee. Class C shares do not convert to any
other class of shares of the Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of
the Fund. The Adviser is responsible for the management of the Fund's assets
and the officers of the Trust are responsible for the Fund's operations. The
Adviser manages the portfolio from day to day in accordance with the Fund's
investment objective and policies. A majority of the Trustees are not
affiliated with the Adviser. The selection of investments and the way they are
managed depend on the conditions and trends in the economies of the various
countries of the world, their financial markets and the relationship of their
currencies to the U.S. dollar. The Fund also offers to buy back (redeem) its
shares from its shareholders at any time at net asset value, less any
applicable CDSC.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with financial statements
included in the Fund's Annual Report to shareholders which are incorporated by
reference into the SAI, in reliance upon the report of the Fund's independent
auditors, given upon their authority as experts in accounting and auditing.
The Fund's independent auditors are Ernst & Young LLP.
<TABLE>
FINANCIAL HIGHLIGHTS
CLASS A, CLASS B AND CLASS C SHARES
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991 1990<F1>
----- ----- ---- ---- ---- -----
CLASS A
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
Net asset value - beginning of period ................. $10.58 $11.19 $10.21 $ 9.42 $ 8.55 $ 8.50
------ ------ ------ ------ ------ ------
Income from investment operations<F3> -
Net investment income ............................... $ 0.33 $ 0.30 $ 0.28 $ 0.36 $ 0.37 $ 0.08
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ...... 0.79 0.15 1.42 0.86 0.88 (0.03)
------ ------ ------ ------ ------ ------
Total from investment operations .................. $ 1.12 $ 0.45 $ 1.70 $ 1.22 $ 1.25 $ 0.05
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income .......................... $(0.08) $(0.25) $(0.45) $(0.26) $(0.38) $ --
From net realized gain on investments and foreign
currency transactions .... (0.05) (0.33) (0.27) (0.17) -- --
In excess of net realized gain on investments and
foreign currency transactions ..................... -- (0.38) -- -- -- --
From paid-in capital ................................ -- (0.10) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders .... $(0.13) $(1.06) $(0.72) $(0.43) $(0.38) --
------ ------ ------ ------ ------ ------
Net asset value - end of period ....................... $11.57 $10.58 $11.19 $10.21 $ 9.42 $ 8.55
====== ====== ====== ====== ====== ======
Total return<F5> ...................................... 10.63% 4.10% 17.78% 13.14% 14.94% 3.76%<F2>
RATIOS (TO AVERAGE DAILY NET ASSETS)/SUPPLEMENTAL DATA:
Expenses<F4> ........................................ 1.77% 1.76% 1.92% 1.84% 2.18% 1.57%<F2>
Net investment income ............................... 3.06% 2.81% 2.96% 3.65% 4.05% 3.14%<F2>
PORTFOLIO TURNOVER .................................... 160% 118% 112% 72% 134% 2%
NET ASSETS AT END OF PERIOD (000 OMITTED) ............. $110,294 $99,870 $71,262 $44,707 $30,847 $12,510
- ----------
<FN>
<F1>For the period from September 4, 1990 (commencement of investment operations) to October 31, 1990.
<F2>Annualized.
<F3>Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
<F4>For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
<F5>Total returns do not include the applicable sales charge. If the sales charge had been included the results would
have been lower.
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------
1995 1994 1993<F1> 1995 1994<F2>
---- ---- ---- ---- ----
CLASS B CLASS C
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
Net asset value - beginning of period .............................. $10.54 $11.19 $10.84 $10.53 $ 11.06
------ ------ ------ ------ -------
Income from investment operations<F5> -
Net investment income ............................................ $ 0.25 $ 0.25 $ 0.06 $ 0.27 $ 0.27
Net realized and unrealized gain (loss) on investments and
foreign currency transactions ................................. 0.77 0.13 0.35 0.76 (0.29)
------ ------ ------ ------ -------
Total from investment operations ............................... $ 1.02 $ 0.38 $ 0.41 $ 1.03 $ (0.02)
------ ------ ------ ------ -------
Less distributions declared to shareholders -
From net investment income ....................................... $(0.03) $(0.24) $(0.06) $(0.03) $ (0.12)
From net realized gain on investments and foreign currency
transactions ................................................... (0.01) (0.32) -- (0.01) (0.16)
In excess of net realized gain on investments and foreign
currency transactions .......................................... -- (0.38) -- -- (0.18)
From paid-in capital ............................................. -- (0.09) -- -- (0.05)
------ ------ ------ ------ -------
Total distributions declared to shareholders ................. $(0.04) $(1.03) $(0.06) $(0.04) $ (0.51)
------ ------ ------ ------ -------
Net asset value - end of period .................................... $11.52 $10.54 $11.19 $11.52 $ 10.53
====== ====== ====== ====== =======
Total return<F7> ................................................... 9.75% 3.38% 3.79%<F4> 9.84% (0.15)%<F4>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses<F6> ..................................................... 2.49% 2.49% 2.77%<F3> 2.42% 2.39%<F3>
Net investment income ............................................ 2.34% 2.33% 2.15%<F3> 2.41% 2.51%<F3>
PORTFOLIO TURNOVER ................................................. 160% 118% 112% 160% 118%
NET ASSETS AT END OF PERIOD (000 OMITTED)........................... $57,214 $47,677 $4,381 $10,894 $10,903
- ----------
<FN>
<F1>For the period from commencement of offering of Class B shares, September 7, 1993 to October 31, 1993.
<F2>For the period from commencement of offering of Class C shares, January 3, 1994 to October 31, 1994.
<F3>Annualized.
<F4>Not annualized.
<F5>Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
<F6>For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
<F7>Total returns do not include the applicable sales charge. If the sales charge had been included the results would have been
lower.
</FN>
</TABLE>
<PAGE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to seek total return
by investing in securities which will provide above-average current income
(compared to a portfolio invested entirely in equity securities) and
opportunities for long-term growth of capital and income. The Fund will invest
primarily in global equity and fixed income securities (i.e., those of U.S. and
non-U.S. issuers). Any investment involves risk and there can be no assurance
that the Fund will achieve its investment objective.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective
through a professionally managed, internationally diversified portfolio
consisting of equity and fixed income securities. The Fund attempts to provide
investors with an opportunity to enhance the value and increase the protection
of their investment against inflation and otherwise by taking advantage of
investment opportunities in the United States as well as in other countries
where opportunities may be more rewarding. It is believed that diversification
of assets on an international basis decreases the degree to which events in
any one country, including the United States, can affect the entire portfolio.
Although the percentage of the Fund's assets invested in securities issued
abroad and denominated or quoted in foreign currencies ("non-dollar
securities") will vary depending on the state of the economies of the various
countries of the world, their financial markets and the relationship of their
currencies to the U.S. dollar, under normal conditions the Fund will be
invested in at least three different countries, one of which will be the
United States. For temporary defensive reasons or during times of
international political or economic uncertainty or turmoil, most or all of the
Fund's investments may be in the United States.
Under normal economic and market conditions, the Fund will invest not less
than 40% and not more than 75% of its assets in equity securities. Such
securities will include common stocks and equivalents (such as convertible
securities and warrants) and preferred stocks of (i) U.S. issuers which
derive, or have the potential to derive, a meaningful portion (approximately
25% or more) of their revenues and earnings in foreign markets; (ii) non-U.S.
issuers; and (iii) to a lesser extent, other U.S. issuers. The Fund may invest
up to 90% (and expects generally to invest between 25% to 90%) of its total
assets in foreign securities (not including American Depositary Receipts),
which may be traded on foreign exchanges. Convertible securities in which the
Fund may invest will be rated BBB or better by Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch"), or Baa or better by
Moody's Investors Service, Inc. ("Moody's"), or if unrated, will be determined
by the Adviser to be of comparable quality. If a security purchased by the
Fund is subsequently downgraded to below BBB by S&P or by Fitch or Baa by
Moody's (or comparable standards for unrated securities), the security will be
sold only if the Adviser believes it is advantageous to do so. The Fund may
invest up to 5% of its net assets in convertible securities rated below BBB or
Baa (commonly known as "Junk Bonds") (see Appendix B in the SAI for a
description of bond ratings).
In managing the Fund conservatively, the Adviser attempts to exercise
prudence, discretion and intelligence in the selection of securities of high
or improving investment quality, with due regard for probable income and
probable safety of capital. The words "high investment quality" reflect the
intention of the Fund to invest in securities of well-known, established
issuers and to avoid the acquisition of speculative securities or those of
doubtful character even if the immediate prospect is tempting. The Adviser may
determine that a security possesses high or improving investment quality if,
for instance, there has been an increase in the issuer's sales and earnings or
if current trends indicate that an increase in the issuer's sales and earnings
is likely, or if the issuer's balance sheet is strong or has improved. The
opportunity for currency appreciation generally is not a significant factor in
the Fund's selection of equity securities.
Under normal economic and market conditions, at least 25% of the Fund's assets
will be invested in fixed income securities, such as bonds, debentures,
mortgage securities, notes, commercial paper, obligations issued or guaranteed
by a government or any of its political subdivisions, agencies or
instrumentalities, certificates of deposit, as well as debt obligations which
may have a call on common stock by means of attached warrants. Debt securities
in which the Fund may invest may also include zero coupon bonds. Zero coupon
bonds do not require the periodic payment of interest and 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 at a rate of interest reflecting the market rate of the security at
the time of issuance. Zero coupon bonds 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 will experience greater volatility in market value than debt
obligations with comparable maturities which make regular payments of
interest. The Fund's investment in zero coupon securities and certain
securities purchased at a market discount will cause it to recognize income
prior to the receipt of cash payments with respect to these securities. In
order to distribute this income and avoid a tax on the Fund, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
The Fund will purchase non-dollar fixed income securities denominated in the
currency of countries where the interest rate environment as well as the
general economic climate provide an opportunity for declining interest rates
and currency appreciation. If interest rates decline, such non-dollar fixed
income securities will generally appreciate in value. If the currency also
appreciates against the dollar, the total investment in such non-dollar fixed
income securities would be enhanced further. Conversely, a rise in interest
rates or decline in currency exchange rates would adversely affect the Fund's
return. Investments in non-dollar fixed income securities are evaluated by the
Adviser primarily on the strength of a particular currency against the dollar
and on the interest rate climate of that country. Currency is judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status and economic
policies) as well as technical and political data. In addition to the
foregoing, interest rates are evaluated on the basis of differentials or
anomalies that may exist between different countries. The Fund may hold
foreign currency received in connection with investments in non-dollar fixed
income securities when, in the judgment of the Adviser, it would be beneficial
to convert such currency into U.S. dollars at a later date, based on
anticipated changes in the exchange rate.
The Fund will invest in investment grade U.S. and non-U.S. fixed income
securities. Such securities will be rated BBB or better by S&P or Fitch, or
Baa or better by Moody's, or if unrated, will be determined by the Adviser to
be of comparable quality. Securities rated BBB or Baa, 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.
Assets invested in fixed income securities of non-U.S. issuers will be
diversified among countries where opportunities for total return are expected
to be most attractive. It is currently expected that fixed income investments
within foreign countries will be primarily in securities issued or guaranteed
by governments, including their political subdivisions, authorities, agencies
and instrumentalities, or supranational authorities (such as the World Bank)
to minimize credit risk. While the Fund will invest in fixed income securities
which are believed to have minimal credit risk, an error of judgment in
selecting a currency or an interest rate environment could result in a loss of
capital.
Although it may invest anywhere in the world, the Fund expects to invest most
of its assets in the equity securities of issuers located in Australia,
Canada, Europe, Japan or the United States and in the debt securities of
issuers located in any of such regions or countries or New Zealand. The Fund
may invest more than 25% of its assets in securities of issuers located in the
United States. The Adviser will determine the amount of the Fund's assets to
be invested in the United States and the amount to be invested abroad.
The Fund has registered as a "non-diversified" investment company. As a
result, the Fund is limited as to the percentage of its assets which may be
invested in the securities of any one issuer only by its own investment
restrictions and the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended (the "Code"). U.S. Government securities are
not subject to any investment limitation. Since the Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.
When unfavorable economic or market conditions exist, the Fund may, until
favorable conditions return, invest all or a portion of its assets in cash (or
foreign currency) or cash equivalents (such as certificates of deposit,
bankers' acceptances and time deposits), commercial paper, short-term
obligations, repurchase agreements and obligations issued or guaranteed by the
U.S. or any foreign government or any of their agencies, authorities or
instrumentalities.
5. INVESTMENT TECHNIQUES
Consistent with the Fund's investment objective and policies, the Fund may
engage in the following investment techniques, many of which are described
more fully in the SAI. See "Investment Objective, Policies and Restrictions"
in the SAI.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member firms
(and subsidiaries thereof) of the New York Stock Exchange (the "Exchange") and
to member banks of the Federal Reserve System, and would be required to be
secured continuously by collateral in cash, U.S. Government securities or an
irrevocable letter of credit maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The Fund will
continue to collect the equivalent of interest on the securities loaned and
will also receive either interest (through investment of cash collateral) or a
fee (if the collateral is U.S. Government securities). 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
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which could be earned currently from securities loans of this
type justifies the attendant risk.
"WHEN ISSUED" OR "FORWARD DELIVERY" SECURITIES: The Fund may purchase
securities on a "when-issued" or on a "forward delivery" basis, which means
that the securities will be delivered to the Fund at a future date usually
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.
The Fund does not pay for the securities until received, and does not start
earning interest on the securities until the contractual settlement date. In
order to invest its assets immediately, while awaiting delivery of securities
purchased on such bases, the Fund will normally invest in cash, short-term
money market instruments and high quality debt securities. Although the Fund
does not intend to make such purchases for speculative purposes and intends to
adhere to the provisions of SEC policies, purchases of securities on such
bases may involve more risk than other types of purchases. For example, the
Fund may have to sell assets which have been set aside in order to meet
redemptions. Also, if the Fund determines it necessary to sell the "when-
issued" or "forward delivery" securities before delivery, it may incur a loss
because of market fluctuations since the time the commitment to purchase such
securities was made.
EMERGING MARKET SECURITIES: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser to have an emerging market economy, taking
into account a number of factors, including whether the country has a low-to
middle-income economy according to the International Bank for Reconstruction
and Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets.
The Adviser determines whether an issuer's principal activities are located in
an emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source
of its revenues and assets. The issuer's principal activities generally are
deemed to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws
of, and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; (d) the issuer derives
50% or more of its total revenues from goods sold or services performed in
that country; or (e) the issuer has 50% or more of its assets in that country.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan
debt restructurings have been implemented to date in Argentina, Brazil,
Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria,
Panama, the Philippines, Poland, Uruguay and Venezuela. Brady Bonds have been
issued only recently, and for that reason do not have a long payment history.
Brady Bonds may be collateralized or uncollateralized, are issued in various
currencies (but primarily the U.S. dollar) and are actively traded in over-
the-counter secondary markets. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds
having the same maturity as the bonds. Brady Bonds are often viewed as having
three or four valuation components: the collateralized repayment of principal
at final maturity; the collateralized interest payment; the uncollateralized
interest payments; and any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constituting the "residual risk"). In light of
the residual risk of Brady Bonds and the history of defaults of countries
issuing Brady Bonds with respect to commercial bank loans by public and
private entities, investments in Brady Bonds may be viewed as speculative.
AMERICAN DEPOSITARY RECEIPTS: The Fund 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. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign
securities such as changes in exchange rates and more limited information
about foreign issuers.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a
continuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to a Fund's limitation on
investing not more than 15% of its net assets in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily
function of determining and monitoring the liquidity of Rule 144A securities.
The Board, however, will retain sufficient oversight and be ultimately
responsible for the determinations. The Board will carefully monitor the
Fund's investments in Rule 144A securities, focusing on such important
factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of decreasing the
level of liquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities held
in the Fund's portfolio. Subject to the Fund's 15% limitation on investments
in illiquid investments, the Fund may also invest in restricted securities
that may not be sold under Rule 144A, which presents certain risks. As a
result, the Fund might not be able to sell these securities when the Adviser
wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment
may at times play a greater role in valuing these securities than in the case
of unrestricted securities.
MORTGAGE PASS-THROUGH SECURITIES: The Fund 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 prepayments. Prepayments on
underlying mortgages result in a loss of anticipated interest, and all or part
of any premium paid, and the actual yield (or total return) to the Fund 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 a mortgage pass-through security generally will decline; however,
when interest rates are declining, the value of mortgage pass-through
securities with prepayment features may not increase as much as that of other
fixed-income securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")); or
guaranteed by agencies or instrumentalities of the U.S. Government (such as
securities guaranteed by the Federal National Mortgage Association ("FNMA") or
the Federal Home Loan Mortgage Corporation, which are not guaranteed by the
U.S. Government). Mortgage pass-through securities may also be issued by non-
governmental issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers). Some of these mortgage pass-through securities may be
supported by various forms of insurance or guarantees.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or
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. See the
SAI for further information on these securities.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which
the Fund sells mortgage-backed securities for delivery in the future
(generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. The Fund will only enter into covered rolls. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before the
forward settlement date of the dollar roll transaction.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short to intermediate term
fixed-income securities whose values at maturity or interest rates rise or
fall according to the change in one or more specified underlying instruments.
Indexed securities may be positively or negatively indexed (i.e., their value
may increase or decrease if the underlying instrument appreciates), and may
have return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself.
OPTIONS ON FIXED INCOME SECURITIES: The Fund may write (sell) covered put and
call options on fixed income securities and purchase put and call options. The
Fund will write such options for the purpose of increasing its return and/or
to protect the value of its portfolio. The Fund may also write combinations of
put and call options on the same security, known as "straddles." Such
transactions can generate additional premium income but also present increased
risk. The Fund may purchase put or call options in anticipation of declines in
the value of fixed income portfolio securities or increases in the value of
securities to be acquired.
The Fund may also enter into options on the yield "spread," or yield
differential, between two securities, a transaction referred to as a "yield
curve" option, for hedging and non-hedging (an effort to increase current
income) purposes. 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 actual prices of the individual securities, and is settled through
cash payments. Accordingly, a yield curve option is profitable to the holder
if this differential widens (in the case of a call) or narrows (in the case of
a put), regardless of whether the yields of the underlying securities increase
or decrease. Yield curve options written by the Fund will be covered as
described in the SAI. The trading of yield curve options is subject to all the
risks associated with trading other types of options, as discussed below under
"Additional Risk Factors" and in the SAI. In addition, such options present
risks of loss even if the yield on one of the underlying securities remains
constant, if the spread moves in a direction or to an extent which was not
anticipated.
The Fund may purchase and sell options that are traded on U.S. and foreign
exchanges, and options traded over-the-counter, with broker-dealers who deal
in these options. The ability to terminate over-the-counter options is more
limited than with exchange-traded options and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations. The Fund will treat assets used to cover over-the-counter options
as illiquid unless the dealer is a primary dealer in U.S. Government
securities and has given the Fund the unconditional right to close such
options at a formula price, in which event only an amount of the cover
determined with reference to the formula will be considered illiquid. The Fund
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.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indices of fixed income securities as such instruments
become available for trading ("Futures Contracts"). Such transactions may be
entered into for hedging purposes, in order to protect the Fund's current or
intended investments from the effects of changes in interest or exchange
rates, as well as for non-hedging purposes to the extent permitted by
applicable law. The Fund will incur brokerage fees when it purchases and sells
Futures Contracts, and will be required to maintain margin deposits. In
addition, Futures Contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Fund, if its investment judgment about
the general direction of interest or exchange rates is incorrect, the Fund's
overall performance may be poorer than if it had not entered into any such
contract and the Fund may realize a loss. The Fund will not enter into any
Futures Contract if immediately thereafter the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the
value of its total assets.
OPTIONS ON FUTURES CONTRACTS: The Fund may also purchase and write options on
Futures Contracts ("Options on Futures Contracts") for hedging purposes for
the purpose of protecting against declines in the value of fixed income
portfolio securities or against increases in the cost of such securities to be
acquired, as well as for non-hedging purposes to the extent permitted by
applicable law. Purchases of Options on Futures Contracts may present less
risk in hedging the portfolio of the Fund than the purchase or sale of the
underlying Futures Contracts, since the potential loss is limited to the
amount of the premium paid for the option, plus related transaction costs. The
writing of such options, however, does not present less risk than the trading
of Futures Contracts, and will constitute only a partial hedge, up to the
amount of the premium received, less related transaction costs. In addition,
if an option is exercised, the Fund may suffer a loss on the transaction.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency
at a future date ("Forward Contracts"). The Fund may enter into Forward
Contracts for hedging purposes as well as for the non-hedging purpose of
increasing the Fund's current income. By entering into transactions in Forward
Contracts, however, the Fund may be required to forego the benefits of
advantageous changes in exchange rates and, in the case of Forward Contracts
entered into for non-hedging purposes, the Fund may sustain losses which will
reduce its gross income. Such transactions, therefore, could be considered
speculative. Forward Contracts are traded over-the-counter and not on
organized commodities or securities exchanges. As a result, such contracts
operate in a manner distinct from exchange-traded instruments, and their use
involves certain risks beyond those associated with transactions in Futures
Contracts or options traded on exchanges. The Fund 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 Adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies. The Fund has established procedures consistent with statements of
the SEC and its staff regarding the use of Forward Contracts by registered
investment companies, which requires use of segregated assets or "cover" in
connection with the purchase and sale of such contracts.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of fixed income portfolio
securities and against increases in the dollar cost of fixed income securities
to be acquired. As in the case of other types of options, however, the writing
of Options on Foreign Currencies will constitute only a partial hedge, up to
the amount of the premium received, and the Fund may be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of Options on Foreign Currencies may constitute
an effective hedge against fluctuations in exchange rates although, in the
event of rate movements adverse to the Fund's position, it may forfeit the
entire amount of the premium paid for the option plus related transaction
costs.
SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to
different types of investments, the Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors. Swaps involve the exchange by the Fund with another party
of cash payments based upon different interest rate indices, currencies, and
other prices or rates such as the value of mortgage prepayment rates. For
example, in the typical interest rate swap, the Fund might exchange a sequence
of cash payments based on a floating rate index for cash payments based on a
fixed rate. Payments made by both parties to a swap transaction are based on a
principal amount determined by the parties.
The Fund may also purchase and sell caps, floors and collars. In a typical cap
or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the
extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from
the counterparty selling such interest rate cap. The sale of an interest rate
floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease the Fund's exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of the Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which
involve certain risks. See the SAI on the risks involved in these activities.
6. ADDITIONAL RISK FACTORS
OPTIONS, FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS
AND OPTIONS ON FOREIGN CURRENCIES: Although the Fund will enter into
transactions in Futures Contracts, Options on Futures Contracts and Options
on Foreign Currencies for hedging purposes, and will enter into certain option
transactions and certain Forward Contracts for non-hedging purposes, such
transactions nevertheless involve certain risks. For example, a lack of
correlation between the instrument underlying an option or Futures Contract
and the assets being hedged, or unexpected adverse price movements, could
render the Fund's hedging strategy unsuccessful and could result in losses.
The Fund also may enter into transactions in such instruments for non-hedging
purposes to the extent permitted by applicable law, which involves greater
risk. In particular, such transactions may result in losses for the Fund which
are not offset by gains on other portfolio positions, thereby reducing gross
income. In addition, foreign currency markets may be extremely volatile from
time to time. There also can be no assurance that a liquid secondary market
will exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expiration, which could result in
losses. In addition, the Fund may be required or may elect to receive delivery
of the foreign currencies underlying Forward Contracts or Options on Foreign
Currencies, which may involve certain risks. In such instances, the Fund may
hold the foreign currency when, in the judgment of the Adviser, it would be
beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate. The SAI contains a
description of the nature and trading mechanics of options, Futures Contracts,
Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies, and includes a discussion of the risks related to transactions
therein.
Transactions in Forward Contracts may be entered into only in the over-the-
counter market. Futures Contracts and Options on Futures Contracts may be
entered into on United States exchanges regulated by the Commodity Futures
Trading Commission and on foreign exchanges. In addition, the fixed income
securities underlying options and Futures Contracts traded by the Fund will
include U.S. Government securities as well as foreign securities.
FOREIGN SECURITIES: Investors should recognize that transactions involving
foreign equity or debt securities or foreign currencies, and transactions
entered into in foreign countries, involve considerations and risks not
typically associated with investing in U.S. markets. Such investments may be
favorably or unfavorably affected by changes in interest rates, currency
exchange rates and exchange control regulations, and costs may be incurred in
connection with conversions between various currencies. Investments in foreign
countries could also be affected by other factors generally not thought to be
present in the United States, including the possibility of heavy taxation,
less publicly available financial and other information, different or lesser
regulatory protection, political or social instability, limitations on the
removal of funds or other assets of the Fund, expropriation of assets,
diplomatic developments adverse to U.S. investments and difficulties in
enforcing contractual obligations. In addition, while the holding of foreign
currencies will permit the Fund to take advantage of favorable movements in
the applicable exchange rate, it also exposes the Fund to risk of loss if such
rates move in a direction adverse to the Fund's position. Such losses could
also adversely affect the Fund's hedging strategies. The Fund will not invest
25% or more of the value of its assets in the securities of any one foreign
government.
EMERGING MARKET SECURITIES: The risks of investing in foreign securities may
be intensified in the case of investments in emerging markets. Securities of
many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. Emerging markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to the Fund due to subsequent declines in value of the
portfolio security, a decrease in the level of liquidity in the Fund's
portfolio, or, if the Fund has entered into a contract to sell the security,
in possible liability to the purchaser. Certain markets may require payment
for securities before delivery and in such markets the Fund bears the risk
that the securities will not be delivered and that the Fund's payments will
not be returned. Securities prices in emerging markets can be significantly
more volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions against repatriation of assets, and may
have less protection of property rights than more developed countries. The
economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of the Fund.
------------------------
Because of the Fund's international investment policies and the risks
discussed above, an investment in shares of the Fund may not be appropriate
for all investors, and an investment in shares of the Fund should not be
considered a complete investment program. Each prospective purchaser should
take into account his investment objectives as well as his other investments
when considering the purchase of shares of the Fund.
PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions is execution at the most favorable prices. Consistent with the
foregoing primary consideration, the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD") and such other policies
as the Trustees may determine, the Adviser may consider sales of shares of the
Fund and of the other investment company clients of MFD, the Fund's
distributor, as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions.
The portfolio will be managed actively and the asset allocations modified as
the Adviser deems necessary. Although the Fund does not intend to seek short-
term profits, securities in its portfolio will be sold whenever the Adviser
believes it is appropriate to do so without regard to the length of time the
particular asset may have been held. A high turnover rate involves greater
expenses, including higher brokerage and transaction costs, to the Fund. The
Fund engages in portfolio trading if it believes a transaction net of costs
(including custodian charges) will help in achieving its investment objective.
For the fiscal year ended October 31, 1995, the Fund had a portfolio turnover
rate in excess of 100%. Transaction costs incurred by the Fund and the
realized capital gains and losses of the Fund may be greater than that of a
Fund with a lesser portfolio turnover rate.
From time to time, the Adviser may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fees charge by the custodian of the Fund's assets).
For a further discussion of portfolio trading, see the SAI.
The investment objective and policies described above are not fundamental and
may be changed without shareholder approval. A change in the Fund's investment
objective may result in the Fund having an investment objective different from
the objective which the shareholder considered appropriate at the time of
investment in the Fund.
The SAI includes a discussion of other investment policies and a listing of
specific investment restrictions which govern the Fund's investment policies.
The specific investment restrictions listed in the SAI may be changed without
shareholder approval unless otherwise indicated (see "Investment Restrictions"
in the SAI).
The Fund's investment limitations, policies and rating standards are adhered
to at the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
7. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement dated August 10, 1990 (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Frederick J. Simmons, a Senior
Vice President of the Adviser, has been the Fund's portfolio manager since
1991. Mr. Simmons has been employed as a portfolio manager by the Adviser
since 1971. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For its services and
facilities, the Adviser receives a management fee computed and paid monthly in
an amount equal to the sum of 0.65% of the Fund's average daily net assets and
5% of the Fund's 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) for its then-
current fiscal year. This management fee is greater than the fee paid by most
funds.
For the Fund's fiscal year ended October 31, 1995, MFS received fees under the
Advisory Agreement of $1,479,587 (of which $1,079,919 was based on average
daily net assets and $399,668 on gross income), equivalent on an annualized
basis to 0.89% of the Fund's average daily net assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust,
MFS Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance
Trust, MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and
seven variable accounts, each of which is a registered investment company
established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of
Canada (U.S.)") in connection with the sale of various fixed/variable annuity
contracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc.,
provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $43.2 billion on behalf of approximately 1.8 million investor
accounts as of January 31, 1996. As of such date, the MFS organization managed
approximately $18.7 billion of assets invested in equity securities and
approximately $20.6 billion of assets invested in fixed income securities.
Approximately $3.8 billion of the assets managed by MFS are invested in
securities of foreign issuers. MFS is a wholly owned subsidiary of Sun Life of
Canada (U.S.), which in turn is a wholly owned subsidiary of Sun Life
Assurance Company of Canada ("Sun Life"). The Directors of MFS are A. Keith
Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D. McNeil and John R.
Gardner. Mr. Brodkin is the Chairman, Mr. Shames is the President and Mr.
Scott is the Secretary and a Senior Executive Vice President of MFS. Messrs.
McNeil and Gardner are the Chairman and President, respectively, of Sun Life.
Sun Life, a mutual life insurance company, is one of the largest international
life insurance companies and has been operating in the United States since
1895, establishing a headquarters office here in 1973. The executive officers
of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman of MFS, is also the Chairman and President of
the Trust. W. Thomas London, Stephen E. Cavan, James O. Yost and James R.
Bordewick, Jr., all of whom are officers of MFS, are officers of the Trust.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG),
the oldest publicly listed bank in Germany, founded in 1835. As part of this
alliance, the portfolio managers and investment analysts of MFS and Foreign &
Colonial will share their views on a variety of investment related issues,
such as the economy, securities markets, portfolio securities and their
issuers, investment recommendations, strategies and techniques, risk analysis,
trading strategies and other portfolio management matters. MFS will have
access to the extensive international equity investment expertise of Foreign &
Colonial, and Foreign & Colonial will have access to the extensive U.S. equity
investment expertise of MFS. One or more MFS investment analysts are expected
to work for an extended period with Foreign & Colonial's portfolio managers
and investment analysts at their offices in London. In return, one or more
Foreign & Colonial employees are expected to work in a similar manner at MFS'
Boston offices.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial,
particularly when the same security is suitable for more than one client.
While in some cases this arrangement could have a detrimental effect on the
price or availability of the security as far as the Fund is concerned, in
other cases, however, it may produce increased investment opportunities for
the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and each of the other MFS Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
8. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
dealer and other financial institutions ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to
investments in the Fund.
The Fund offers three classes of shares (Class A, Class B and Class C shares)
which bear sales charges and distribution fees in different forms and amounts,
as described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus
an initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- --------- -----------------
Less than $100,000 ................ 4.75% 4.99% 4.00%
$100,000 but less than $250,000 ... 4.00 4.17 3.20
$250,000 but less than $500,000 ... 2.95 3.04 2.25
$500,000 but less than $1,000,000 . 2.20 2.25 1.70
$1,000,000 or more ................ None** None** See Below**
- ----------
*Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
**A CDSC will apply to such purchases, as discussed below.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 4% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the
sales charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge).
In the following two circumstances, Class A shares are also offered at net
asset value without an initial sales charge but subject to a CDSC, equal to 1%
of the lesser of the value of the shares redeemed (exclusive of reinvested
dividend and capital gain distributions) or the total cost of such shares, in
the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject
to the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that either
(a) the employer has at least 25 employees or (b) the aggregate purchases
by the retirement plan of Class A shares of the MFS Funds will be in an
amount of at least $250,000 within a reasonable period of time, as
determined by MFD in its sole discretion.
In the case of such purchases, MFD will pay a commission to dealers as
follows: 1% on sales up to $5 million, plus 0.25% on the amount in excess of
$5 million. Purchases of $1 million or more for each shareholder account will
be aggregated over a 12-month period (commencing from the date of the first
such purchase) for purposes of determining the level of commissions to be paid
during the period with respect to such account. In addition, with respect to
sales to retirement plans under the second circumstance described above, MFD
may pay a commission, on sales in excess of $5 million to certain retirement
plans, of 1% to certain dealers which, at MFD's invitation, enter into an
agreement with MFD in which the dealer agrees to return any commission paid to
it on the sale (or on a pro rata portion thereof) if the shareholder redeems
his or her shares within a period of time after purchase as specified by MFD.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- ---------------
First ......................................... 4%
Second ........................................ 4%
Third ......................................... 3%
Fourth ........................................ 3%
Fifth ......................................... 2%
Sixth ......................................... 1%
Seventh and following ......................... 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B
shares purchased through dealers. MFD will also advance to dealers the first
year service fee payable under the Fund's Class B Distribution Plan (see
"Distribution Plans" below) at a rate equal to 0.25% of the purchase price of
such shares. Therefore, the total amount paid to a dealer upon the sale of
Class B shares is 4% of the purchase price of the shares (commission rate of
3.75% plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Distribution Plan
applicable to Class B shares. See "Distribution Plans" below. However, for
purposes of conversion to Class A shares, all shares in a shareholder's
account that were purchased through the reinvestment of dividends and
distributions paid in respect of Class B shares (and which have not converted
to Class A shares as provided in the following sentence) will be held in a
separate sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A shares, a
portion of the Class B shares then in the sub-account will also convert to
Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares not acquired through reinvestment of dividends
and distributions that are converting to Class A shares bear to the
shareholder's total Class B shares not acquired through reinvestment. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will not constitute a taxable event for federal
tax purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not
occur if such ruling or opinion is not available. In such event, Class B
shares would continue to be subject to higher expenses than Class A shares for
an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an
initial sales charge or a CDSC. Class C shares do not convert to any other
class of shares of the Fund. The maximum investment in Class C shares that may
be made is $5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Code if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar recordkeeping program made available by the
Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other
than IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and
the minimum additional investment is $50 per account. Accounts being
established for participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. There are also
other limited exceptions to these minimums for certain tax-deferred retirement
programs. Any minimums may be changed at any time at the discretion of MFD.
The Fund reserves the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserve the
right to reject any specific purchase order or to restrict purchases by a
particular purchaser (or group of related purchasers). The Fund or MFD may
reject or restrict any purchases by a particular purchaser or group, for
example, when such purchase is contrary to the best interests of the Fund's
other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of shares of certain MFS Funds (as determined by MFD)
which follow a timing pattern, and with individuals or entities acting on such
shareholders' behalf (collectively, "market timers"), setting forth the terms,
procedures and restrictions with respect to such exchanges. In the absence of
such an agreement, it is the policy of the Fund and MFD to reject or restrict
purchases by market timers if (i) more than two exchange purchases are
effected in a timed account in the same calendar quarter or (ii) a purchase
would result in shares being held in timed accounts by market timers
representing more than (x) one percent of the Fund's net assets or (y)
specified dollar amounts in the case of certain MFS Funds which may include
the Fund and which may change from time to time. The Fund and MFD each reserve
the right to request market timers to redeem their shares at net asset value,
less any applicable CDSC, if either of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with
respect to sales of Class A, Class B and Class C shares. In addition, from
time to time, MFD may pay dealers 100% of the applicable sales charge on sales
of Class A shares of certain specified MFS Funds sold by such dealer during a
specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset
value of all of the Class B shares of certain specified MFS Funds sold by such
dealer during a specified sales period. In addition, from time to time, MFD,
at its expense, may provide additional commissions, compensation or
promotional incentives ("concessions") to dealers which sell shares of the
Fund. Such concessions provided by MFD may include financial assistance to
dealers in connection with preapproved conferences or seminars, sales or
training programs for invited registered representatives, payment for travel
expenses, including lodging, incurred by registered representatives for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding one or more MFS Funds, and/or other dealer-sponsored
events. From time to time, MFD may make expense reimbursements for special
training of a dealer's registered representatives in group meetings or to help
pay the expenses of sales contests. Other concessions may be offered to the
extent not prohibited by state laws or any self-regulatory agency, such as the
NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal
charitable contribution on their behalf.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting,
selling or distributing securities. Although the scope of the prohibition has
not been clearly defined, MFD believes that such Act should not preclude banks
from entering into agency agreements with MFD. If, however, a bank were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services in respect of Shareholders who invested in the Fund through a
national bank. It is not expected that shareholders would suffer any adverse
financial consequence as a result of these occurrences. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required to
register as broker-dealers pursuant to state law.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services)
that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds at net asset value (if available for sale). In
addition, Class C shares may be exchanged for shares of the MFS Money Market
Fund at net asset value. Shares of one class may not be exchanged for shares
of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of
an MFS Fund to shares of any other MFS Fund, except with respect to exchanges
from an MFS money market fund to another MFS Fund which is not an MFS money
market fund (discussed below). With respect to an exchange involving shares
subject to a CDSC, the CDSC will be unaffected by the exchange and the holding
period for purposes of calculating the CDSC will carry over to the acquired
shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to
the imposition of an initial sales charge or a CDSC for exchanges from an MFS
money market fund to another MFS Fund which is not an MFS money market fund.
These rules are described under the caption "Exchanges" in the Prospectuses of
those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and Units may be exchanged for Class A shares of any MFS Fund. With
respect to exchanges between Class A shares subject to a CDSC and Units, the
CDSC will carry over to the acquired shares or Units and will be deducted from
the redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units
and then exchanges into Class A shares subject to an initial sales charge of
an MFS Fund, the initial sales charge shall be due upon such exchange, but
will not be imposed with respect to any subsequent exchanges between such
Class A shares and Units with respect to shares on which the initial sales
charge has already been paid. In the event that a shareholder initially
purchases Units and then exchanges into Class A shares subject to a CDSC of an
MFS Fund, the CDSC period will commence upon such exchange, and the
applicability of the CDSC with respect to subsequent exchanges shall be
governed by the rules set forth above in this paragraph.
GENERAL: Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed
by the record owner(s) exactly as the shares are registered; if by telephone
- -- proper account identification is given by the dealer or shareholder of
record) and each exchange must involve either shares having an aggregate value
of at least $1,000 ($50 in the case of retirement plan participants whose
sponsoring organizations subscribe to the MFS FUNDamental 401(k) Plan or
another similar 401(k) recordkeeping system made available by the Shareholder
Servicing Agent) or all the shares in the account. If an Exchange Request is
received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the Exchange (generally, 4:00 p.m., Eastern time),
the exchange will occur on that day if all the requirements set forth above
have been complied with at that time and subject to the Fund's right to reject
purchase orders. No more than five exchanges may be made in any one Exchange
Request by telephone. Additional information concerning this exchange
privilege and prospectuses for any of the other MFS Funds may be obtained from
dealers or the Shareholder Servicing Agent. A shareholder should read the
prospectus of the other MFS Fund and consider the differences in objectives,
policies and restrictions before making any exchange. For federal and
(generally) state income tax purposes, an exchange is treated as a sale of the
shares exchanged and, therefore, an exchange could result in a gain or loss to
the shareholder making the exchange. Exchanges by telephone are automatically
available to most non-retirement plan accounts and certain retirement plan
accounts. For further information regarding exchanges by telephone, see
"Redemptions by Telephone." The exchange privilege (or any aspect of it) may
be changed or discontinued and is subject to certain limitations, including
certain restrictions on purchases by market timers. Special procedures,
privileges and restrictions with respect to exchanges may apply to market
timers who enter into an agreement with MFD, as set forth in such agreement.
See "Purchases -- General -- Right to Reject Purchase Orders/Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the
shares in his account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or letter of instruction, together with his share certificates (if
any were issued), all in "good order" for transfer. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or certificate must be endorsed by the record owner(s) exactly as
the shares are registered and the signature(s) must be guaranteed in the
manner set forth below under the caption "Signature Guarantee." In addition,
in some cases "good order" will require the furnishing of additional
documents. The Shareholder Servicing Agent may make certain de minimis
exceptions to the above requirements for redemption. Within seven days after
receipt of a redemption request in "good order" by the Shareholder Servicing
Agent, the Fund will make payment in cash of the net asset value of the shares
next determined after such redemption request was received, reduced by the
amount of any applicable CDSC described above and the amount of any income tax
required to be withheld, except during any period in which the right of
redemption is suspended or date of payment is postponed because the Exchange
is closed or trading on such Exchange is restricted or to the extent otherwise
permitted by the 1940 Act if an emergency exists. See "Tax Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his
account by telephoning the Shareholder Servicing Agent toll-free at (800) 225-
2606. Shareholders wishing to avail themselves of this telephone redemption
privilege must so elect on their Account Application, designate thereon a bank
and account number to receive the proceeds of such redemption, and sign the
Account Application Form with the signature(s) guaranteed in the manner set
forth below under the caption "Signature Guarantee." The proceeds of such a
redemption, reduced by the amount of any applicable CDSC and the amount of any
income tax required to be withheld, are mailed by check to the designated
account, without charge, if the redemption proceeds do not exceed $1,000, and
are wired in federal funds to the designated account if the redemption
proceeds exceed $1,000. If a telephone redemption request is received by the
Shareholder Servicing Agent by the close of regular trading on the Exchange on
any business day, shares will be redeemed at the closing net asset value of
the Fund on that day. Subject to the conditions described in this section,
proceeds of a redemption are normally mailed or wired on the next business day
following the date of receipt of the order for redemption. The Shareholder
Servicing Agent will not be responsible for any losses resulting from
unauthorized telephone transactions if it follows reasonable procedures
designed to verify the identity of the caller. The Shareholder Servicing Agent
will request personal or other information from the caller, and will normally
also record calls. Shareholders should verify the accuracy of confirmation
statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares
through his dealer (a repurchase), the shareholder can place a repurchase
order with his dealer, who may charge the shareholder a fee. IF THE DEALER
RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME
DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY,
REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in
the case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month.
Class B shares purchased on or after January 1, 1993 will be aggregated on a
calendar month basis -- all transactions made during a calendar month,
regardless of when during the month they have occurred, will age one year at
the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior
to January 1, 1993, transactions will be aggregated on a calendar year basis
- -- all transactions made during a calendar year, regardless of when during the
year they have occurred, will age one year at the close of business on
December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases
exceeds the sum of the six calendar year aggregations (12 months in the case
of purchases of $1 million or more of Class A shares or purchases by certain
retirement plans of Class A shares) of Direct Purchases may be redeemed
without charge ("Free Amount"). Moreover, no CDSC is ever assessed on
additional shares acquired through the automatic reinvestment of dividends or
capital gain distributions ("Reinvested Shares"). Therefore, at the time of
redemption of a particular class, (i) any Free Amount is not subject to the
CDSC and (ii) the amount of the redemption equal to the then-current value of
Reinvested Shares is not subject to the CDSC, but (iii) any amount of the
redemption in excess of the aggregate of the then-current value of Reinvested
Shares and the Free Amount is subject to a CDSC. The CDSC will first be
applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days
of the redemption pursuant to the Reinstatement Privilege. If the shares
credited for any CDSC paid are then redeemed within six years of the initial
purchase in the case of Class B shares or within 12 months of the initial
purchase for certain Class A share purchases, a CDSC will be imposed upon
redemption. Such purchases under the Reinstatement Privilege are subject to
all limitations in the SAI regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations,
the Fund has reserved the right to pay the redemption or repurchase price of
shares of the Fund, either totally or partially, by a distribution in-kind of
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in
any account for their then-current value if at any time the total investment
in such account drops below $500 because of redemptions, except in the case of
accounts being established for monthly automatic investments and certain
payroll savings programs, Automatic Exchange Plan accounts and tax-deferred
retirement plans, for which there is a lower minimum investment requirement.
See "Purchases -- General -- Minimum Investment." Shareholders will be
notified that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and
its shareholders.
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom
such dealer is the dealer or holder of record. MFD may from time to time
reduce the amount of the service fees paid for shares sold prior to a certain
date. Service fees may be reduced for a dealer that is the holder or dealer of
record for an investor who owns shares of the Fund having an aggregate net
asset value at or above a certain dollar level. Dealers may from time to time
be required to meet certain criteria in order to receive service fees. MFD or
its affiliates are entitled to retain all service fees payable under each
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay
MFD a distribution fee based on the average daily net assets attributable to
the Designated Class as partial consideration for distribution services
performed and expenses incurred in the performance of MFD's obligations under
its distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the
use by MFD of such distribution fees. Such amounts and uses are described
below in the discussion of the separate Distribution Plans. While the amount
of compensation received by MFD in the form of distribution fees during any
year may be more or less than the expense incurred by MFD under its
distribution agreement with the Fund, the Fund is not liable to MFD for any
losses MFD may incur in performing services under its distribution agreement
with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are
charged to, and therefore reduce, income allocated to shares of the Designated
Class. The Distribution Plans have substantially identical provisions with
respect to their operating policies and their initial approval, renewal,
amendment and termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered with an
initial sales charge, a substantial portion of which is paid to or retained by
the dealer making the sale (and the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In addition to the initial sales charge,
the dealer also generally receives the ongoing 0.25% per annum service fee, as
discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal,
on an annual basis, to 0.10% of the Fund's average daily net assets
attributable to Class A shares. As noted above, MFD may use the distribution
fee to cover distribution-related expenses incurred by it under its
distribution agreement with the Fund, including commissions to dealers and
payments to wholesalers employed by MFD (e.g., MFD pays commission to dealers
with respect to purchases of $1 million or more of Class A shares which are
sold at net asset value but which are subject to a 1% CDSC for one year after
purchase). See "Purchases -- Class A Shares" above. In addition, to the
extent that the aggregate service and distribution fees paid under the Class A
Distribution Plan do not exceed 0.35% per annum of the average daily net
assets of the Fund attributable to Class A shares, the Fund is permitted to
pay such distribution-related expenses or other distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases --
Class B Shares" above. MFD will advance to dealers the first year service fee
described above at a rate equal to 0.25% of the purchase price of such shares
and, as compensation therefor, MFD may retain the service fee paid by the Fund
with respect to such shares for the first year after purchase. Dealers will
become eligible to receive the ongoing 0.25% per annum service fee with
respect to such shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee
equal, on an annual basis, to 0.75% of the Fund's average daily net assets
attributable to Class B shares. As noted above, this distribution fee may be
used by MFD to cover its distribution-related expenses under its distribution
agreement with the Fund (including the 3.75% commission it pays to dealers
upon purchase of Class B shares, as described under "Purchases -- Class B
Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value
without a sales charge or a CDSC. See "Purchases -- Class C shares" above.
Unlike the case with respect to the sale of Class A and Class B shares, where
the dealer retains a portion of the initial sales charge (Class A shares) or
receives an up-front payment from MFD (Class B shares), a dealer who sells
Class C shares does not receive any initial payment, but instead receives
distribution and service fees equal, on an annual basis, to 1% of the Fund's
average daily net assets attributable to Class C shares owned by investors for
whom the dealer is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to
MFD under the Class C Distribution Plan (which MFD in turn pays to dealers),
as discussed above, and a distribution fee paid to MFD (which MFD also in turn
pays to dealers) under the Class C Distribution Plan equal, on an annual
basis, to 0.75% of the Fund's average daily net assets attributable to Class C
shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B
and Class C distribution and service fees for its current fiscal year are
0.35%, 1.00% and 1.00% per annum, respectively.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on a semi-annual basis. In determining the net
investment income available for distributions, the Fund may rely on
projections of its anticipated net investment income over a longer term,
rather than its actual net investment income for the period. The Fund may make
one or more distributions during the calendar year to its shareholders from
any long-term capital gains, and may also make one or more distributions
during the calendar year to its shareholders from short-term capital gains.
Shareholders may elect to receive dividends and capital gain distributions in
either cash or additional shares of the same class with respect to which a
distribution is made (see "Tax Status" and "Shareholder Services --
Distribution Options" below). Distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class
B and Class C shares because expenses attributable to Class B and Class C
shares generally will be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust
for federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, and to make
distributions to its shareholders in accordance with the timing requirements
imposed by the Code. It is expected that the Fund will not be required to pay
entity level federal income or excise taxes, although foreign-source income
received by the Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes (and
any state or local taxes) on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or additional shares. A portion of
the dividends received from the Fund (but none of the Fund's capital gain
distributions) may qualify for the dividends received deduction for
corporations. Shortly after the end of each calendar year, each Fund
shareholder will be sent a statement setting forth the federal income tax
status of all dividends and distributions for that year, including the portion
taxable as ordinary income, the portion taxable as long-term capital gain, the
portion, if any, representing a return of capital (which is free of current
taxes to the extent of basis but results in a basis reduction), and the
amount, if any, of federal income tax withheld. In certain circumstances, the
Fund may also elect to "pass through" to shareholders foreign income taxes
paid by the Fund. Under those circumstances, the Fund will notify shareholders
of their pro rata portion of the foreign income taxes paid by the Fund;
shareholders may be eligible for foreign tax credits or deductions with
respect to those taxes, but will be required to treat the amount of the taxes
as an amount distributed to them and thus includable in their gross income for
federal income tax purposes.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion
of the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and certain other payments that are subject to such withholding and
that are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable law or
treaty. The Fund is also required in certain circumstances to apply backup
withholding at the rate of 31% on taxable dividends and redemption proceeds
paid to any shareholder (including a shareholder who is neither a citizen nor
a resident of the U.S.) who does not furnish to the Fund certain information
and certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments that have been subject to
30% withholding. Prospective shareholders should read the Account Application
for information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences of an investment in
the Fund.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is
determined each day during which the Exchange is open for trading. This
determination is made once each day as of the close of regular trading on the
Exchange by deducting the amount of the liabilities attributable to the class
from the value of the assets attributable to the class and dividing the
difference by the number of shares of the class outstanding. Assets in the
portfolio are valued on the basis of their market values or otherwise at their
fair values, as described in the SAI. All investments and assets are expressed
in U.S. dollars based upon current currency exchange rates. The net asset
value of each class of shares is effective for orders received by the dealer
prior to its calculation and received by MFD prior to the close of that
business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of three series of the Trust, has three classes of shares,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without
par value). The Trust has reserved the right to create and issue additional
classes and series of shares, in which case each class of shares of a series
would participate equally in the earnings, dividends and assets attributable
to that class of that particular series. Shareholders are entitled to one vote
for each share held and shares of each series would be entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election or
selection of Trustees and accountants. Additionally, each class of shares of a
series will vote separately on any material increases in the fees under its
Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of
the series on all other matters.
Each share of a class of the Fund represents an equal proportionate interest
in the Fund with each other class share, subject to the liabilities of that
particular class. Shares have no pre-emptive or conversion rights (except as
set forth above in "Purchases -- Conversion of Class B Shares"). Shares are
fully paid and non-assessable. Should the Fund be liquidated, shareholders of
each class are entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders. Shares will remain on
deposit with the Shareholder Servicing Agent and certificates will not be
issued except in connection with pledges and assignments and in certain other
limited circumstances. The Trust does not intend to hold annual shareholder
meetings.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed (e.g., fidelity bonding and omissions insurance)
and the Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote
fund rankings in the relevant fund category from various sources, such as the
Lipper Analytical Services, Inc., Morningstar, Inc. and Wiesenberger
Investment Companies Service. Yield quotations are based on the annualized net
investment income per class share over a 30-day period stated as a percent of
the maximum public offering price on the last day of that period. Yield
calculations for Class B shares assume no CDSC is paid. The current
distribution rate for each class is generally based upon the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months and is computed by dividing the amount of such dividends by the
maximum public offering price of that class at the end of such period. Current
distribution rate calculations for Class B shares assume no CDSC is paid. The
current distribution rate differs from the yield calculation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing, short-term capital
gains, and return of invested capital, and is calculated over a different
period of time. Total rate of return quotations will reflect the average
annual percentage change over stated periods in the value of an investment in
each class of shares of the Fund made at the maximum public offering price of
shares of that class and with all distributions reinvested and which, if
quoted for periods of six years or less, will give effect to the imposition of
the CDSC assessed upon redemptions of the Fund's Class B shares. Such total
rate of return quotations may be accompanied by quotations which do not
reflect the reduction in value of the initial investment due to the sales
charge or the deduction of a CDSC, and which will thus be higher. All
performance quotations are based on historical performance and are not
intended to indicate future performance. Yields reflects only net portfolio
income as of a stated period of time and current distribution rate reflects
only the rate of distributions paid by the Fund over a stated period of time,
while total rate of return reflects all components of investment return over a
stated period of time. The Fund's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.
For a discussion of the manner in which the Fund will calculate its yield,
current distribution rate and total rate of return, see the SAI. For further
information about the Fund's performance for the fiscal year ended October 31,
1995, please see the Fund's Annual Report. A copy of the Annual Report may be
obtained without charge by contacting the Shareholder Servicing Agent (see
back cover for address and phone number). In addition to information provided
in shareholder reports, the Fund may, in its discretion, from time to time,
make a list of all or a portion of its holdings available to investors upon
request.
9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of the Fund should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At
the end of each calendar year, each shareholder will receive income tax
information regarding reportable dividends and distributions for that year,
including whether any portion represents a return of capital (see "Tax Status"
above).
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends in cash; long-term distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the last business day of the semi-annual period.
Dividends and capital gain distributions in amounts less than $10 will
automatically be reinvested in additional shares of the Fund. If a shareholder
has elected to receive dividends and/or capital gain distributions in cash and
the postal or other delivery service is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares. Any request to change a distribution option
must be received by the Shareholder Servicing Agent by the record date for a
dividend or distribution in order to be effective for that dividend or
distribution. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as described
in the SAI) anticipates purchasing $100,000 or more of Class A shares of the
Fund alone or in combination with shares of any class of other MFS Funds or
MFS Fixed Fund (a bank collective investment Fund) within a 13-month period
(or 36-month period for purchases of $1 million or more), the shareholder may
obtain such shares of the Fund at the same reduced sales charge as though the
total quantity were invested in one lump sum, subject to escrow agreements and
the appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent
section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, Class B and
Class C shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank
collective investment Fund) reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund may
be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the
same class of another MFS Fund. Furthermore, distributions made by the Fund
may be automatically invested at net asset value (and without any applicble
CDSC) in shares of the same class of another MFS Fund, if shares of such Fund
are available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments based
upon the value of his account. Each payment under a Systematic Withdrawal Plan
(a "SWP") must be at least $100 except in certain limited circumstances. The
aggregate withdrawals of Class B shares in any year pursuant to a SWP will not
be subject to a CDSC and are generally limited to 10% of the value of the
account at the time of the establishment of the SWP. The CDSC will not be
waived in the case of SWP redemptions of Class A shares which are subject to a
CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made through
a shareholder's checking account twice monthly, monthly or quarterly. Required
forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of other
MFS Funds selected by the shareholder if such Fund is available for sale.
Under the Automatic Exchange Plan, exchanges of at least $50 each may be made
to up to four different funds. A shareholder should consider the objectives
and policies of a fund and review its prospectus before electing to exchange
money into such fund through the Automatic Exchange Plan. No transaction fee
is imposed in connection with exchange transactions under the Automatic
Exchange Plan. However, exchanges from MFS Money Market Fund, MFS Government
Money Market Fund or Class A shares of MFS Cash Reserve Fund will be subject
to any applicable sales charge. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, could result in a capital gain or loss to the shareholder making
the exchange. See the SAI for further information concerning the Automatic
Exchange Plan. Investors should consult their tax advisers for information
regarding the potential capital gain and loss consequences of transactions
under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of
assessment of the CDSC for certain share redemptions in the case of Class A
and Class B shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C
Shares," Shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans
and other corporate pension and profit-sharing plans. Investors should consult
with their tax adviser before establishing any of the tax-deferred retirement
plans described above.
--------------------------
The Fund's SAI, dated March 1, 1996, contains more detailed information about
the Trust and the Fund, including, but not limited to, information related to
(i) the investment objective, policies and restrictions, including the
purchase and sale of options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies; (ii) the Trustees,
officers and investment adviser; (iii) portfolio trading; (iv) the Fund's
shares, including rights and liabilities of shareholders; (v) tax status of
dividends and distributions; (vi) the Distribution Plans; (vii) the method
used to calculate total rate of return quotations; and (viii) various services
and privileges provided by the Fund for the benefit of its shareholders,
including additional information with respect to the exchange privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable
sales charges are waived (Section I), the initial sales charge and the CDSC
for Class A shares is waived (Section II), and the CDSC for Class B shares is
waived (Section III).
I.
WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares, as applicable, is
waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any MFS Fund pursuant to the
Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of assets
of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees)
and agents of MFS, Sun Life or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which MFD
serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
* Employees or registered representatives of dealers and other financial
institution ("dealers") which have a sales agreement with MFD;
* Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or other
retirement plans for the sole benefit of such persons, provided the
shares are not resold except to the MFS Fund which issued the shares;
and
* Institutional Clients of MFS or MFS Asset Management, Inc.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new sales
for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS FUNDamental
401(k) Plan or another similar recordkeeping system made available by
the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or more
of the MFS Funds for more than 10 years from the later to occur of: (i)
January 1, 1993 or (ii) the date such Plan first invests its assets in
one or more of the MFS Funds. The sales charges will be waived in the
case of a redemption of all of the Plan's shares in all MFS Funds
(i.e., all the assets of the Plan invested in the MFS Funds are
withdrawn), unless immediately prior to the redemption, the aggregate
amount invested by the Plan in shares of the MFS Funds (excluding the
reinvestment of distributions) during the prior four years equals 50%
or more of the total value of the Plan's assets in the MFS Funds, in
which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
* To an IRA rollover account where any sales charges with respect to the
shares being reregistered would have been waived had they been
redeemed; and
* From a single account maintained for a 401(a) Plan to multiple accounts
maintained by the Shareholder Servicing Agent on behalf of individual
participants of such Plan, provided that the Plan sponsor subscribes to
the MFS FUNDamental 401(k) Plan or another similar recordkeeping system
made available by the Shareholder Servicing Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the CDSC imposed on certain redemptions of Class A shares is
waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made through
a dealer and appropriate documentation is submitted to MFD; (ii) the
redeemed shares were subject to an initial sales charge or deferred
sales charge (whether or not actually imposed); (iii) the redemption
occurred no more than 90 days prior to the purchase of Class A shares;
and (iv) the MFS Fund, MFD or its affiliates have not agreed with such
company or its affiliates, formally or informally, to waive sales
charges on Class A shares or provide any other incentive with respect
to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in a
"wrap" account or a similar program under which such clients pay a fee
to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators,
or dealers have entered into an administrative services agreement with
MFD or one of its affiliates to perform certain administrative
services, subject to certain operational and minimum size requirements
specified from time to time by MFD or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares of
Class A or Class B distributions which constitute required withdrawals
from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of 59
1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a living
trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant,
as applicable, has attained the age of 70 1/2 years old, but only with
respect to the minimum distribution under applicable Code rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
[logo] MFS
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) WORLD TOTAL RETURN FUND
Prospectus
March 1, 1996
[logo] MFS
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) World Total Return Fund
500 Boylston Street
Boston, MA 02116
MWT-1 3/96/77M 24/224/324
<PAGE>
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) WORLD STATEMENT OF
TOTAL RETURN FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) March 1, 1996
- ------------------------------------------------------------------------------
Page
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1. Definitions .................................................. 2
2. Investment Objective, Policies and Restrictions .............. 2
3. Management of the Fund ....................................... 11
Trustees .................................................. 11
Officers .................................................. 11
Investment Adviser ........................................ 12
Custodian ................................................. 13
Shareholder Servicing Agent ............................... 13
Distributor ............................................... 13
4. Portfolio Transactions and Brokerage Commissions ............. 14
5. Shareholder Services ......................................... 15
Investment and Withdrawal Programs ........................ 15
Exchange Privilege ........................................ 17
Tax-Deferred Retirement Plans ............................. 17
6. Tax Status ................................................... 18
7. Determination of Net Asset Value and Performance ............. 19
8. Distribution Plans ........................................... 21
9. Description of Shares, Voting Rights and Liabilities ......... 22
10. Independent Auditors and Financial Statements ................ 22
Appendix A ................................................... A-1
Appendix B ................................................... B-1
MFS WORLD TOTAL RETURN FUND
A Series of MFS Series Trust VI
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information (the "SAI") sets forth information
which may be of interest to investors but which is not necessarily included in
the Fund's Prospectus, dated March 1, 1996. This SAI should be read in
conjunction with the Prospectus, a copy of which may be obtained without
charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
1. DEFINITIONS
"Fund" -- MFS(R) World Total Return Fund, a non-diversified
series of MFS Series Trust VI (the "Trust"), a
Massachusetts business trust, formerly known as MFS
Worldwide Total Return Fund until June 29, 1993.
Prior to August 3, 1992, the Trust was known as MFS
Worldwide Total Return Trust.
"MFS" or the "Adviser" -- Massachusetts Financial Services Company, a Delaware
corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated March 1, 1996, as
amended or supplemented from time to time.
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek total return
by investing in securities which will provide above-average current income
(compared to a portfolio invested entirely in equity securities) and
opportunities for long-term growth of capital and income. The Fund will invest
primarily in global equity and fixed income securities (i.e., those of U.S.
and non-U.S. issuers). Any investment involves risk and there can be no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The investment policies of the Fund are described in the
Prospectus. In addition, certain of the Fund's investment policies are
described in greater detail below.
AMERICAN DEPOSITARY RECEIPTS ("ADRS"): The Fund may invest in 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. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under
no obligation to distribute shareholder communications received from the
issuer of the deposited securities or to pass through voting rights to ADR
holders in respect of the deposited securities. The Fund 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 depositary
receipts in the United States can reduce costs and delays as well as potential
currency exchange and other difficulties. The Fund may purchase securities in
local markets and direct delivery of these ordinary shares to the local
depository of an ADR agent bank in the foreign country. Simultaneously, the
ADR agents create a certificate which settles at the Fund's custodian in five
days. The Fund may also execute trades on the U.S. markets using existing
ADRs. A foreign issuer of the security underlying an ADR is generally not
subject to the same reporting requirements in the United States as a domestic
issuer. Accordingly, 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
denominated in a foreign currency.
RISKS OF INVESTING IN LOWER RATED SECURITIES: The Fund may invest in fixed
income securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or
BBB by Standard & Poor's Ratings Group ("S&P") or by 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 Fund may also invest up to 5% of its net assets in convertible securities
rated Ba or lower by Moody's or BB or below by S&P or Fitch (securities rated
below BBB or Baa are commonly known as "Junk Bonds"). Such securities are
considered speculative and may be questionable as to principal and interest
payments. The Fund may have difficulty disposing of such securities because
there may be a thin trading market for them. Because not all dealers maintain
markets in all lower-rated convertible securities, there is no established
retail secondary market for many of these securities and the Fund anticipates
that such securities could only be sold to a limited number of dealers or
institutional investors. To the extent a secondary market for these 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 Fund's ability to dispose of a particular
security when necessary to meet the Fund's liquidity needs or in response to a
specific event like the deterioration of the issuer's creditworthiness. The
lack of a liquid secondary market for some lower-rated convertible securities
may make it more difficult for the Fund to obtain accurate market quotations
for the purpose of valuing such securities. Market quotations are generally
only available 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 convertible securities tends to reflect individual
corporate developments to a greater extent than higher-rated securities, which
react primarily to the general level of interest rates. Such lower-rated
securities also tend to be more sensitive to economic conditions than are
higher-rated securities.
NON-DOLLAR FIXED INCOME SECURITIES: The Fund will purchase non-dollar fixed
income securities denominated in the currency of countries where the interest
rate environment as well as the general economic climate provide an
opportunity for declining interest rates and currency appreciation. If
interest rates decline, such non-dollar fixed income securities will
appreciate in value. If the currency also appreciates against the dollar, the
total investment in such non-dollar fixed income securities would be enhanced
further. (For example, if United Kingdom bonds yield 14% during a year when
interest rates decline causing the bonds to appreciate by 5% and the pound
rises 3% versus the dollar, then the annual total return of such bonds would
be 22%. This example is illustrative only.) Conversely, a rise in interest
rates or decline in currency exchange rates would adversely affect the Fund's
return.
Investments in non-dollar fixed income securities are evaluated primarily on
the strength of a particular currency against the dollar and on the interest
rate climate of that country. Currency is judged on the basis of fundamental
economic criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status, economic policies) as well as technical
and political data. In addition to the foregoing, interest rates are evaluated
on the basis of differentials or anomalies that may exist between different
countries.
PORTFOLIO TRADING: Although the Fund does not intend to seek short-term
profits, securities in its portfolio will be sold whenever the Adviser
believes it is appropriate to do so without regard to the length of time the
particular asset may have been held. A high turnover rate involves greater
expenses, including higher brokerage and transactions costs, to the Fund. The
Fund engages in portfolio trading if it believes a transaction net of costs
(including custodian charges) will help in achieving its investment objective
(see "Portfolio Transactions and Brokerage Commissions" below).
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or subsidiaries thereof) of the New York Stock
Exchange (the "Exchange") or members of the Federal Reserve System, recognized
primary U.S. Government securities dealers or institutions which the Adviser
has determined to be of comparable creditworthiness. The securities that the
Fund 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 Fund, or the purchase and repurchase
prices may be the same, with interest at a standard rate due to the Fund
together with the repurchase price on repurchase. In either case, the income
to the Fund is unrelated to the interest rate on the U.S. Government
securities.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the Fund will have the right to liquidate the securities. If at
the time the Fund 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 Fund's exercise
of its right to liquidate the securities may be delayed and result in certain
losses and costs to the Fund. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For
example, the Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the Adviser monitors the
seller's creditworthiness on an ongoing basis. Moreover, under such
agreements, the value of the securities (which are marked to market every
business day) is required to be greater than the repurchase price, and the
Fund has the right to make margin calls at any time if the value of the
securities falls below the agreed upon margin.
"WHEN-ISSUED" SECURITIES: When the Fund commits to purchase a security on a
"when-issued" or "forward delivery" basis, it will set up procedures
consistent with the General Statement of Policy of the Securities and Exchange
Commission (the "SEC") concerning such purchases. Since that policy currently
recommends that an amount of the Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, the
Fund will always have cash, short-term money market instruments or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. However, although the Fund 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 bases may involve more risk
than other types of purchases. For example, the Fund may have to sell assets
which have been set aside in order to meet redemptions. Also, if the Fund
determines it necessary to sell the "when-issued" or "forward delivery"
securities before delivery, it may incur a loss because of market fluctuations
since the time the commitment to purchase such securities was made. The Fund
does not intend to invest more than 5% of the value of its total assets in
such securities.
SECURITIES LENDING: The Fund may seek to increase its income by lending fixed
income portfolio securities. Such loans will usually be made only to member
banks of the Federal Reserve System and to member firms (or subsidiaries
thereof) of the Exchange and would be required to be secured continuously by
collateral in cash, U.S. Government securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Fund would have the right to call a loan
and obtain the securities loaned at any time on customary industry settlement
notice (which will usually not exceed five days). During the existence of a
loan, the Fund would continue to receive the equivalent of the interest paid
by the issuer on the securities loaned and would also receive compensation
based on investment of cash collateral. The Fund would not, however, have the
right to vote any securities having voting rights during the existence of the
loan, but would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which could be earned currently from securities loans of this
type justifies the attendant risk. If the Adviser determines to make
securities loans, it is not intended that the value of the securities loaned
would exceed 30% of the value of the Fund's total assets. The Fund does not
currently intend during the coming year to lend more than 5% of the value of
its total assets.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities as described in the Prospectus. Interests in pools of mortgage-
related securities differ from other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these securities
provide a monthly payment which consists of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly
payments made by the individual borrowers on their mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments
are caused by prepayments of principal resulting from the sale, refinancing or
foreclosure of the underlying property, net of fees or costs which may be
incurred. Some mortgage pass-through securities (such as securities issued by
the Government National Mortgage Association ("GNMA")) are described as
"modified pass-through." These securities entitle the holder to receive all
interests and principal payments owed on the mortgages in the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is
the GNMA. The GNMA is a wholly owned U.S. Government corporation within the
Department of Housing and Urban Development. The 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 the GNMA (such as savings and loan institutions, commercial banks
and mortgage bankers) and backed by pools of Federal Housing Authority-insured
or Veterans Administration-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage pass-through securities.
GNMA securities are often purchased at a premium over the maturity value of
the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the
full faith and credit of the U.S. Government) include the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). The 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. The FNMA purchases conventional residential
mortgages (i.e., mortgages not insured or guaranteed by any governmental
agency) from a list of approved seller/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 the FNMA are guaranteed as to timely payment by the FNMA of
principal and interest.
The FHLMC is also a government-sponsored corporation owned by private
stockholders. The FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages (i.e., not federally insured or
guaranteed) from the FHLMC's national portfolio. The FHLMC guarantees timely
payment of interest and ultimate collection of principal regardless of the
status of the underlying mortgage loans.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of mortgage loans. Such issuers may also be the originators
and/or servicers of the underlying mortgage-related securities. Pools created
by such non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because there are no direct or
indirect government or agency guarantees of payments in the former pools.
However, timely payment of interest and principal of mortgage loans in these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private insurers
and the mortgage poolers. There can be no assurance that the private insurers
or guarantors can meet their obligations under the insurance policies or
guarantee arrangements. The Fund may also buy mortgage-related securities
without insurance or guarantees.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and
automobile loan receivables, representing the obligations of a number of
different parties.
Corporate asset-backed securities present certain risks. 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 a risk that the purchaser
would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws,
the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
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 on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection; and (ii) 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 Fund 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 respecting 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
instrument in such a security.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the mortgage-backed securities. The Fund 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 Fund may also be
compensated by receipt of a commitment fee.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than
U.S. dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government agencies.
OPTIONS ON FIXED INCOME SECURITIES: The Fund may write (sell) covered call and
put options on fixed income securities and purchase call and put options. An
option provides the purchaser, or "holder," with the right, but not the
obligation, to purchase, in the case of a "call" option, or sell, in the case
of a "put" option, the fixed income security or securities in connection with
which the option was written, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. The holder
pays a non-refundable purchase price for the option, known as the "premium."
The maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be
lost. The risk of the seller, or "writer," however, is potentially unlimited,
unless the option is "covered." A call option written by the Fund is "covered"
if the Fund owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds a call on the same
fixed income security and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash,
short-term money market instruments or high quality government securities in a
segregated account with its custodian. A put option written by the Fund is
"covered" if the Fund maintains cash, short-term money market instruments or
high quality government securities with a value equal to the exercise price in
a segregated account with its custodian, or else holds a put on the same
security and in the same principal amount as the put written where the
exercise price of the put held is (a) equal to or greater than the exercise
price of the put written or (b) is less than the exercise price of the put
written if the difference is maintained by the Fund in cash or short-term
money market instruments in a segregated account with its custodian. Put and
call options written by the Fund may also be covered in such other manner as
may be in accordance with the requirements of the exchange on which, or the
counter party with which, the option is traded, and applicable laws and
regulations. If the writer's obligation is not so covered, it is subject to
the risk of the full change in value of the underlying security from the time
the option is written until exercise.
The Fund may write options for the purpose of increasing its return and for
hedging purposes. In particular, if the Fund writes an option which expires
unexercised or is closed out by the Fund at a profit, the Fund retains the
premium paid for the option less related transaction costs, which increases
its gross income and offsets in part the reduced value of the portfolio
security in connection with which the option is written, or the increased cost
of portfolio securities to be acquired. In contrast, however, if the price of
the security underlying the option moves adversely to the Fund's position, the
option may be exercised and the Fund will then be required to purchase or sell
the security at a disadvantageous price, which might only partially be offset
by the amount of the premium.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call option the Fund determines to write
depends 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.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options may be used by the
Fund in the same market environments in which call options are used in
equivalent buy-and-write transactions.
The Fund may also write combinations of put and call options on the same
security, a practice known as a "straddle." By writing a straddle, the Fund
undertakes a simultaneous obligation to sell or purchase the same security in
the event that one of the options is exercised. If the price of the security
subsequently rises sufficiently above the exercise price to cover the amount
of the premium and transaction costs, the call will likely be exercised and
the Fund will be required to sell the underlying security at a below market
price. This loss may be offset, however, in whole or in part, by the premiums
received on the writing of the two options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be exercised.
The writing of straddles will likely be effective, therefore, only where the
price of a security remains stable and neither the call nor the put is
exercised. In an instance where one of the options is exercised, the loss on
the purchase or sale of the underlying security may exceed the amount of the
premiums received.
By writing a call option on a portfolio security, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a put option, the
Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price above its then current market value, resulting
in a loss unless the security subsequently appreciates in value. The writing
of options will not be undertaken by the Fund solely for hedging purposes, and
may involve certain risks which are not present in the case of hedging
transactions. Moreover, even where options are written for hedging purposes,
such transactions will constitute only a partial hedge against declines in the
value of portfolio securities or against increases in the value of securities
to be acquired, up to the amount of the premium.
The Fund may also purchase put and call options. Put options are purchased to
hedge against a decline in the value of securities held in the Fund's
portfolio. If such a decline occurs, the put options will permit the Fund to
sell the securities underlying such options at the exercise price, or to close
out the options at a profit. The Fund will purchase call options to hedge
against an increase in the price of securities that the Fund anticipates
purchasing in the future. If such an increase occurs, the call option will
permit the Fund to purchase the securities underlying such option at the
exercise price or to close out the option at a profit. The premium paid for a
call or put option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises or declines sufficiently, the option may expire
worthless to the Fund. In addition, in the event that the price of the
security in connection with which an option was purchased moves in a direction
favorable to the Fund, the benefits realized by the Fund as a result of such
favorable movement will be reduced by the amount of the premium paid for the
option and related transaction costs.
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
and, therefore, together with other illiquid securities, cannot exceed a
certain percentage of the Fund's assets (the "SEC illiquidity ceiling").
Although the Adviser disagrees with this position, the Adviser intends to
limit the Fund's writing of over-the-counter options in accordance with the
following procedure. Except as provided below, the Fund 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 the
Fund has in place with such primary dealers will provide that the Fund has the
absolute right to repurchase an option it writes at any time at a price which
represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by the Fund 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 Fund will treat all or a portion of the formula as illiquid for
purposes of the SEC illiquidity ceiling. The Fund 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
SEC illiquidity ceiling.
YIELD CURVE OPTIONS: The Fund may also enter into options on the "spread," or
yield differential, between two fixed income securities, in transactions
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is
settled through cash payments. Accordingly, a yield curve option is profitable
to the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Fund may purchase or write such options for
hedging purposes. For example, the Fund may purchase a call option on the
yield spread between two securities, if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an
adverse change in the yield spread between the two securities. The Fund may
also purchase or write yield curve options for other than hedging purposes
(i.e., in an effort to increase its current income) if, in the judgment of the
Adviser, the Fund will be able to profit from movements in the spread between
the yields of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if the
yield of one of the underlying securities remains constant, if the spread
moves in a direction or to an extent which was not anticipated. Yield curve
options written by the Fund will be "covered." A call (or put) option is
covered if the Fund 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 Fund's net
liability under the two options. Therefore, the Fund's liability for such a
covered option is generally limited to the difference between the amount of
the Fund's liability under the option written by the Fund less the value of
the option held by the Fund. Yield curve options may also be covered in such
other manner as may be in accordance with the requirements of the 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. Because these securities are traded over-the-counter, the SEC
has taken the position that yield curve options are illiquid and, therefore,
cannot exceed the SEC illiquid ceiling. See "Options on Fixed Income
Securities" above for a discussion of the policies the Adviser intends to
follow to limit the Fund's investment in these securities.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indexes of fixed income securities as such instruments
become available for trading ("Futures Contracts"). This investment technique
is designed to hedge (i.e., to protect) against anticipated future changes in
interest or exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of long-term
bonds or other securities which the Fund intends to purchase at a later date.
A "sale" of a Futures Contract means a contractual obligation to deliver the
securities or foreign currency called for by the contract at a fixed price at
a specified time in the future. A "purchase" of a Futures Contract means a
contractual obligation to acquire the securities or foreign currency at a
fixed price at a specified time in the future. The Fund may also enter into
such transactions for non-hedging purposes, to the extent permitted by
applicable law, which involves greater risk.
While Futures Contracts provide for the delivery of securities or currencies,
such deliveries are very seldom made. Generally, a Futures Contract is
terminated by entering into an offsetting transaction. The Fund will incur
brokerage fees when it purchases and sells Futures Contracts. At the time such
a purchase or sale is made, the Fund must allocate cash or securities as a
margin deposit ("initial deposit"). It is expected that the initial deposit
will vary but may be as low as 5% or less of the value of the contract. The
Futures Contract is valued daily thereafter and the payment of "variation
margin" may be required to be paid or received, so that each day the Fund may
provide or receive cash that reflects the decline or increase in the value of
the contract.
The purpose of the purchase or sale of a Futures Contract, in the case of a
portfolio holding long-term debt securities, is to protect the Fund from
fluctuations in interest rates without actually buying or selling long-term
debt securities. For example, if the Fund owned long-term bonds and interest
rates were expected to increase, the Fund might enter into Futures Contracts
for the sale of debt securities. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value of the
Fund's Futures Contracts should increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. The Fund could accomplish similar results by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase or by buying bonds with long
maturities and selling bonds with short maturities when interest rates are
expected to decline. However, since the futures market is more liquid than the
cash market, the use of Futures Contracts as an investment technique allows
the Fund to maintain a defensive position without having to sell its portfolio
securities.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures
Contracts should be similar to that of long-term bonds, the Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the
Futures Contracts could be liquidated and the Fund could buy long-term bonds
on the cash market. Purchases of Futures Contracts would be particularly
appropriate when the cash flow from the sale of new shares of the Fund could
have the effect of diluting dividend earnings. To the extent the Fund enters
into Futures Contracts for this purpose, the assets in the segregated asset
account maintained to cover the Fund's obligations with respect to such
Futures Contracts will consist of cash, cash equivalents or short-term money
market instruments from the portfolio of the Fund in an amount equal to the
difference between the fluctuating market value of such Futures Contracts and
the aggregate value of the initial and variation margin payments made by the
Fund with respect to such Futures Contracts, thereby assuring that the
transactions are unleveraged.
Futures Contracts on foreign currencies may be used in a similar manner, in
order to protect against declines in the dollar value of portfolio securities
denominated in foreign currencies, or increases in the dollar value of
securities to be acquired.
A Futures Contract on an index of fixed income securities provides for the
making and acceptance of a cash settlement based on changes in value of the
underlying index. The index underlying such a Futures Contract will generally
be a broad based index of fixed income securities designed to reflect
movements in the relevant market as a whole.
OPTIONS ON FUTURES CONTRACTS: The Fund may write and purchase options to buy
or sell Futures Contracts ("Options on Futures Contracts"). The writing of a
call Option on a Futures Contract may constitute a partial hedge against
declining prices of the fixed income security or currency underlying the
Futures Contract. If the futures price at expiration of the option is below
the exercise price, the Fund will retain the full amount of the option
premium, less related transaction costs, which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio holdings.
The writing of a put Option on a Futures Contract may constitute a partial
hedge against increasing prices of the security or currency underlying the
Futures Contract. If the futures price at expiration of the option is higher
than the exercise price, the Fund will retain the full amount of the option
premium, less related transaction costs, which provides a partial hedge
against any increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Fund's losses from existing Options on Futures Contracts may to some
extent be reduced or increased by changes in the value of portfolio
securities. The Fund may also enter into such transactions for non-hedging
purposes, to the extent permitted by applicable law, which involves greater
risk.
The Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline, a rise in interest rates or a
decline in the dollar value of foreign currencies in which portfolio
securities are denominated, the Fund may, in lieu of selling Futures
Contracts, purchase put options thereon. In the event that such decrease in
portfolio value occurs, it may be offset, in whole or part, by a profit on the
option. Conversely, where it is projected that the value of securities to be
acquired by the Fund will increase prior to acquisition, due to a market
advance, or a decline in interest rates or a rise in the dollar value of
foreign currencies in which securities to be acquired are denominated, the
Fund may purchase call Options on Futures Contracts, rather than purchasing
the underlying Futures Contracts. As in the case of Options, the writing of
Options on Futures Contracts may require the Fund to forego all or a portion
of the benefits of favorable movements in the price of portfolio securities,
and the purchase of Options on Futures Contracts may require the Fund to
forego all or a portion of such benefits up to the amount of the premium paid
and related transaction costs. The Fund may also enter into transactions in
Options on Futures Contracts for non-hedging purposes to the extent permitted
by applicable law.
The Fund 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 Fund in cash, short-term money market
instruments or high quality government securities in a segregated account with
its custodian. The Fund may cover the writing of put Options on Futures
Contracts (a) through sales of the underlying Futures Contract, (b) through
segregation of cash, short-term money market instruments or high quality
government securities in an amount equal to the value of the security or index
underlying the Futures Contract, 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 is less than the exercise price of the
put written if the difference is maintained by the Fund in cash, short-term
money market instruments or high quality government securities 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 the option is traded and applicable laws and regulations.
Upon the exercise of a call Option on a Futures Contract written by the Fund,
the Fund will be required to sell the underlying Futures Contract which, if
the Fund has covered its obligation through the purchase of such Contract,
will serve to liquidate its futures position. Similarly, where a put Option on
a Futures Contract written by the Fund is exercised, the Fund will be required
to purchase the underlying Futures Contract which, if the Fund has covered its
obligation through the sale of such Contract, will close out its futures
position. An Option on a Futures Contract is traded on the same contract
market as the underlying Futures Contact, subject to regulation by the
Commodity Futures Trading Commission ("CFTC") and the performance guarantee of
the exchange clearing house. Options on Futures Contracts, as noted in the
Prospectus, are also traded on foreign exchanges.
FORWARD CONTRACTS: The Fund 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 Fund may
enter into Forward Contracts for hedging purposes as well as for non-hedging
purposes. The Fund may also enter into Forward Contracts for "cross hedging"
as noted in the Prospectus. 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 fixed income 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 Fund may be required to forego the benefits of
advantageous changes in exchange rates. The Fund may also enter into
transactions in Forward Contracts for other than hedging purposes which
presents greater profit potential but also involves increased risk. For
example, if the Adviser believes that the value of a particular foreign
currency will increase or decrease relative to the value of the U.S. dollar,
the Fund may purchase or sell such currency, respectively, through a Forward
Contract. If the expected changes in the value of the currency occur, the Fund
will realize profits which will increase its gross income. Where exchange
rates do not move in the direction or to the extent anticipated, however, the
Fund may sustain losses which will reduce its gross income. Such transactions,
therefore, could be considered speculative.
The Fund 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
Fund satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash equivalents or high grade debt
securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the
purpose of protecting against declines in the dollar value of foreign fixed
income portfolio securities and against increases in the dollar cost of
foreign fixed income securities to be acquired. For example, a decline in the
dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against
such diminutions in the value of portfolio securities, the Fund may purchase
put Options on the Foreign Currency. If the value of the currency did decline,
the Fund would have the right to sell such currency for a fixed amount in
dollars and would thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, the Fund 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 Fund deriving from purchases of foreign currency
options would 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 Fund could sustain losses on transactions in
Options on Foreign Currency which would require it to forego a portion or all
of the benefits of advantageous changes in such rates.
The Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar
value of foreign-denominated securities due to adverse fluctuations in
exchange rates it may, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurred, the option would
most likely not be exercised, and the diminution in value of portfolio
securities would be offset by the amount of the premium received less related
transaction costs. As in the case of other types of options, therefore, the
writing of Options on Foreign Currencies will constitute only a partial hedge.
SWAPS AND RELATED TRANSACTIONS: The Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors.
Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as securities prices or inflation rates. Swap agreements
can take many different forms and are known by a variety of names. The Fund is
not limited to any particular form or variety of swap agreements if MFS
determines it is consistent with the Fund's investment objective and policies.
The Fund will maintain cash or appropriate liquid assets with its custodian to
cover its current obligations under swap transactions. If the Fund enters into
a swap agreement on a net basis (i.e., the two payment streams are netted out,
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments), the Fund will maintain cash or liquid assets with its
Custodian with a daily value at least equal to the excess, if any, of the
Fund's accrued obligations under the swap agreement over the accrued amount
the Fund is entitled to receive under the agreement. If the Fund enters into a
swap agreement on other than a net basis, it will maintain cash or liquid
assets with a value equal to the full amount of the Fund's accrued obligations
under the agreement.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If
MFS is incorrect in its forecasts of such factors, the investment performance
of the Fund would be less than what it would have been if these investment
techniques had not been used. If a swap agreement calls for payments by the
Fund, the Fund must be prepared to make such payments when due. In addition,
if the counterparty's creditworthiness declines, the value of the swap
agreement would be likely to decline, potentially resulting in losses. If the
counterparty defaults, the Fund's risk of loss consists of the net amount of
payments that the Fund is contractually entitled to receive. The Fund
anticipates that it will be able to eliminate or reduce its exposure under
these arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO -- The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, and Forward
Contracts will depend on the degree to which price movements in the underlying
instruments correlate with price movements in the relevant portion of the
Fund's portfolio. If the values of fixed income portfolio securities being
hedged do not move in the same amount or direction as the instruments
underlying options, Futures Contracts or Forward Contracts traded, the Fund's
hedging strategy may not be successful and the Fund could sustain losses on
its hedging strategy which would not be offset by gains on its portfolio. It
is also possible that there may be a negative correlation between the
instrument underlying an option, Futures Contract or Forward Contract traded
and the portfolio securities being hedged, which could result in losses both
on the hedging transaction and the portfolio securities. In such instances,
the Fund's overall return could be less than if the hedging transaction had
not been undertaken. In the case of Futures and options on fixed income
securities, the portfolio securities which are being hedged may not be the
same type of obligation underlying such contract. As a result, the correlation
probably will not be exact. Consequently, the Fund bears the risk that the
price of the fixed income portfolio securities being hedged will not move in
the same amount or direction as the underlying index or obligation. Where the
Fund enters into Forward Contracts as a "cross hedge" (i.e., the purchase or
sale of a Forward Contract on one currency to hedge against risk of loss
arising from changes in value of a second currency), the Fund incurs the risk
of imperfect correlation between changes in the values of the two currencies,
which could result in losses.
The correlation between prices of fixed income securities and prices of
options, Futures Contracts or Forward Contracts may be distorted due to
differences in the nature of the markets, such as differences in margin
requirements, the liquidity of such markets and the participation of
speculators in the option, Futures Contract and Forward Contract markets. Due
to the possibility of distortion, a correct forecast of general interest rate
trends by the Adviser may still not result in a successful transaction. The
trading of Options on Futures Contracts 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. The risk of imperfect correlation, however, generally
tends to diminish as the maturity or termination date of the option, Futures
Contract or Forward Contract approaches.
The trading of options, Futures Contracts and Forward Contracts also entails
the risk that, if the Adviser's judgment as to the general direction of
interest or exchange rates is incorrect, the Fund's overall performance may be
poorer than if it had not entered into any such contract. For example, if the
Fund has hedged against the possibility of an increase in interest rates, and
rates instead decline, the Fund will lose part or all of the benefit of the
increased value of the fixed income securities being hedged, and may be
required to meet ongoing daily variation margin payments.
It should be noted that the Fund may purchase and write Options, Futures
Contracts, Options on Futures Contracts and Forward Contracts not only for
hedging purposes, but also for non-hedging purposes to the extent permitted by
applicable law for the purpose of increasing its return. As a result, the Fund
will incur the risk that losses on such transactions will not be offset by
corresponding increases in the value of fixed income portfolio securities or
decreases in the cost of fixed income securities to be acquired.
RISK FACTORS: POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise
or expiration, a position in an exchange-traded option, Futures Contract,
Option on a Futures Contract or Option on a Foreign Currency can only be
terminated by entering into a closing purchase or sale transaction, which
requires a secondary market for such instruments on the exchange on which the
initial transaction was entered into. If no such market exists, it may not be
possible to close out a position, and the Fund could be required to purchase
or sell the underlying instrument or meet ongoing variation margin
requirements. The inability to close out option or futures positions also
could have an adverse effect on the Fund's ability effectively to hedge its
portfolio.
The liquidity of a secondary market in an option or Futures Contract may be
adversely affected by "daily price fluctuation limits," established by the
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Such limits could prevent the Fund from liquidating open
positions, which could render its hedging strategy unsuccessful and result in
trading losses. The exchanges on which options and Futures Contracts are
traded have also established a number of limitations governing the maximum
number of positions which may be traded by a trader, whether acting alone or
in concert with others. Further, the purchase and sale of exchange-traded
options and Futures Contracts is subject to the risk of trading halts,
suspensions, exchange or clearing corporation equipment failures, government
intervention, insolvency of a brokerage firm, intervening broker or clearing
corporation or other disruptions of normal trading activity, which could make
it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
RISK FACTORS: OPTIONS ON FUTURES CONTRACTS -- In order to profit from the
purchase of an Option on a Futures Contract, it may be necessary to exercise
the option and liquidate the underlying Futures Contract, subject to all of
the risks of futures trading. The writer of an Option on a Futures Contract is
subject to the risks of futures trading, including the requirement of initial
and variation margin deposits.
ADDITIONAL RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND
TRANSACTIONS NOT CONDUCTED ON UNITED STATES EXCHANGES -- The available
information on which the Fund will make trading decisions concerning
transactions related to foreign currencies or foreign securities may not be as
complete as the comparable data on which the Fund makes investment and trading
decisions in connection with other transactions. Moreover, because the foreign
currency market is a global, 24-hour market, and the markets for foreign
securities as well as markets in foreign countries may be operating during
non-business hours in the United States, events could occur in such markets
which would not be reflected until the following day, thereby rendering it
more difficult for the Fund to respond in a timely manner.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position, unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. This
could make it difficult or impossible to enter into a desired transaction or
liquidate open positions, and could therefore result in trading losses.
Further, over-the-counter transactions are not subject to the performance
guarantee of an exchange clearing house and the Fund will therefore be subject
to the risk of default by, or the bankruptcy of, a financial institution or
other counterparty.
Transactions on exchanges located in foreign countries may not be conducted in
the same manner as those entered into on United States exchanges, and may be
subject to different margin, exercise, settlement or expiration procedures.
As a result, many of the risks of over-the-counter trading may be present in
connection with such transactions. Moreover, the SEC or CFTC have jurisdiction
over the trading in the United States of many types of over-the-counter and
foreign instruments, and such agencies could adopt regulations or
interpretations which would make it difficult or impossible for the Fund to
enter into the trading strategies identified herein or to liquidate existing
positions.
As a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in foreign currencies. The Fund may also 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 Fund is exercised or the Fund is unable
to close out a Forward Contract it has entered into. In addition, the Fund may
elect to take delivery of such currencies. Under such circumstances, the Fund
may promptly convert the foreign currencies into dollars at the then current
exchange rate. Alternatively, the Fund may hold such currencies for an
indefinite period of time if the Adviser believes that the exchange rate at
the time of delivery is unfavorable or if, for any other reason, the Adviser
anticipates favorable movements in such rates.
While the holding of currencies will permit the Fund to take advantage of
favorable movements in the applicable exchange rate, it also exposes the Fund
to risk of loss if such rates move in a direction adverse to the Fund's
position. Such losses could also adversely affect the Fund's hedging
strategies. Certain tax requirements may limit the extent to which the Fund
will be able to hold currencies.
ADDITIONAL POLICIES ON THE USE OF OPTIONS AND FUTURES: In order to assure that
the Fund will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the Fund 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 Fund's assets. In addition, the Fund must comply with the
requirements of various state securities laws in connection with such
transactions.
The Fund has adopted the additional policy that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets. Moreover, the Fund will not purchase put and
call Options if, as a result, more than 5% of its total assets would be
invested in such Options.
When the Fund purchases a Futures Contract, an amount of cash and cash
equivalents will be deposited in a segregated account with the Fund's
custodian so that the amount so segregated will at all times equal the value
of the Futures Contract, thereby insuring that the leveraging effect of such
Futures is minimized.
--------------------
The investment objective and policies described above are not fundamental and
may be changed without shareholder approval.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this SAI, means the lesser of (i) more than
50% of the outstanding shares of the Trust or a series or class, as
applicable, or (ii) 67% or more of the outstanding shares of the Trust or a
series or class, as applicable, present at a meeting at which holders of more
than 50% of the outstanding shares of the Trust or a series or class, as
applicable, are represented in person or by proxy):
The Fund may not:
(1) Borrow amounts in excess of 10% of its gross assets, and then only
as a temporary measure for extraordinary or emergency purposes, or pledge,
mortgage or hypothecate its assets (taken at market value) to an extent
greater than 33 1/3% of its gross assets, in each case taken at the lower
of cost or market value and subject to a 300% asset coverage requirement
(for the purpose of this restriction, collateral arrangements with respect
to options, Futures Contracts, Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies and payments of initial and
variation margin in connection therewith are not considered a pledge of
assets). While such borrowings exceed 5% of the Fund's gross assets, no
securities may be purchased; however, the Fund may complete the purchase
of securities already contracted for;
(2) Underwrite securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the Securities Act
of 1933 in selling a portfolio security;
(3) Invest 25% or more of the market value of its total assets in
securities of issuers in any one industry;
(4) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except foreign currencies, Forward Contracts, Futures
Contracts, options, Options on Futures Contracts and Options on Foreign
Currencies) in the ordinary course of its business. The Fund reserves the
freedom of action to hold and to sell real estate and commodities acquired
as a result of the ownership of securities;
(5) Make loans to other persons except through the lending of its
portfolio securities and except through repurchase agreements. Not more
than 10% of the Fund's assets will be invested in repurchase agreements
maturing in more than seven days. For these purposes the purchase of
commercial paper or a portion of an issue of debt securities shall not be
considered the making of a loan;
(6) Purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held by the Fund; or purchase securities
of any issuer if such purchase, at the time thereof, would cause more than
10% of any class of securities of such issuer to be held by the Fund. For
this purpose, all indebtedness of an issuer shall be deemed a single class
and all preferred stock of an issuer shall be deemed a single class;
(7) Invest for the purpose of exercising control or management;
(8) Purchase securities issued by any closed-end investment company
except by purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary
broker's commission, or except when such purchase, though not made in the
open market, is part of a plan of merger or consolidation; provided,
however, that the Fund shall not purchase such securities if such purchase
at the time thereof would cause more than 10% of its total assets (taken
at market value) to be invested in the securities of such issuers, or more
than 3% of the total outstanding voting securities of any closed-end
investment company to be held by the Fund. The Fund shall not purchase
securities issued by any open-end investment company;
(9) Invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous
operation;
(10) Purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is
an officer or Trustee of the Fund, or is a partner, officer, Director or
Trustee of the Adviser, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities, or both, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both;
(11) Purchase any securities, gold or evidences of interest therein on
margin, except that the Fund may obtain such short-term credit as may be
necessary for the clearance of any transactions and except that the Fund
may make margin deposits in connection with Futures Contracts, Options on
Futures Contracts, options and Options on Foreign Currencies;
(12) Sell any security which the Fund does not own unless by virtue of
its ownership of other securities the Fund has at the time of sale a right
to obtain securities without payment of further consideration equivalent
in kind and amount to the securities sold and provided that if such right
is conditional the sale is made upon the same conditions;
(13) Purchase or sell any put or call option or any combination
thereof, provided, that this shall not prevent the purchase, ownership,
holding or sale of contracts for the future delivery of securities,
currencies or warrants where the grantor of the warrants is the issuer of
the underlying securities or the writing and purchasing of puts, calls or
combinations thereof with respect to securities, Futures Contracts and
foreign currencies; or
In addition, the Fund will not invest in illiquid investments, including
securities 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 exists) if
more than 15% of the Fund's assets (taken at market value) would be invested
in such securities. Repurchase agreements maturing in more than seven days
will be deemed to be illiquid for purposes of the Fund's limitation on
investment in illiquid securities. Securities that are not registered under
the Securities Act of 1933, as amended, and sold in reliance on Rule 144A
thereunder, but are determined to be liquid by the Trust's Board of Trustees
(or its delegee), will not be subject to this 15% limitation.
According to certain state securities commissions, the term "illiquid
investments" includes all foreign equity securities that are not listed on a
recognized foreign or U.S. stock exchange. Except with respect to Investment
Restriction (1), these investment restrictions are adhered to at the time of
purchase or utilization of assets; a subsequent change in circumstances will
not be considered to result in a violation of policy. As a non-fundamental
policy, repurchase agreements maturing in more than seven days will be deemed
to be illiquid for purposes of the Fund's limitation on investment in illiquid
securities. During the coming year, less than 5% of the Fund's assets will be
used to engage in short sales permitted by Investment Restriction (12). In
addition, purchases of warrants will not exceed 5% of the Fund's net assets.
Included within that amount, but not exceeding 2% of the Fund's net assets,
may be warrants not listed on the New York or American Stock Exchange.
3. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the investment management of the Fund's assets,
and the officers of the Trust are responsible for its operations. The Trustees
and officers are listed below, together with their principal occupations
during the past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
MARSHALL N. COHAN
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D.
Brigham and Women's Hospital, Chief of Cardiac Surgery; Harvard Medical
School, Professor of Surgery
Address: 75 Francis Street, Boston, Massachusetts
THE HON. SIR J. DAVID GIBBONS, KBE
Edmund Gibbons Limited, Chief Executive Officer; The Bank of N.T. Butterfield
& Son Ltd., Chairman
Address: 21 Reid Street, Hamilton, Bermuda
ABBY M. O'NEILL
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: 30 Rockefeller Plaza, Room 5600, New York, New York
WALTER E. ROBB, III
Benchmark Advisors, Inc. (corporate financial consultants), President and
Treasurer; Benchmark Consulting Group, Inc. (office services), President;
Landmark Funds (mutual funds), Trustee
Address: 110 Broad Street, Boston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
J. DALE SHERRATT
Insight Resources, Inc. (acquisition planning specialists), President
Address: One Liberty Square, 10th Floor, Boston, Massachusetts
WARD SMITH
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)
Address: 5875 Landerbrook Drive, Mayfield Heights, Ohio
OFFICERS
A. KEITH BRODKIN,* President
Massachusetts Financial Services Company, Chairman
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES O. YOST*, Assistant Treasurer
Massachusetts Financial Services Company, Vice President
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel)
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*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose
address is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain affiliates of
MFS or with certain other funds of which MFS or a subsidiary is the investment
adviser or distributor. Mr. Brodkin, the Chairman of MFD, Messrs. Shames and
Scott, Directors of MFD, and Mr. Cavan, the Secretary of MFD, hold similar
positions with certain other MFS affiliates.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey who
currently receive a fee of $1,250 per year plus $225 per meeting and $225 per
committee meeting attended, together with such Trustee's out-of-pocket
expenses. The Trust has adopted a retirement plan for non-interested Trustees
and Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 72
and if the Trustee has completed at least five 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 72
and receive reduced payments if he has completed at least five 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 Trust for
Messrs. Brodkin, Scott and Shames. The Fund will accrue its allocable share of
compensation expenses each year to cover current year's service and amortize
past service cost.
Set forth in Appendix A hereto is certain information concerning the cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of January 31, 1996, all Trustees and officers as a group owned less than
1% of the Fund's shares outstanding on that date, not including 174,570,715
shares (which represent approximately 1.8% of the outstanding Class A shares
of the Fund) owned of record by certain employee benefit plans of MFS for
which Messrs. Brodkin, Scott and Shames are Trustees.
As of January 31, 1996, Merrill Lynch, Pierce, Fenner & Smith Inc., P.O. Box
45286, Jacksonville, Florida, was the owner of 6.32% and 14.99% of the
outstanding Class B and Class C shares. respectively, of the Fund.
The Declaration of Trust provides that the Trust 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
Trust, unless as to liability to the Trust or its shareholders, it is
determined 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 Trust. In the case of settlement, such indemnification will
not be provided unless it has been determined pursuant to the Declaration of
Trust, that they have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada
(U.S.) which is a wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life").
The Adviser manages the Fund pursuant to an Investment Advisory Agreement
dated August 10, 1990 (the "Advisory Agreement"). The Adviser provides the
Fund with overall investment advisory and administrative services, as well as
general office facilities. Subject to such policies as the Trustees may
determine, the Adviser makes investment decisions for the Fund. For these
services and facilities, the Adviser receives a management fee computed and
paid monthly in an amount equal to the sum of 0.65% of the Fund's average
daily net assets and 5% of its 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).
For the Fund's fiscal year ended October 31, 1995, MFS received management
fees under the Advisory Agreement of $1,479,587 (of which $1,079,919 was based
on average daily net assets and $399,668 on gross income), equivalent, on an
annualized basis to 0.89% of the Fund's average daily net assets. For the
Fund's fiscal year ended October 31, 1994, MFS received management fees under
the Advisory Agreement of $1,074,047 (of which $792,505 was based on average
daily net assets and $281,542 on gross income), equivalent, on an annualized
basis to 0.90% of the Fund's average daily net assets. For the Fund's fiscal
year ended October 31, 1993, MFS received management fees under the Advisory
Agreement of $492,724 (of which $358,037 was based on average daily net assets
and $134,687 on gross income), equivalent, on an annualized basis to 0.90% of
the Fund's average daily net assets.
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by the Fund in any fiscal year to the extent such
expenses exceed the most restrictive of such state expense limitations. The
Adviser will make appropriate adjustments to such reimbursements in response
to any amendment or rescission of the various state requirements.
The Fund pays all of the Fund's expenses (other than those assumed by the
Adviser or MFD, the Fund's distributor), including: governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute
allocable to the Fund; fees and expenses of independent auditors, of legal
counsel, and of any transfer agent, registrar or dividend disbursing agent of
the Fund; expenses of repurchasing and redeeming shares; expenses of
preparing, printing and mailing share certificates, shareholder reports,
notices, proxy statements and reports to governmental officers and
commissions; brokerage and other expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance
premiums; fees and expenses of State Street Bank and Trust Company, the Fund's
Custodian, for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing
of prospectuses for such purposes are borne by the Fund except that the Fund's
Distribution Agreement with MFD requires MFD to pay for prospectuses that are
to be used for sales purposes. Expenses of the Trust which are not
attributable to a specific series are allocated among the series in a manner
believed by management of the Trust to be fair and equitable. For a list of
the Fund's expenses, including the compensation paid to the Trustees who are
not officers of MFS, during its fiscal year ended October 31, 1995 see
"Financial Statements -- Statement of Operations" in the Fund's Annual Report
to shareholders dated October 31, 1995 incorporated by reference into this
SAI. Payment by the Fund of brokerage commissions for brokerage and research
services of value to the Adviser in serving its clients is discussed under the
caption "Portfolio Transactions and Brokerage Commissions" below.
The Adviser pays the compensation of the Trust's officers and of any Trustee
who is an officer of MFS. The 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 Fund's investments, effecting its
portfolio transactions, and, in general, administering its affairs.
The Advisory Agreement will remain in effect until August 1, 1996 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 Fund's shares (as defined in "Investment Objective, Policies and
Restrictions") 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 Fund's shares (as
defined in "Investment Objective, Policies and Restrictions"), or by either
party on not more than 60 days' nor less than 30 days' written notice. The
Advisory Agreement provides that if MFS ceases to serve as the Adviser to the
Fund, the Fund will change its name so as to delete the term "MFS" and that
MFS may render services to others and may permit other fund clients to use the
term "MFS" in their names. The Advisory Agreement also provides that neither
the Adviser 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 Fund, 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.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily
net asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also acts as the dividend disbursing agent of the
Fund. The Custodian has contracted with the Adviser for the Adviser to perform
certain accounting functions related to options transactions for which the
Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS , is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 10, 1990, as amended (the
"Agency Agreement") with the Trust. The Shareholder Servicing Agent's
responsibilities under the Agency Agreement include administering and
performing transfer agent functions and the keeping of records in connection
with the issuance, transfer and redemption of each Class of shares of the
Fund. For these services, the Shareholder Servicing Agent will receive a fee
calculated as a percentage of the average daily net assets of each class of
shares at an effective annual rate of up to 0.15%, up to 0.22% and up to 0.15%
attributable to Class A, Class B and Class C shares, respectively. In
addition, the Shareholder Servicing Agent will be reimbursed by the Fund for
certain expenses incurred by the Shareholder Servicing Agent on behalf of the
Fund. State Street Bank and Trust Company, the dividend and distribution
disbursing agent of the Fund, has contracted with the Shareholder Servicing
Agent to perform certain dividend and distribution disbursing functions for
the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as the distributor for the
continuous offering of shares of the Fund pursuant to a Distribution
Agreement dated as of January 1, 1995 (the "Distribution Agreement"). Prior to
January 1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned
subsidiary of MFS, was the Fund's distributor. Where this SAI refers to MFD in
relation to the receipt or payment of money with respect to a period or
periods prior to January 1, 1995, such reference shall be deemed to include
FSI, as the predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies
based upon the quantity purchased. The public offering price of a Class A
share of the Fund is calculated by dividing the net asset value of a Class A
share by the difference (expressed as a decimal) between 100% and the sales
charge percentage of offering price applicable to the purchase (see
"Purchases" in the Prospectus). The sales charge scale set forth in the
Prospectus applies to purchases of Class A shares of the Fund alone or in
combination with shares of all classes of certain other funds in the MFS
Family of Funds (the "MFS Funds") and other funds (as noted under Right of
Accumulation) by any person, including members of a family unit (e.g.,
husband, wife and minor children) and bona fide trustees, and also applies to
purchases made under the Right of Accumulation or a Letter of Intent (see
"Investment and Withdrawal Programs" in this SAI). A group might qualify to
obtain quantity sales charge discounts (see "Investment and Withdrawal
Programs" in this SAI).
Class A shares of the Fund may be sold at their net asset value to certain
persons or in certain transactions as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because
the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases"). The difference between the total
amount invested and the sum of (a) the net proceeds to the Fund and (b) the
dealer commission is the commission paid to the underwriter. Because of
rounding in the computation of offering price, the portion of the sales charge
paid to the underwriter may vary and the total sales charge may be more or
less than the sales charge calculated using the sales charge expressed as a
percentage of the offering price or as a percentage of the net amount invested
as listed in the Prospectus. In the case of the maximum sales charge the
dealer retains 4% and MFD retains approximately 3/4 of 1% of the public
offering price. In addition, MFD pays a commission to dealers who initiate and
are responsible for purchases of $1 million or more as described in the
Prospectus.
CLASS B AND CLASS C SHARES: MFD acts as agent in selling Class B and Class C
shares of the Fund. The public offering price of Class B and Class C shares is
their net asset value next computed after the sale (see "Purchases" in the
Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD may obtain brokers
loans from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers
for the purchase of Fund shares.
During the Fund's fiscal year ended October 31, 1995, gross sales charges on
sales of Class A shares of the Fund amounted to $366,111, of which $48,590 was
retained by MFD and $317,521 by dealers and certain other financial
institutions; the Fund received $17,766,340 representing the aggregate net
asset value of such shares. During the Fund's fiscal year ended October 31,
1994, gross sales charges on sales of Class A shares of the Fund amounted to
$833,238, of which $133,802 was retained by MFD and $699,436 by dealers and
certain other financial institutions; the Fund received $29,472,764
representing the aggregate net asset value of such shares. During the Fund's
fiscal year ended October 31, 1993, gross sales charges on sales of Class A
shares of the Fund amounted to $649,349, of which $108,242 was retained by MFD
and $541,107 by dealers and certain other financial institutions; the Fund
received $19,869,783, representing the aggregate net asset value of such
shares. During the Fund's fiscal years ended October 31, 1994 and 1995, the
CDSC imposed on the redemption of Class B shares was $35,156 and $91,996,
respectively. During the period from September 7, 1993 through October 31,
1993, the CDSC imposed on the redemption of Class B shares was $1,901.
The Distribution Agreement will remain in effect until August 1, 1996 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 Trust's shares (as defined in "Investment Restrictions") and in either
case, by a majority of the Trustees who are not parties to the Distribution
Agreement or interested persons of any such party. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without
penalty by either party on not more than 60 days' nor less than 30 days'
notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by
persons affiliated with the Adviser. Any such person may serve other clients
of the Adviser, or any subsidiary of the Adviser in a similar capacity.
Changes in the Fund's investments are reviewed by the Board of Trustees.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. In the
United States and in some other countries debt securities are traded
principally in the over-the-counter market on a net basis through dealers
acting for their own account and not as brokers. In other countries both debt
and equity securities are traded on exchanges at fixed commission rates. The
cost of securities purchased from underwriters includes an underwriter's
commission or concession, and the prices at which securities are purchased and
sold from and to dealers include a dealer's mark-up or mark-down. The Adviser
normally seeks to deal directly with the primary market makers or on major
exchanges unless, in its opinion, better prices are available elsewhere.
Subject to the requirement of seeking execution at the best available price,
securities transactions may, as authorized by the Advisory Agreement, be
bought from or sold to dealers who have furnished statistical, research and
other information or services to the Adviser. At present no arrangements for
the recapture of commission payments are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers (the "NASD") and
such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund and of the other investment company clients of MFD
as a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Fund to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction for the Fund in
excess of the amount other broker-dealers would have charged for the
transaction if the 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 their respective overall responsibilities
to the Fund or to their other clients. Not all of such services are useful or
of value in advising the Fund.
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 performing
functions incidental thereto, such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may
be paid to broker-dealers who were selected to execute transactions on behalf
of the Fund and the Adviser's other clients in part for providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and 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 Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Fund. The Trustees (together with the Trustees of the other MFS Funds)
have directed the Adviser to allocate a total of $23,100 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 Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality
of Research provided by brokers. Results of this effort are sometimes used by
the Adviser as a consideration in the selection of brokers to execute
portfolio transactions. However, the Adviser is unable to quantify the amount
of commissions set forth below which were paid as a result of such Research
because a substantial number of transactions were effected through brokers
which provide Research but which were selected principally because of their
execution capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and Research services. To
the extent the Fund's portfolio transactions are used to obtain brokerage and
research services, the brokerage commissions paid by the Fund will exceed
those that might otherwise be paid for such portfolio transactions, or for
such portfolio transactions and Research, by an amount which cannot be
presently determined. Such services would be useful and of value to the
Adviser in serving both the Fund and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients
would be useful to the Adviser in carrying out its obligations to the Fund.
While such services are not expected to reduce the expenses of the Adviser,
the 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.
For the Fund's fiscal year ended October 31, 1995, total brokerage commissions
of $297,101 were paid on transactions (other than U.S. Government securities,
purchased options transactions and short-term obligations) of $112,709,102.
For the Fund's fiscal year ended October 31, 1994, total brokerage commissions
of $210,216 were paid on transactions of $331,692,927. For the Fund's fiscal
year ended October 31, 1993, total brokerage commissions of $95,257 were paid
on total transactions of $134,942,094. Not all of the Fund's transactions are
equity security transactions which involve the payment of brokerage
commissions. During the Fund's fiscal year ended October 31, 1995, the Fund
sold and retained securities issued by an affiliate of Kidder, Peabody & Co.,
Inc., a regular broker-dealer of the Fund. The aggregate value of the
securities of such regular broker-dealer held by the Fund at October 31, 1995,
was $1,619,201.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser or any subsidiary of the Adviser. Investment decisions for the Fund
and for such other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though 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 or sale of
the same security, the securities are allocated among clients in a manner
believed by the Adviser to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. In other cases, however, the
Fund believes that its ability to participate in volume transactions will
produce better executions for the Fund.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or
withdraw from it with a minimum of paper work. These are described below and,
in certain cases, in the Prospectus. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $100,000 or more of Class A shares of the Fund
alone or in combination with shares of Class B or Class C of the Fund or any
of the classes of other MFS Funds or MFS Fixed Fund (a bank collective
investment fund) within a 13-month period (or 36-month period in the case of
purchases of $1 million or more), the shareholder may obtain Class A shares of
the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by completing the Letter of Intent section of the
Fund's Account Application or filing a separate Letter of Intent application
(available from the Shareholder Servicing Agent) within 90 days of the
commencement of purchases. Subject to acceptance by MFD and the conditions
mentioned below, each purchase will be made at a public offering price
applicable to a single transaction of the dollar amount specified in the
Letter of Intent application. The shareholder or his dealer must inform MFD
that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36 months in the case of purchases of $1
million or more) plus the value of shares credited toward completion of the
Letter of Intent do not total the sum specified, he will pay the increased
amount of the sales charge as described below. Instructions for issuance of
shares in the name of a person other than the person signing the Letter of
Intent application must be accompanied by a written statement from the dealer
stating that the shares were paid for by the person signing such Letter.
Neither income dividends nor capital gain distributions taken in additional
shares will apply toward the completion of the Letter of Intent. Dividends and
distributions of other MFS Funds automatically reinvested in shares of the
Fund pursuant to the Distribution Investment Program will also not apply
toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder
or to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month or 36-month period, as applicable), the
shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released
by the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in
the premises.
INVEST BY MAIL: Additional investments of $50 or more may be made at any
time by mailing a check payable to the Fund directly to the Shareholder
Servicing Agent. The shareholder's account number and the name of his
investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group (and all its members) may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort; (2)
has been in existence for at least six months and has a legitimate purpose
other than to purchase mutual fund shares at a discount; (3) is not a group of
individuals whose sole organizational nexus is as credit cardholders of a
company, policyholders of an insurance company, customers of a bank or broker-
dealer, clients of an investment adviser or other similar groups; and (4)
agrees to provide certification of membership of those members investing money
in the MFS Funds upon the request of MFD.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's new
investment, together with the current offering price value of all the holdings
of all classes of shares of that shareholder in the MFS Funds or MFS Fixed
Fund (a bank collective investment Fund) reaches a discount level (see
"Purchases" in the Prospectus for the sales charges on quantity purchases).
For example, if a shareholder owns shares valued at $75,000 and purchases an
additional $25,000 of Class A shares of the Fund, the sales charge for the
$25,000 purchase would be at the rate of 4% (the rate applicable to single
transactions of $100,000). A shareholder must provide the Shareholder
Servicing Agent (or his investment dealer must provide MFD) with information
to verify that the quantity sales charge discount is applicable at the time
the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital
gains made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to a CDSC.
Distributions will be invested at the close of business on the payable date
for the distribution. A shareholder considering the Distribution Investment
Program should obtain and read the prospectus of the other fund and consider
the differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100 (except in certain limited
circumstances). The aggregate withdrawals of Class B shares in any year
pursuant to a SWP generally are limited to 10% of the value of the account at
the time of establishment of the SWP. Such payments are drawn from the
proceeds of the redemption of shares held in the shareholder's account (which
would be a return of principal and, if reflecting a gain, would be taxable).
Redemptions of Class B shares will be made in the following order: (i) any
"Free Amount"; (ii) to the extent necessary, any "Reinvested Shares"; (iii) to
the extent necessary, the "Direct Purchase" subject to the lowest CDSC (as
such terms are defined in "Contingent Deferred Sales Charge" in the
Prospectus). The CDSC will be waived in the case of redemptions of Class B
shares pursuant to a SWP, but will not be waived in the case of SWP
redemptions of Class A shares. To the extent that redemptions for such
periodic withdrawals exceed dividend income reinvested in the account, such
redemptions will reduce and may eventually exhaust the number of shares in the
shareholder's account. All dividend and capital gain distributions for an
account with a SWP will be reinvested in full and fractional shares of the
Fund at the net asset value in effect at the close of business on the record
date for such distributions. To initiate this service, shares having an
aggregate value of at least $5,000 either must be held on deposit by, or
certificates for such shares must be deposited with, the Shareholder Servicing
Agent. Maintaining a withdrawal plan concurrently with an investment program
would be disadvantageous because of the sales charges included in share
purchases in the case of Class A shares, and because of the assessment of the
CDSC for certain share redemptions in the case of Class A shares. The
shareholder may deposit into the account additional shares of the Fund, change
the payee or change the dollar amount of each payment. The Shareholder
Servicing Agent may charge the account for services rendered and expenses
incurred beyond those normally assumed by the Fund with respect to the
liquidation of shares. No charge is currently assessed against the account,
but one could be instituted by the Shareholder Servicing Agent on 60 days'
notice in writing to the shareholder in the event that the Fund ceases to
assume the cost of these services. The Fund may terminate any SWP for an
account if the value of the account falls below $5,000 as a result of share
redemptions (other than as a result of a SWP) or an exchange of shares of the
Fund for shares of another MFS Fund. Any such plan may also be terminated at
any time by either the shareholder or the Fund.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of other MFS Funds (if available for sale) (and, in the case of Class C
shares, for shares of MFS Money Market Fund) under the Automatic Exchange
Plan, a dollar cost averaging program. The Automatic Exchange Plan provides
for automatic exchanges of funds from the shareholder's account in an MFS Fund
for investment in the same class of shares of other MFS Funds selected by the
shareholder. Under the Automatic Exchange Plan, exchanges of at least $50 each
may be made to up to four different funds effective on the seventh day of each
month or of every third month, depending whether monthly or quarterly
exchanges are elected by the shareholder. If the seventh day of the month is
not a business day, the transaction will be processed on the next business
day. Generally, the initial exchange will occur after receipt and processing
by the Shareholder Servicing Agent of an application in good order. Exchanges
will continue to be made from a shareholder's account in any MFS Fund, as long
as the balance of the account is sufficient to complete the exchanges.
Additional payments made to a shareholder's account will extend the period
that exchanges will continue to be made under the Automatic Exchange Plan.
However, if additional payments are added to an account subject to the
Automatic Exchange Plan shortly before a exchange is scheduled, such funds may
not be available for exchange until the following month; therefore, care
should be used to avoid inadvertently terminating the Automatic Exchange Plan
through exhaustion of the account balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, transfers of shares of MFS Money Market
Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve
Fund will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions
in writing or by telephone (a "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record). Each Exchange Change Request (other than termination of participation
in the program) must involve at least $50. Generally, if an Exchange Change
Request is received before the close of business on the last business day of a
month, the Exchange Change Request will be effective for the following month's
exchange.
A shareholder's right to make additional investments in any of the MFS Funds,
to make exchanges of shares from one MFS Fund to another and to withdraw from
an MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of MFS Cash Reserve Fund in the case where the shares
are acquired through direct purchase or reinvested dividends) who have
redeemed their shares have a one-time right to reinvest the redemption
proceeds in the same class of shares of any of the MFS Funds (if shares of the
fund are available for sale) at net asset value (without a sales charge) and,
if applicable, with credit for any CDSC paid. In the case of proceeds
reinvested in shares of MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of MFS Cash Reserve Fund, the shareholder has the
right to exchange the acquired shares for shares of the same class of another
MFS Fund at net asset value pursuant to the exchange privilege described
below. Such a reinvestment must be made within 90 days of the redemption and
is limited to the amount of the redemption proceeds. If the shares credited
for any CDSC paid are then redeemed within six years of the initial purchase
in the case of Class B shares or within 12 months of the initial purchase of
certain Class A shares, a CDSC will be imposed upon redemption. Although
redemptions and repurchases of shares are taxable events, a reinvestment
within such 90-day period in the same fund may be considered a "wash sale" and
may result in the inability to recognize currently all or a portion of any
loss realized on the original redemption for federal income tax purposes.
Please see your tax advisor for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of
the other MFS Funds (if available for sale) at net asset value. In addition,
Class C shares may be exchanged for shares of MFS Money Market Fund at net
asset value. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record), and each exchange must involve either shares having an aggregate
value of at least $1,000 or all the shares in the account (except that the
minimum is $50 for accounts of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by the Shareholder Servicing Agent)
or all the shares in the account. Each exchange involves the redemption of
shares of the Fund to be exchanged and the purchase at net asset value (i.e.,
without a sales charge) of shares of the same class of the other MFS Fund. Any
gain or loss on the redemption of the shares exchanged is reportable on the
shareholder's federal income tax return, unless both the shares received and
the shares surrendered in the exchange are held in a tax-deferred retirement
plan or other tax-exempt account. No more than five exchanges may be made in
any one Exchange Request by telephone. If the Exchange Request is received by
the Shareholder Servicing Agent prior to the close of regular trading on the
Exchange, the exchange usually will occur on that day if all the requirements
set forth above have been complied with at that time. However, payment of the
redemption proceeds by the Fund, and thus the purchase of shares of the other
MFS Fund, may be delayed for up to seven days if the Fund determines that such
a delay would be in the best interest of all its shareholders. Investment
dealers which have satisfied criteria established by MFD may also communicate
a shareholder's Exchange Request to MFD by facsimile subject to the
requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for
the CDSC is carried forward to the exchanged shares. For purposes of
calculating the CDSC upon redemption of shares acquired in an exchange, the
purchase of shares acquired in one or more exchanges is deemed to have
occurred at the time of the original purchase of the exchanged shares. Any
gain or loss on the redemption of the shares exchanged is reportable on the
shareholder's federal income tax return, unless such shares were held in a
tax-deferred retirement plan.
Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should
obtain and read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any exchange.
Shareholders of the other MFS Funds (except shares of MFS Money Market Fund
and MFS Government Money Market Fund acquired through direct purchase and
dividends reinvested prior to June 1, 1992) have the right to exchange their
shares for shares of the Fund, subject to the conditions, if any, set forth in
their respective prospectuses. In addition, unitholders of the MFS Fixed Fund
(a bank collective investment Fund) have the right to exchange their units
(except units acquired through direct purchases) for shares of the Fund,
subject to the conditions, if any, imposed upon such unitholders by the MFS
Fixed Fund.
Any state income tax advantages for investment in shares of each state-
specific series of MFS Municipal Series Trust may only benefit residents of
such states. Investors should consult with their own tax advisers to be sure
this is an appropriate investment, based on their residency and each state's
income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued
and is subject to certain limitations, including certain restrictions on
purchases by market timer accounts (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may
be purchased by all types of tax-deferred retirement plans. MFD makes
available through investment dealers plans and/or custody agreements for the
following:
Individual Retirement Accounts (IRAs) (for individuals and their non-
employed spouses who desire to make limited contributions to a tax-
deferred retirement program and, if eligible, to receive a federal income
tax deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested
automatically. For further details with respect to any plan, including fees
charged by the trustee, custodian or MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other
than those provided by MFD may be used to establish any of the plans described
above. Third party administrative services, available for some corporate
plans, may limit or delay the processing of transactions.
An investor should consult with his tax adviser before establishing any of the
tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan
qualified under section 401(a) or 403(b) of the Code if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available
by the Shareholder Servicing Agent.
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition and holding period of the Fund's portfolio assets. Because the
Fund 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 Fund will be required to pay
any federal income or excise taxes, although the Fund's foreign-source income
may be subject to foreign withholding taxes. If the Fund should fail to
qualify as a "regulated investment company" in any year, the Fund would incur
a regular corporate federal income tax upon its taxable income and Fund
distributions would generally be taxable as ordinary dividend income to
shareholders.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income (including certain
foreign currency gains) and any distributions from net short-term capital
gains (whether received in cash or reinvested in additional shares) are
taxable to shareholders as ordinary income for federal income tax purposes. A
portion of the Fund's ordinary income dividends (but none of the capital
gains) is normally eligible for the dividends received deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of Fund shares. Availability of the deduction for
particular corporate shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax or result in
certain basis adjustments. Distributions from net capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses),
whether received in cash or invested in additional shares, are taxable to the
Fund's shareholders as long-term capital gains for federal income tax purposes
regardless of how long the shareholders have owned shares in the Fund. Fund
dividends declared in October, November or December that are payable to
shareholders of record in such month, and that are paid the following January
will be taxable to shareholders as if received on December 31 of the year in
which they are declared.
Any dividend or distribution will have the effect of reducing the per share
net asset value of shares in the Fund by the amount of the dividend or
distribution. Shareholders purchasing shares shortly before the record date of
any distribution may thus pay the full price for the shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than 12 months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent
of any distributions of net capital gain made with respect to those shares.
Any loss realized upon a disposition of shares may also be disallowed under
rules relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within ninety days after their
purchase followed by any purchase without payment of an additional sales
charge of Class A shares (including purchases by exchanges or by reinvestment)
of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. The
Fund's investment in zero coupon securities and certain securities purchased
at a market discount will cause it to realize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Fund, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.
The Fund's transactions in options, Futures Contracts and Forward Contracts
will be subject to special tax rules that may affect the amount, timing and
character of Fund income and distributions to shareholders. For example,
certain positions held by the Fund on the last business day of each taxable
year will be marked to market (i.e., treated as if closed out) on such day,
and any gain or loss associated with such positions will be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by
the Fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles," and may be subject to
special tax rules that would cause deferral of Fund losses, adjustments in the
holding periods of Fund securities and conversion of short-term into long-term
capital losses. Certain tax elections exist for straddles that may alter the
effects of these rules. The Fund will limit its activities in options, Futures
Contracts, Forward Contracts, and swaps and related transactions to the extent
necessary to meet the requirements of Subchapter M of the Code.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income or losses. The holding of foreign currencies and
foreign currency options for nonhedging purposes and investment by the Fund in
certain "passive foreign investment companies" may be limited in order to
avoid taxes on the Fund.
Investment income received by the Fund from foreign securities may be subject
to foreign income taxes withheld at the source. The United States has entered
into tax treaties with many foreign countries that may entitle the Fund to a
reduced rate of tax or an exemption from tax on such income; the Fund intends
to qualify for treaty reduced rates of tax where available. It is impossible
to determine the effective rate of foreign tax in advance since the amount of
the Fund's assets to be invested within various countries is not known.
If the Fund holds more than 50% of its assets in foreign securities at the
close of its taxable year, the Fund may elect to "pass through" to the Fund's
shareholders foreign income taxes paid. If the Fund so elects, shareholders
will be required to treat their pro-rata portion of the foreign income taxes
paid by the Fund as part of the amounts distributed to them by the Fund and
thus includable in their gross income for federal income tax purposes.
Shareholders who itemize deductions would then be allowed to claim a deduction
or credit (but not both) on their federal income tax returns for such amounts,
subject to certain limitations. Shareholders who do not itemize deductions
would be able (subject to such limitations) to claim a credit but not a
deduction. No deduction for such amounts will be permitted to individuals in
computing their alternative minimum tax liability. If the Fund does not
qualify or elect to "pass through" foreign income taxes to the Fund's
shareholders, shareholders will not be able to claim any deduction or credit
for any part of the foreign taxes paid by the Fund.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. enities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on taxable dividends
and other payments made to Non-U.S. Persons that are subject to such
withholding, regardless of whether a lower treaty rate may be permitted. Any
amounts overwithheld may be recovered by such persons by filing a claim for
refund with the U.S. Internal Revenue Service within the time period
appropriate to such claims. Distributions received from the Fund by Non-U.S.
Persons may also be subject to tax under the laws of their own jurisdiction.
The Fund is also required in certain circumstances to apply backup withholding
at the rate of 31% on taxable dividends and redemption proceeds paid to any
shareholder (including a non-U.S. person) who does not furnish to the Fund
certain information and certifications or who is otherwise subject to backup
withholding. Backup withholding will not, however, be applied to payments that
have been subject to 30% withholding.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes in certain states. The
Fund intends to advise shareholders of the extent, if any, to which its
distributions consist of such interest. Shareholders are urged to consult
their tax advisers regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes as well as regarding the tax
consequences of an investment in the Fund.
7. DETERMINATION OF NET ASSET VALUE AND
PERFORMANCE
NET ASSET VALUE: The net asset value per share of each class of the Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, such Exchange is open for trading every weekday except for
the following holidays or the days on which they are observed: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.) This determination is made once each day
as of the close of regular trading on such Exchange by deducting the amount of
the liabilities attributable to the class from the value of the assets
attributable to the class and dividing the difference by the number of shares
of the class outstanding.
Equity securities in the Fund's portfolio are valued at the last sale price on
the exchange on which they are primarily traded or on the NASDAQ system for
unlisted national market issues, or at the last quoted bid price for
securities in which there were no sales during the day or for unlisted
securities not reported on the NASDAQ system. Bonds and other fixed income
securities (other than short-term obligations) of U.S. issuers in the Fund's
portfolio are valued on the basis of valuations furnished by a pricing service
which utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as institutional-
size trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data without
exclusive reliance upon quoted prices or exchange or over-the-counter prices,
since such valuations are believed to reflect the fair value of such
securities. Forward Contracts will be valued using a pricing model taking into
consideration market data from an external pricing source. Use of the pricing
services has been approved by the Board of Trustees. All other securities,
futures contracts and options in the Fund's portfolio (other than short-term
obligations) for which the principal market is one or more securities or
commodities exchanges (whether domestic or foreign) will be valued at the last
reported sale price or at the settlement price prior to the determination (or
if there has been no current sale, at the closing bid price) on the primary
exchange on which such securities, futures contracts or options are traded;
but if a securities exchange is not the principal market for securities, such
securities will, if market quotations are readily available, be valued at
current bid prices, unless such securities are reported on the NASDAQ system,
in which case they are valued at the last sale price or, if no sales occurred
during the day, at the last quoted bid price. Short-term obligations with a
remaining maturity in excess of 60 days will be valued upon dealer supplied
valuations. Other short-term obligations in the Fund's portfolio are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Portfolio investments for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the close of regular trading on the
Exchange which will not be reflected in the computation of the Fund's net
asset value unless the Trustees deem that such event would materially affect
the net asset value in which case an adjustment would be made.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD in its
capacity as the Fund's distributor, or its agent, the Shareholder Servicing
Agent, prior to the close of that business day.
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for
each class of shares for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment
of $1,000 (made with all distributions reinvested and reflecting the CDSC or
the maximum public offering price) to reach the value of that investment at
the end of the periods. The Fund may also calculate (i) a total rate of
return, which is not reduced by the CDSC (4% maximum for Class B shares) and
therefore may result in a higher rate of return, (ii) a total rate of return
assuming an initial account value of $1,000, which will result in a higher
rate of return with respect to Class A shares since the value of the initial
account will not be reduced by the sales charge (4.75% maximum for Class A
Shares) and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance, and which may or may
not reflect the effect of the maximum or other sales charge or CDSC. The
Fund's average annual total rate of return for Class A shares reflecting the
initial investment at the public offering price for the one-year and five-year
periods ended October 31, 1995 and for the period from September 4, 1990 (the
commencement of investment operations) to October 31, 1995 was 5.36%, 10.91%
and 10.70%, respectively. The Fund's average annual total rate of return for
Class A shares, not giving effect to the sales charge on the initial
investment, for the same periods was 10.64%, 12.00% and 11.74%, respectively.
The Fund's average total rate of return for Class B shares, reflecting the
CDSC for the one-year period ended October 31, 1995 and for the period
September 7, 1993 (commencement of offering of this class of shares) to
October 31, 1995 was 5.75% and 6.62%, respectively. The Fund's average annual
total rate of return for Class B shares, not giving effect to the CDSC, for
the same periods was 9.75% and 7.91%. The Fund's average total rate of return
for Class C shares for the one-year period ended October 31, 1995 and for the
period from January 3, 1994 (commencement of offering of this class of shares)
to October 31, 1995 was 9.84% and 5.19%, respectively. The total rates of
return presented above may not be indicative of future performance.
PERFORMANCE RESULTS: The performance results for Class A shares below, based
on an assumed initial investment of $10,000, cover the period from September
4, 1990 through December 31, 1995. It has been assumed that dividends and
capital gains were reinvested in additional shares. These performance results,
as well as any total rate of return quotation provided by the Fund, should not
be considered as representative of the performance of the Fund in the future
since the net asset value and public offering price of shares of the Fund will
vary based not only on the type, quality and maturities of the securities held
in the Fund's portfolio, but also on changes in the current value of such
securities and on changes in the expenses of the Fund. These factors and
possible differences in the methods used to calculate total rates of return
should be considered when comparing the total rate of return of the Fund to
total rates of return published for other investment companies or other
investment vehicles. Total rate of return reflects the performance of both
principal and income. The current net asset value and account balance
information may be obtained by calling 1-800-MFS-TALK (637-8255).
MFS WORLD TOTAL RETURN FUND
----------------------------------------------------------------------------
VALUE OF CLASS A SHARES
----------------------------------------------------------------------------
CAP. GAIN DIVIDEND
DIRECT REINVEST- REINVEST- TOTAL
DATE INVESTMENT MENT MENT VALUE
------ ------- ------ ----- --
12/31/90 $ 9,764 $ 0 $ 106 $ 9,870
12/31/91 11,244 203 487 11,934
12/31/92 10,986 527 1,021 12,534
12/31/93 12,421 851 1,957 15,229
12/31/94 11,412 1,214 2,136 14,762
12/31/95 13,105 1,402 3,251 17,758
*The Fund commenced investment operations on September 4, 1990.
EXPLANATORY NOTES: The results assume that the initial $10,000 investment on
September 4, 1990 has been reduced by the current maximum applicable sales
charge of 4.75%. No adjustment has been made for any income taxes payable by
shareholders.
YIELD: Any yield quotation of a class of shares of the Fund will be based on
the annualized net investment income per share of that class over a 30-day
period. The yield is calculated by dividing the net investment income per
share allocated to a particular class of the Fund earned during the period by
the maximum public offering price per share of such class on the last day of
that period. The resulting figure is then annualized. Net investment income
per share of a class is determined by dividing (i) the dividends and interest
earned by the Fund allocated to the class during the period, minus accrued
expenses of such class for the period, by (ii) the average number of shares of
such class entitled to receive dividends during the period multiplied by the
maximum public offering price per share of such class on the last day of the
period. The Fund's yield calculations for Class A shares assume a maximum
sales charge of 4.75%. The Fund's yield calculation for Class B shares assumes
no CDSC is paid. The yield calculation for Class A, Class B and Class C shares
for the 30-day period ended October 31, 1995 was 1.98%, 1.37% and 1.44%,
respectively.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid to shareholders of each class
are reflected in the quoted "current distribution rate" for that class. The
current distribution rate for a class computed by dividing the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months by the maximum public offering price of that class at the end
of such period. Under certain circumstances, such as when there has been a
change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends paid
during the past 12 months. The current distribution rate differs from the
yield computation because it may include distributions to shareholders from
sources other than dividends and interest, such as premium income for option
writing, short-term capital gains and return of invested capital, and is
calculated over a different period of time. The Fund's current distribution
rate calculation for Class A shares assumes a maximum sales charge of 4.75%.
The Fund's current distribution rate calculation for Class B shares assumes no
CDSC is paid. The current distribution rate for Class A, Class B and Class C
shares of the Fund for the 12-month period ended on October 31, 1995 was
1.03%, 0.38% and 0.38%, respectively.
GENERAL: From time to time each Fund may, as appropriate, quote Fund rankings
or reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to
the following: Money, Fortune, U.S. News and World Report, Kiplinger's
Personal Finance, The Wall Street Journal, Barron's, Investors Business Daily,
Newsweek, Financial World, Financial Planning, Investment Advisor, USA Today,
Pensions and Investments, SmartMoney, Forbes, Global Finance, Registered
Representative, Institutional Investor, the Investment Company Institute,
Johnson's Charts, Morningstar, Lipper Analytical Services, Inc., CDA
Wiesenberger, Shearson Lehman and Salomon Bros. Indices, Ibbotson, Business
Week, Lowry Associates, Media General, Investment Company Data, The New York
Times, Your Money, Strangers Investment Advisor, Financial Planning on Wall
Street, Standard and Poor's, Individual Investor, The 100 Best Mutual Funds
You Can Buy, by Gordon K. Williamson, Consumer Price Index, and Sanford C.
Bernstein & Co. Fund performance may also be compared to the performance of
other mutual funds tracked by financial or business publications or
periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund; the Fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment
and evaluation of credit, interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or
television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding
and tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against a loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first
mutual fund to make full public disclosure of its
operations in shareholder reports.
-- 1932 -- One of the first internal research departments
is established to provide in-house analytical
capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first
mutual fund to register under the Securities Act of
1933 ("Truth in Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first
mutual fund to allow shareholders to take capital gain
distributions either in additional shares or in cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first
municipal bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/
variable annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income
mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first
open-end mutual fund to seek high tax-free income from
lower-rated municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first
mutual fund to target and shift investments among
industry sectors for shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first
closed-end, high-yield municipal bond fund traded on
the New York Stock Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the
New York Stock Exchange.
-- 1989 -- MFS Regatta becomes America's first non-
qualified market-value-adjusted fixed-variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global
emerging markets fund to offer the expertise of two
sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first trust to invest in companies deemed to be
union- friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
8. DISTRIBUTION PLANS
The Trustees have adopted a Distribution Plan for each of Class A, Class B and
Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that
there is a reasonable likelihood that each Distribution Plan would benefit the
Fund and the respective class of shareholders. The Distribution Plans are
designed to promote sales, thereby increasing the net assets of the Fund. Such
an increase may reduce the expense ratio to the extent the Fund's fixed costs
are spread over a larger net asset base. Also, an increase in net assets may
lessen the adverse effects that could result were the Fund required to
liquidate portfolio securities to meet redemptions. There is, however, no
assurance that the net assets of the Fund will increase or that the other
benefits referred to above will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, no service fees
will be paid: (i) to any dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time by MFD
(MFD, however, may waive this minimum amount requirement from time to time);
or (ii) to any insurance company which has entered into an agreement with the
Fund and MFD that permits such insurance company to purchase Class A shares
from the Fund at their net asset value in connection with annuity agreements
issued in connection with the insurance company's separate accounts. Dealers
may from time to time be required to meet certain other criteria in order to
receive service fees.
With respect to the Class B Distribution Plan, except in the case of the first
year service fee, no service fees will be paid to any securities dealer who is
the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined by MFD from time to time. MFD, however, may waive this minimum
amount requirement from time to time. Dealers may from time to time be
required to meet certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable
under any Distribution Plan for which there is no dealer of record or for
which qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates for shareholder accounts.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution-related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR:During
the fiscal year ended October 31, 1995, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------- ------------- -------------
Class A Distribution Plan $ 362,335 $ 139,506 $ 222,829
Class B Distribution Plan $ 522,400 $ 397,359 $ 125,041
Class C Distribution Plan $ 104,630 $ 6,814 $ 97,816
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties to such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Fund and MFD each shall
provide to the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under such
Plan. Each of the Distribution Plans may be terminated at any time by vote of
a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions"). All agreements relating to any of the
Distribution Plans entered into between the Fund or MFD and other
organizations must be approved by the Board of Trustees, including a majority
of the Distribution Plan Qualified Trustees. Agreements under any of the
Distribution Plans must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of
the holders of a majority of the respective class of the Fund's shares. None
of the Distribution Plans may be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the Fund's shares (as defined in "Investment
Restrictions") or may be materially amended in any case without a vote of the
Trustees and a majority of the Distribution Plan Qualified Trustees. The
selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one
or more separate series and to divide or combine the shares of any series into
a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in that series. The Trustees have currently
authorized shares of the Fund and two other series. The Declaration of Trust
further authorizes the Trustees to classify or reclassify any series of shares
into one or more classes. Pursuant thereto, the Trustees have authorized the
issuance of three classes of shares of each of the Trust's three series, Class
A, Class B and Class C shares. Each share of a class of the Fund represents an
equal proportionate interest in the assets of the Fund allocable to that
class. Upon liquidation of the Fund, shareholders of each class of the Fund
are entitled to share pro rata in the net assets allocable to such class
available for distribution to shareholders. The Trust reserves the right to
create and issue additional series or classes of shares, in which case the
shares of each series or class would participate equally in the earnings,
dividends and assets of the particular series or class.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have the right to remove one or more Trustees. No material
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of its outstanding shares of the Trust (as defined in
"Investment Restrictions"). The Trust may enter into a merger or
consolidation, or sell all or substantially all of its assets (or all or
substantially all of the assets belonging to any series of the Trust), if
approved by the vote of the holders of two-thirds of the Trust's outstanding
shares voting as a single class, or of the affected series of the Trust, as
the case may be, except that if the Trustees of the Trust recommend such
merger, consolidation or sale, the approval by vote of the holders of a
majority of the Trust's or the affected series' outstanding shares (as defined
in "Investment Restrictions") will be sufficient. The Trust or any series of
the Trust may also be terminated (i) upon liquidation and distribution of its
assets, if approved by the vote of the holders of two-thirds of its
outstanding shares, or (ii) by the Trustees by written notice to the
shareholders of the Trust or the affected series. If not so terminated the
Trust will continue indefinitely.
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 Trust and provides for
indemnification and reimbursement of expenses out of Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of the Trust and its shareholders and the Trustees,
officers, employees and agents of the Trust 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 existed and the Trust itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action 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 his willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
10. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Ernst & Young LLP are the Fund's independent auditors, providing audit
services, tax services, and assistance and consultation with respect to the
preparation of filings with the SEC.
The Portfolio of Investments at October 31, 1995, the Statement of Assets and
Liabilities at October 31, 1995, the Statement of Operations for the year
ended October 31, 1995, the Statement of Changes in Net Assets for each of the
two years in the period ended October 31, 1995, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to Shareholders of the Fund, are incorporated by reference
into this SAI in reliance upon the report of Ernst & Young LLP, independent
auditors, given upon their authority as experts in accounting and auditing. A
copy of the Annual Report accompanies this SAI.
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND(1) FUND EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey .................................. $3,725 $ 350 8 $263,815
A. Keith Brodkin ................................... 0 0 N)A 0
Marshall N. Cohan .................................. 4,175 440 8 148,624
Dr. Lawrence Cohn .................................. 3,725 1,195 22 135,874
Sir J. David Gibbons ............................... 3,725 372 8 135,874
Abby M. O'Neill .................................... 3,500 327 9 129,499
Walter E. Robb, III ................................ 4,175 440 8 148,624
Arnold D. Scott .................................... 0 0 N)A 0
Jeffrey L. Shames .................................. 0 0 N)A 0
J. Dale Sherratt ................................... 4,175 1,285 24 148,624
Ward Smith ......................................... 4,175 440 12 148,624
(1) For fiscal year ended October 31, 1995.
(2) Based on normal retirement age of 72.
(3) For calendar year 1995. All Trustees receiving compensation served as Trustees of 36 funds within the MFS fund complex
(having aggregate net assets at December 31, 1995, of approximately $12.5 billion) except Mr. Bailey, who served as
Trustee of 73 funds within the MFS fund complex (having aggregate net assets at December 31, 1995, of approximately $31.7
billion).
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
YEARS OF SERVICE
-----------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3,150 $473 $ 760 $1,103 $1,575
3,440 516 860 1,204 1,720
3,730 560 933 1,306 1,865
4,020 603 1,005 1,407 2,010
4,310 647 1,078 1,509 2,155
4,600 690 1,150 1,610 2,300
(4) Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS
The ratings of Moody's, S&P and Fitch represent their opinions as to the
quality of various bonds. IT SHOULD BE EMPHASIZED, HOWEVER, THAT RATINGS ARE
NOT ABSOLUTE STANDARDS OF QUALITY. CONSEQUENTLY, BONDS WITH THE SAME MATURITY,
COUPON AND RATING MAY HAVE DIFFERENT YIELDS WHILE BONDS OF THE SAME MATURITY
AND COUPON WITH DIFFERENT RATINGS MAY HAVE THE SAME YIELD.
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.
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 over attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated "A" has a very 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
bonds in this category than in higher rated categories.
BB, B, CCC, CC, AND C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied "BB" or
"BB-" rating.
CCC: The rating "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
which 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 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 SERVICE, 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-l
+".
A: Bonds considered to be investment grade and of very 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
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.
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 lowered, FitchAlert is relatively short-term, and should be
resolved within 12 months.
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116
MFS(R)
WORLD TOTAL
RETURN FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MWT-13-3/96/500 24/224/324
<PAGE>
<PAGE>
MFS WORLD TOTAL RETURN FUND
(A SERIES OF MFS SERIES TRUST VI)
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS 02116-3741
617 o 954-5000
December 22, 1995
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: MFS Series Trust VI (File No. 811-6102), on Behalf of
MFS World Total Return Fund
-----------------------------------------------------
Ladies and Gentlemen:
Pursuant to the requirements of Section 30(b) of the Investment Company Act
of 1940 and Rule 30b2-1 thereunder, we hereby file a copy of the Annual
Report to Shareholders dated October 31, 1995 of MFS World Total Return Fund.
Very truly yours,
LORRAINE K. GRIP
Lorraine K. Grip
Senior Production Editor
<PAGE>
MFS LOGO Annual Report for
Year Ended
October 31, 1995
MFS [Registration Mark] World Total Return Fund
Front Cover
A picture of airplanes.
<PAGE>
MFS [Registration Mark] World Total Return Fund
TRUSTEES
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor; Former Chairman and Director (until
1991), Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Marshall N. Cohan - Private Investor
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School
The Hon. Sir J. David Gibbons, KBE - Chief Executive Officer, Edmund Gibbons
Ltd.; Chairman, Bank of N.T. Butterfield & Son Ltd.
Abby M. O'Neill - Private Investor; Director, Rockefeller Financial Services,
Inc. (investment adviser)
Walter E. Robb, III - President and Treasurer, Benchmark Advisers, Inc.
(corporate financial consultants); President, Benchmark Consulting Group, Inc.
(office services); Trustee, Landmark Funds (mutual funds)
Arnold D. Scott* - Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director, Massachusetts Financial Services
Company
J. Dale Sherratt - President, Insight Resources, Inc. (acquisition planning
specialists)
Ward Smith - Former Chairman (until 1994), NACCO Industries; Director,
Sundstrand Corporation
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Frederick J. Simmons*
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Ernst & Young LLP
INVESTOR INFORMATION
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message anytime).
INVESTOR SERVICE
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free: 1-800-225-2606 any business day from 8
a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576 any
business day from 9 a.m. to 5 p.m. Eastern time. (To use this service, your
phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a touch-tone telephone.
TOP-RATED SERVICE
For the second year in a row, MFS earned a #1 ranking in DALBAR, Inc.'s
Broker/Dealer Survey, Main Office Operations Service Quality category. The firm
achieved a 3.49 overall score -- on a scale of 1 to 4 -- in the 1995 survey. A
total of 71 firms responded, offering input on the quality of service they
receive from 36 mutual fund companies nationwide. The survey contained questions
about service quality in 17 categories, including "knowledge of phone service
contacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
Declining interest rates and favorable inflation outlooks helped create
opportunities in both fixed-income and equity markets around the world during
the past 12 months, although the global economic situation presented a mixed
picture. For the year ended October 31, 1995, Class A shares of the Fund
provided a total return of +10.63%, Class B shares +9.75% and Class C shares
+9.84%. These returns include the reinvestment of distributions but exclude the
effects of any sales charges. A discussion of the Fund's performance as well as
our outlook for the coming fiscal year can be found in the Portfolio Performance
and Strategy section of this letter.
U.S. Outlook
Moderate, but sustainable, growth appears to be the hallmark of the economic
expansion's fifth year. While initial estimates showed the U.S. economy growing
at an annual rate of 4.2% in the third quarter, this surprisingly strong growth
was mainly driven by a pickup in consumer spending and an increase in business
and government outlays. Although impressive, this growth rate is not expected to
continue in coming months. Recent retail sales have been disappointing, in part
because of rising levels of consumer debt. An extended period of lower mortgage
rates seems to have relieved much of the pent-up demand for housing. Growth is
not expected to get much help from the manufacturing sector, either, as order
flows from manufacturers have moderated. Export activity, meanwhile, is also
expected to remain modest as continued weakness abroad has limited demand for
many U.S. goods. However, the Federal Reserve Board's consistent and, so far,
successful efforts to fight inflation seem to be giving consumers and businesses
enough longer term confidence to help maintain modest growth in real (adjusted
for inflation) gross domestic product into 1996.
Global Outlook
As in the United States, a pattern of slow to moderate growth along with low and
controlled inflation remains a dominant theme in major industrialized countries.
While the recent recovery of the dollar against the yen and the mark has added
some strength to the economies of Europe and Japan, the outlook is for sluggish
economic growth, in the near term at least. And although central banks in Europe
and Japan have lowered interest rates in an attempt to stimulate domestic
demand, many industrial companies in these countries are still struggling to
compete in a global marketplace in which the prices of their products are less
competitively priced. On the positive side, this does mean little to no
inflationary pressure in these countries, and we believe that this, combined
with further reductions in interest rates, could help provide a foundation for
stronger economic growth in the long run.
1
<PAGE>
LETTER TO SHAREHOLDERS - continued
U.S. Bond Market
Given the unexpected strength of the economy in the third quarter, prospects for
further decreases in short-term interest rates by the Federal Reserve seem
uncertain in the near term. Long-term rates, meanwhile, have moved noticeably
downward in recent months in anticipation of more modest fourth-quarter growth
with continued low inflation. While there have been some increases in commodity
prices, companies have found it difficult to pass these on at the consumer level
as they continue to fight for market share. Additionally, unit labor costs
remain under control and seem to be growing at a pace that is near or below the
ongoing inflation rate. Thus, with long-term government bonds yielding over 6%
in an environment of 2% to 3% inflation, real rates of return in the
fixed-income markets remain relatively attractive.
Stock Markets
After some volatility late in the third quarter, the U.S. stock market appears
to have stabilized. Although many companies reported solid third-quarter
results, there was some weakness in the earnings of retail, financial services
and even some technology companies. However, a slowdown in earnings may be a
positive development if it is an indication that the economy is not overheating
and that inflation - an enemy of long-term equity valuations - is under control.
While we see a deceleration of corporate earnings as the inevitable consequence
of traditional business cycles, we remain encouraged by the high absolute level
of profitability among U.S. companies. Also, many companies' increasing emphasis
on cost containment and growing use of technology have helped keep them highly
competitive and reasonably profitable. Looking ahead, we believe that a
stabilizing interest rate environment, coupled with reasonable earnings reports,
could justify current market valuations.
Meanwhile, according to Datastream, an independent financial database
service, the performance of the European markets (in local currencies) varied
widely, with Switzerland gaining 22%, Sweden up 19%, and the United Kingdom
ahead 18%. At the same time, Germany was ahead just 2%, while France was down 2%
and the Italian stock market fell 7%. In general, the markets of the Pacific Rim
showed improved performance during the second half, but not enough to offset
weak first-half returns. Japan finished the yea r down 10%, while Singapore,
Malaysia, Thailand and Korea showed losses ranging from 8% to 14%.
When measured in U.S. dollars, currency movements had a noticeable impact
on international stock market returns during the past 12 months. The U.S. dollar
fell 7% versus the mark, 10% against the Swiss franc and 2% against the
Australian dollar, thereby aiding U.S. dollar-based returns. Conversely, the
U.S. dollar strengthened 5% against the yen, with a 22% gain against the yen in
the second half alone.
2
<PAGE>
LETTER TO SHAREHOLDERS - continued
Portfolio Performance and Strategy
Although the Fund's return underperformed that of a benchmark made up of 60% of
the Morgan Stanley Capital International World Index (the MSCI) and 40% of the
J.P. Morgan Global Government Bond Index, its performance during the 12 months
ended October 31, 1995 compared favorably with similar funds. The +10.63% total
return of the Fund's Class A shares compared to an average +9.27% return for the
Lipper global flexible fund category as determined by Lipper Analytical
Services, Inc., an independent firm that reports mutual fund performance.
Factors having a positive effect on the equity holdings during the past
year included overweightings in the United States, which was important since it
accounts for 35% to 40% of the MSCI, and an underweighting in Japan, which is
also heavily weighted at about 25% of the MSCI. Among other countries which did
well and were overweighted were Sweden and the Netherlands. Countries hurting
performance were France, Italy and Australia. In the various industry sectors,
our holdings in financial services stocks, which in last year's annual report
were mentioned as likely additions, did very well, as did pharmaceutical stocks.
The absence of much in the way of technology stocks, except IBM, hurt
performance. The Fund's emphasis on value and income is apt to lead to the
omission of stocks of that sort. Furthermore, the technology craze was almost
exclusively a U.S. phenomenon and so tended to be underrepresented in global
portfolios. We believe there are exciting opportunities that fit our emphasis on
value and income. On the bond side, our overweighting in core European markets
and Japan contributed to the performance against the benchmark, while our
underweighting in the U.S. market in the first part of the year had a negative
effect on bond performance.
As we enter 1996, the equity position of the portfolio is fully invested
with 60% of assets invested in U.S. and foreign stocks and convertible
securities. Foreign holdings in 18 countries account for approximately 62% of
the total equity position, higher than earlier in the year, and likely to go
higher still, since the United States is unlikely to repeat 1995's
outperformance. Far Eastern holdings, including Japanese stocks, are likely to
be increased. For some time now, our stock investments have been concentrated in
companies that are not dependent upon the business cycle for them to outperform.
Approximately 58% of the holdings is in financial services stocks, utilities,
consumer staples, special situation retailers, and health care stocks, all of
which we believe will perform well in a slower growth economy.
As we anticipated, the dollar did recover somewhat during the last six
months. However, we believe the dollar cannot begin a long-term rally until the
United States becomes less reliant on foreign capital to finance its
investments.
3
<PAGE>
LETTER TO SHAREHOLDERS - continued
For next year, we expect that the dollar's overall trend will remain downward,
although slow U.S. growth, if it continues, could lead to a cyclical reduction
in our borrowing of foreign capital, taking some of the pressure off the dollar.
The majority of our foreign-based bond holdings remains in Europe. The core
markets, such as Germany and the Netherlands, provided solid returns against a
backdrop of slow growth, low inflation and declining official interest rates,
and remain an important anchor to our foreign holdings. Other European markets,
such as Denmark, offer a combination of higher yields with moderate growth and
low inflation. The highest yielding markets have recovered over the last six
months, and the Fund has increased both its bond and currency weightings in
these markets. We believe the first part of next year should be supportive of
fixed-income investments. Moderate to slow growth, with commensurate declines in
overall inflation rates, could lead to further reductions in official interest
rates.
In addition to these economic developments, European governments are
engaged in multi-year programs to reduce their budget deficits and debt levels.
These programs are positive for bonds because lower government spending tends to
reduce inflationary pressures and lower issuance of government debt reduces the
supply pressures on the bond market.
In the Japanese market, powerful deflationary forces have supported a drop
in yields to historically low levels. We now feel this process may be drawing to
an end, given a reversal of priorities at the central bank from fighting
inflation, which is now non-existent, to offsetting the downward spiral of
deflation. Thus, the weighting in Japan will most likely be reduced in the
coming year.
The high returns of the U.S. market have been echoed in other U.S. dollar-
bloc markets. Australia, New Zealand and Canada have all contributed to
performance over the last 12 months. The Australian market currently offers
significantly higher yields than the U.S. market, and we believe it represents
good value. As long as the outlook for U.S. bonds remains positive, these
related markets could perform well.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[Signature] [Signature]
A. Keith Brodkin Frederick J. Simmons
Chairman and President Portfolio Manager
November 10, 1995
4
<PAGE>
PORTFOLIO MANAGER PROFILE
A graduate of Tufts University and the Amos Tuck School of Business
Administration of Dartmouth College, Frederick Simmons began his career at MFS
in 1971 as a research specialist and was named Senior Vice President in 1983. In
1991, he became the Portfolio Manager for MFS World Total Return Fund.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995. For
the year ended October 31, 1995, the amount of distributions from income e
ligible for the 70% dividends-received deduction for corporations came to 40%.
The Fund is estimated to have derived approximately 42% of its ordinary income
from dividends paid by foreign companies, and to have paid foreign taxes
equivalent to approximately 3% of its ordinary income.
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS World Total Return Fund Class A shares in comparison to various market
indicators. Fund results in the graph reflect the deduction of the 4.75% maximum
sales charge. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. You cannot invest in an index. All results reflect the reinvestment of
all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B
share performance appears on the next page.
Please note that effective January 3, 1994, Class C shares were offered.
Information on Class C share performance appears on the next page.
In the table on the next page, we have included the average annual total returns
of all global flexible portfolio funds (including the Fund) tracked by Lipper
Analytical Services, Inc. for the applicable time periods. Because these returns
do not reflect any applicable sales charges, we have also included the Fund's
results at net asset value (no sales charge) for comparison.
All results are historical, and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed, may
be worth more or less than their original cost.
5
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000* INVESTMENT
(For the Period from September 4, 1990 to October 31, 1995)
Line graph representing the growth of a $10,000 investment for the five-year
period ended October 31, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 segments. The years are marked in 12-month segments from 1990 to 1995.
There are four lines drawn to scale. One is a solid line representing MFS World
Total Return Fund (Class A), a second line of short dashes represents the S&P
500, a third line of very short dashes reprsents the MSCI World Index - 60%/J.P.
Morgan Global Government Bond Index - 40%, and a fourth line of medium-short
dashes represents the Consumer Price Index.
MFS World Total Return Fund (Class A) $16,936
S&P 500 $16,894
MSCI World Index $20,965
Consumer Price Index $11,679
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
Life Of Class
Through
1 Year 3 Years 5 Years 10/31/95
===================================================================================================================================
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Total Return Fund (Class A) including
4.75% Sales Charge + 5.36% + 8.88% +10.91% +10.70%*
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Total Return Fund (Class A) at net
asset value +10.63 +10.66% +12.00% +11.74%*
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Total Return Fund (Class B) With CDSC** + 5.75% -- -- + 6.62%+++
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Total Return Fund (Class B) Without CDSC + 9.75% -- -- + 7.91%+++
- -----------------------------------------------------------------------------------------------------------------------------------
MFS World Total Return Fund (Class C) + 9.84% -- -- + 5.19%#
- -----------------------------------------------------------------------------------------------------------------------------------
Average global flexible portfolio fund + 9.27% +10.16% +10.06% + 9.33%#
- -----------------------------------------------------------------------------------------------------------------------------------
60% Morgan Stanley Capital International (MSCI)
World Index+ 40% J.P. Morgan Global Government
Bond Index +12.20% +12.87% +10.93% +10.74%#
- -----------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +26.41% +14.69% +17.22% +15.40%#
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index + 2.81% + 2.72% + 2.86% + 3.05%#
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* For the period from the commencement of offering of Class A shares, September 4, 1990 to October 31, 1995. Benchmark
comparisons begin on September 1, 1990.
** These returns reflect the current Class B contingent deferred sales charge (CDSC) of 4% for the 1-year period and 3% for the
period commencing September 7, 1993.
+++ For the period from the commencement of offering of Class B shares, September 7, 1993 to October 31, 1995.
# For the period from the commencement of offering of Class C shares, January 3, 1994 to October 31, 1995. Class C shares have
no initial sales charge or CDSC but, along with Class B shares, have higher annual fees and expenses than Class A shares.
+ The MSCI World Index is a broad, unmanaged index of global equities.
++ The J.P. Morgan Global Government Bond Index is an aggregate of actively traded government bonds issued from 13 countries,
including the U.S., with remaining maturities of at least one year.
ss The Standard & Poor's 500 Composite Index is a popular, unmanaged index of common stock performance.
ss ss The Consumer Price Index is a popular measure of change in prices.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - October 31, 1995
Common Stocks - 59.4%
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Common Stocks - 22.1%
Aerospace - 0.7%
Lockheed Martin Corp. 19,200 $ 1,308,000
- --------------------------------------------------------------------------------
Apparel And Textiles - 0.6%
Gucci Group* 35,100 $ 1,053,000
- --------------------------------------------------------------------------------
Banks and Credit Companies - 1.5%
Barnett Banks, Inc. 29,800 $ 1,646,450
Norwest Corp. 34,500 1,017,750
------------
$ 2,664,200
- --------------------------------------------------------------------------------
Biotechnology - 0.3%
Guidant Corp. 16,423 $ 525,536
- --------------------------------------------------------------------------------
Business Machines - 1.6%
International Business Machines Corp. 12,500 $ 1,215,625
Xerox Corp. 12,000 1,557,000
------------
$ 2,772,625
- --------------------------------------------------------------------------------
Consumer Goods and Services - 2.3%
Philip Morris Cos., Inc. 34,200 $ 2,889,900
Tyco International Ltd. 19,000 1,154,250
------------
$ 4,044,150
- --------------------------------------------------------------------------------
Electrical Equipment - 0.9%
General Electric Co. 25,600 $ 1,619,200
- --------------------------------------------------------------------------------
Electronics - 0.7%
Sony Corp. 29,000 $ 1,326,750
- --------------------------------------------------------------------------------
Financial Institutions - 1.0%
Federal Home Loan Mortgage Corp. 16,700 $ 1,156,475
ROC Communities, Inc. 16,000 360,000
Walden Residential Properties, Inc. 16,400 301,350
------------
$ 1,817,825
- --------------------------------------------------------------------------------
Food and Beverage Products - 1.4%
General Mills, Inc. 25,000 $ 1,434,375
Universal Foods Corp. 31,000 1,061,750
------------
$ 2,496,125
- --------------------------------------------------------------------------------
Insurance - 2.8%
CIGNA Corp. 11,700 $ 1,159,763
MBIA, Inc. 15,400 1,072,225
St. Paul Cos., Inc. 26,400 1,339,800
Transamerica Corp. 22,000 1,490,500
------------
$ 5,062,288
- --------------------------------------------------------------------------------
Machinery - 1.0%
Deere & Co., Inc. 10,000 $ 893,750
Ingersoll Rand Co. 27,500 972,813
------------
$ 1,866,563
- --------------------------------------------------------------------------------
Medical and Health Products - 2.2%
Lilly (Eli) & Co. 9,294 $ 898,033
Schering Plough Corp. 32,000 1,716,000
Warner-Lambert Co. 15,000 1,276,875
------------
$ 3,890,908
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Common Stocks - continued
Oils - 1.9%
Amoco Corp. 18,000 $ 1,149,750
Exxon Corp. 10,600 809,575
Mobil Corp. 13,700 1,380,275
------------
$ 3,339,600
- --------------------------------------------------------------------------------
Photographic Products - 1.0%
Eastman Kodak Co. 28,800 $ 1,803,600
- --------------------------------------------------------------------------------
Pollution Control - 0.6%
WMX Technologies, Inc. 39,000 $ 1,096,875
- --------------------------------------------------------------------------------
Printing and Publishing - 0.3%
Deluxe Corp. 17,500 $ 470,312
- --------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Darden Restaurants, Inc. 15,000 $ 170,625
- --------------------------------------------------------------------------------
Utilities - Gas - 1.2%
Coastal Corp. 34,000 $ 1,100,750
Westcoast Energy, Inc. 68,000 1,003,000
------------
$ 2,103,750
- --------------------------------------------------------------------------------
Total U.S. Common Stocks $ 39,431,932
- --------------------------------------------------------------------------------
Foreign Stocks - 37.3%
Argentina - 0.2%
Central Costenera, ADR (Utilities - Electric)## 13,167 $ 358,801
Mirgor Sacifia, ADR (Auto Parts)*## 47,930 95,860
------------
$ 454,661
- --------------------------------------------------------------------------------
Australia - 4.1%
Australia & New Zealand Bank Group Ltd.
(Banks and Credit Cos.) 285,000 $ 1,192,868
Broken Hill Proprietary Co. (Metals) 145,011 1,962,084
Q.B.E. Insurance Group Ltd. (Insurance) 280,000 1,235,864
Seven Network Ltd. (Entertainment) 412,000 1,069,144
Woolworth Ltd. ADR (Retail - Food)## 78,500 1,825,125
------------
$ 7,285,085
- --------------------------------------------------------------------------------
Canada - 0.7%
Hudsons Bay Co. (Stores) 70,000 $ 1,308,594
- --------------------------------------------------------------------------------
Denmark - 1.1%
Tele Denmark A/S, ADR (Telecommunications) 78,000 $ 2,037,750
- --------------------------------------------------------------------------------
France - 3.7%
Elf Aquitaine, ADS (Oils) 35,400 $ 1,194,750
LVMH Moet-Hennessy (Luggage and Beverage) 3,000 597,849
Pinault-Printemps S.A. (Retail) 9,900 2,149,309
Television Francaise (Entertainment) 14,500 1,499,744
Total S.A., ADR (Oils) 35,000 1,080,625
------------
$ 6,522,277
- --------------------------------------------------------------------------------
Germany - 1.0%
Deutsche Bank AG (Banks and Credit Companies) 22,000 $ 994,914
Hornbach Baumarkt AG (Retail) 8,400 423,610
Praktiker Bau-Und Heimwerker (Retail)* 10,700 338,199
------------
$ 1,756,723
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
Hong Kong - 0.7%
Consolidated Electric Power Asia Ltd., ADR
(Utilities -Electric)## 13,600 $ 275,400
Giordano International Ltd. (Retail) 624,000 516,583
Wharf Holdings Ltd. (Real Estate) 150,000 506,416
------------
$ 1,298,399
- --------------------------------------------------------------------------------
Italy - 1.3%
Instituto Nazionale delle Assicurazioni
(Insurance) 392,000 $ 516,503
Luxottica Group (Medical Supplies -Eyeware) 13,100 638,625
Telecom Italia RNC (Utilities - Telephone) 475,000 561,635
Telecom Italia Mobile DRNC (Telecommunications)* 475,000 528,774
------------
$ 2,245,537
- --------------------------------------------------------------------------------
Japan - 6.2%
DDI Corp. (Telecommunications) 139 $ 1,127,615
Dai Nippon Printing Co., Ltd. (Printing) 64,000 1,020,844
Daiwa House Industry Co.
(Manufacturer - Housing) 37,000 553,968
East Japan Railway Co. (Railroads) 135 638,076
Hitachi Ltd. (Electrical Equipment)* 135,000 1,387,122
ITO Yokado Co. (Retail) 30,000 1,641,061
Kirin Beverage (Beverages) 26,000 394,363
MOS Food Services (Food Services) 11,000 275,565
Matsushita Electric Industrial Co.
(Electrical Equipment) 119,000 1,688,521
Murata Manufacturing Co., Ltd.
(Electrical Equipment) 24,000 843,135
Nippondenso Co., Ltd. (Auto Parts) 57,000 1,043,057
Nissen Corp. (Retail) 13,200 381,055
------------
$ 10,994,382
- --------------------------------------------------------------------------------
Korea - 0.6%
Korea Electric Power Corp.
(Utilities - Electric) 17,000 $ 769,899
Korea Electric Power Corp., ADR
(Utilities - Electric) 15,000 371,250
------------
$ 1,141,149
- --------------------------------------------------------------------------------
Malaysia - 0.1%
Petronas Gas Berhad (Oil/Gas Domestic)*## 47,800 $ 161,843
- --------------------------------------------------------------------------------
Mexico - 0.1%
Grupo Casa Autrey ADR (Wholesale Distributors) 14,000 $ 178,500
- --------------------------------------------------------------------------------
Netherlands - 3.0%
IHC Caland (Transportation - Marine)* 25,000 $ 711,434
Royal Dutch Petroleum Co. (Oils) 11,500 1,413,063
Royal PTT Nederland N.V. (Commercial Services) 32,400 1,139,688
Wolters Kluwer (Publishing) 22,357 2,034,773
------------
$ 5,298,958
- --------------------------------------------------------------------------------
New Zealand - 1.7%
Lion Nathan Ltd. (Food and Beverage) 1,002,000 $ 2,275,629
Telecom of New Zealand, ADR (Telecommunications) 10,300 683,663
------------
$ 2,959,292
- --------------------------------------------------------------------------------
Norway - 0.1%
Fokus Bank A/S (Financial - Banks)*## 30,200 $ 160,084
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
Singapore - 0.6%
Hong Leong Finance (Financial Services) 199,000 $ 603,200
Singapore Press Holdings (Publishing - Newspaper) 33,000 516,501
------------
$ 1,119,701
- --------------------------------------------------------------------------------
Spain - 1.6%
Iberdrola S.A. (Utilities - Electric) 242,000 $ 1,825,666
Repsol S.A. (Oil/Gas Exploration) 32,000 956,458
------------
$ 2,782,124
- --------------------------------------------------------------------------------
Sweden - 3.6%
Asea AB, "B" (Electrical Equipment) 20,500 $ 2,024,928
Astra AB, "B" (Pharmaceuticals) 69,500 2,515,419
Hennes & Mauritz AB, "B" (Retail) 14,900 975,193
Nordbanken AB (Financial - Banks)* 31,200 465,805
Sparbanken Sverige AB
(Financial - Savings and Loan) 46,400 489,813
------------
$ 6,471,158
- --------------------------------------------------------------------------------
Switzerland - 1.2%
Nestle A.G. (Food and Beverage) 1,200 $ 1,258,150
Sandoz Ltd. AG-R (Pharmaceuticals) 1,100 908,106
------------
$ 2,166,256
- --------------------------------------------------------------------------------
United Kingdom - 5.7%
British Petroleum PLC, ADR (Oils) 16,400 $ 1,447,300
London Electricity PLC (Utilities - Electric) 60,000 855,637
Mai PLC (Finance) 120,000 623,230
PowerGen PLC, ADR (Utilities - Electric) 60,000 2,227,500
Reuters Holdings PLC, ADR (Financial Services) 32,000 1,776,000
Storehouse PLC (Retail) 240,000 1,138,320
Tomkins PLC (Conglomerate) 255,000 1,005,872
Unilever N.V. (Consumer Goods) 61,000 1,185,260
------------
$ 10,259,119
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 66,601,592
- --------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $91,994,480) $106,033,524
- --------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.5%
================================================================================
Allstate Corp., 6.76s (Insurance) 12,500 $ 543,750
Compania Inversiones Telephones, 7s
(Utilities - Telephone)## 6,000 261,000
- --------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $857,000) $ 804,750
- --------------------------------------------------------------------------------
Non-Convertible Bonds - 30.5%
================================================================================
Principal Amount
(000 Omitted)
- --------------------------------------------------------------------------------
U.S. Government Guaranteed - 11.9%
Government National Mortgage Assn. - 2.4%
GNMA, 8s, 2025 $ 4,151 $ 4,271,233
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Non-Convertible Bonds - continued
================================================================================
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Guaranteed - continued
U.S. Treasury Obligations - 9.5%
U.S. Treasury Notes, 6.25s, 2003 $ 5,700 $ 5,800,662
U.S. Treasury Notes, 7.25s, 2004 3,240 3,505,777
U.S. Treasury Notes, 6.5s, 2005 7,400 7,663,588
------------
$ 16,970,027
- --------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 21,241,260
- --------------------------------------------------------------------------------
Foreign Non-Convertible Bonds - 18.6%
Australia - 1.9%
Commonwealth of Australia, 8.75s, 2001 AUD 500 $ 386,017
Commonwealth of Australia, 9.75s, 2002 1,250 1,005,947
Commonwealth of Australia, 9.5s, 2003 2,400 1,906,762
------------
$ 3,298,726
- --------------------------------------------------------------------------------
Canada - 2.3%
Government of Canada, 9.75s, 2001 CAD 2,800 $ 2,336,458
Government of Canada, 8.5s, 2002 2,300 1,814,844
------------
$ 4,151,302
- --------------------------------------------------------------------------------
Denmark - 2.0%
Kingdom of Denmark, 9s, 1998 DKK 10,470 $ 2,049,720
Kingdom of Denmark, 9s, 2000 7,440 1,475,196
------------
$ 3,524,916
- --------------------------------------------------------------------------------
France - 1.0%
Government of France, 7.75s, 2000 FRF 8,400 $ 1,798,710
- --------------------------------------------------------------------------------
Germany - 6.6%
Deutschland Republic, 8.5s, 2000 DEM 2,790 $ 2,221,457
Deutschland Republic, 6.5s, 2003 3,020 2,170,779
Deutschland Republic, 6.875s, 2005 2,900 2,118,510
German Unity Fund, 8.5s, 2001 2,980 2,378,031
Nordrhein Westfalen, 6.25s, 2002 4,140 2,922,907
------------
$ 11,811,684
- --------------------------------------------------------------------------------
Italy - 0.9%
Republic of Italy, 8.5s, 1999 ITL 2,120,000 $ 1,246,400
Republic of Italy, 9.5s, 1999 585,000 347,762
------------
$ 1,594,162
- --------------------------------------------------------------------------------
Netherlands - 1.7%
Dutch State Loan, 6.25s, 1998 NLG 690 $ 453,061
Netherlands Government, 8.25s, 2007 3,690 2,627,529
------------
$ 3,080,590
- --------------------------------------------------------------------------------
New Zealand - 1.2%
Government of New Zealand, 10s, 2002 NZD 3,000 $ 2,252,932
- --------------------------------------------------------------------------------
Spain - 1.0%
Government of Spain, 10.9s, 2003 ESP 206,000 $ 1,699,014
- --------------------------------------------------------------------------------
Total Foreign Non-Convertible Bonds $ 33,212,036
- --------------------------------------------------------------------------------
Total Non-convertible Bonds
(Identified Cost, $52,833,216) $ 54,453,296
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Convertible Bonds - 1.9%
================================================================================
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Convertible Bond
Essilor International, 6.5s, 1999 FRF $ 7 $ 739,531
- --------------------------------------------------------------------------------
U.S. Convertible Bonds
MBL International Finance Bermuda, 3s, 2002 $ 728 $ 752,570
PIV Investment Finance Cayman Ltd.,
4.5s, 2000## 455 369,688
Roche Holdings, Inc., 0s, 2010## 3,200 1,330,000
Sandoz Capital BVI Ltd., 2s, 2002## 334 293,085
------------
$ 2,745,343
- --------------------------------------------------------------------------------
Total Convertible Bonds
(Identified Cost, $3,375,813) $ 3,484,874
- --------------------------------------------------------------------------------
Call Options Purchased - 0.1%
================================================================================
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------
Canadian Dollars
November/1.38 CAD 5,342 $ 29,666
Italian Lire/Deutsche Marks
November/1050.0 ITL 6,958,924 0
Japanese Government Bonds
December/111.563 JPY 420,000 34,949
December/112.062 111,000 10,989
December/115.156 465,000 94,395
- --------------------------------------------------------------------------------
Total Call Options Purchased
(Premiums Paid, $136,209) $ 169,999
- --------------------------------------------------------------------------------
Put Options Purchased - 0.1%
================================================================================
Deutsche Marks
December/1.420 DEM 0,004,436 $ 25,101
December/1.510 6,843 2,108
Deutsche Marks/British Pounds
January/2.23 5,575 49,991
- --------------------------------------------------------------------------------
Swedish Kronor/Deutsche Marks
November/5.0 SEK 25,366 0
Total Put Options Purchased
(Premiums Paid, $140,511) $ 77,200
- --------------------------------------------------------------------------------
Short-Term Obligations - 7.7%
================================================================================
Principal Amount
Issuer (000 Omitted)
- --------------------------------------------------------------------------------
Federal Farm Credit, due 9/05/95 - 11/03/95 $ 2,000 $ 1,999,375
Federal National Mortgage Assn.,
due 10/12/95 - 11/10/95 4,075 4,069,275
General Electric Co., due 10/31/95 - 11/01/95 4,490 4,490,000
Wal Mart Stores, due 10/30/95 - 11/09/95 3,150 3,146,010
- --------------------------------------------------------------------------------
Total Short-term Obligations, at Amortized Cost $ 13,704,660
- --------------------------------------------------------------------------------
Total Investments (Identified Cost $163,041,889) $178,728,303
- --------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Call Options Written - (0.1)%
================================================================================
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollars
January/0.77 AUD (1,953) $ (18,532)
Deutsche Marks
November/1.380 DEM (5,388) (12,063)
Deutsche Marks/British Pounds
January/2.1238 (5,310) (12,504)
Italian Lire/Deutsche Marks
August/1125.0 ITL (9,941,320) (139,178)
Japanese Yen
July/75.0 JPY (328,362) (1,970)
- --------------------------------------------------------------------------------
Total Call Options Written
(Premiums Received, $294,142) $ (184,247)
- --------------------------------------------------------------------------------
Put Options Written - (0.3)%
================================================================================
Australian Dollars
January/0.745 AUD (1,904) $ (15,211)
Deutsche Marks
December/1.46 DEM (4,561) (9,287)
December/1.560 (7,070) (177)
Italian Lire/Deutsche Marks
August/1125.0 ITL (9,941,320) (457,301)
Japanese Government Bonds
December/112.062 JPY (111,000) (10,101)
Japanese Yen
November/109.0 (323,201) (646)
- --------------------------------------------------------------------------------
Total Put Options Written
(Premiums Received, $456,014) $ (492,723)
- --------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.2% $ 349,962
================================================================================
Net Assets - 100.0% $178,401,295
- --------------------------------------------------------------------------------
<FN>
* Non-income producing security.
## SEC Rule 144A restriction.
</FN>
</TABLE>
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
AUD = Australian Dollars FRF = French Francs
CAD = Canadian Dollars GBP = British Pounds
CHF = Swiss Francs IEP = Irish Punts
DEM = Deutsche Marks ITL = Italian Lire
DKK = Danish Kroner JPY = Japanese Yen
ESP = Spanish Pesetas NLG = Dutch Guilders
FIM = Finnish Markkaa NZD = New Zealand Dollars
SEK = Swedish Kronor
See notes to financial statements
13
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
================================================================================
October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $163,041,889) $ 178,728,303
Cash 1,151
Foreign currency, at value (identified cost, $2,970) 3,537
Net receivable for forward foreign currency
exchange contracts purchased 1,030,286
Premium receivable on options written 12,184
Receivable for Fund shares sold 77,723
Receivable for investments sold 29,075
Interest and dividends receivable 1,554,085
Other assets 2,111
--------------
Total assets $ 181,438,455
--------------
Liabilities:
Payable for Fund shares reacquired $ 240,855
Payable for investments purchased 920,735
Net payable for forward foreign currency
exchange contracts sold 916,341
Net payable for forward foreign currency
exchange contracts 44,215
Written options outstanding, at value
(premiums received, $750,156) 676,970
Payable to affiliates -
Management fee 11,531
Shareholder servicing agent fee 2,496
Distribution fee 43,080
Accrued expenses and other liabilities 180,937
--------------
Total liabilities $ 3,037,160
--------------
Net assets $ 178,401,295
--------------
Net assets consist of:
Paid-in capital $ 157,735,131
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 15,847,558
Accumulated distributions in excess of net realized gain
on investments and foreign currency transactions (402,060)
Accumulated undistributed net investment income 5,220,666
--------------
Total $ 178,401,295
--------------
Shares of beneficial interest outstanding 15,446,640
--------------
Class A shares:
Net asset value and redemption price per share
net assets of $110,293,556 / 9,536,061 shares
of beneficial interest outstanding) $11.57
------
Offering price per share (100/95.25 of
net asset value per share) $12.15
------
Class B shares:
Net asset value and offering price per share
(net assets of $57,213,608 / 4,965,263 shares
of beneficial interest outstanding) $11.52
------
Class C shares:
Net asset value, offering price and redemption price
per share (net assets of $10,894,131 / 945,316
shares of beneficial interest outstanding) $11.52
------
</TABLE>
On sales of $100,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
14
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Operations
================================================================================
Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $ 5,176,435
Dividends 2,987,225
Foreign taxes withheld (145,641)
------------
Total investment income $ 8,018,019
------------
Expenses -
Management fee $ 1,479,587
Trustees' compensation 35,843
Shareholder servicing agent fee (Class A) 155,157
Shareholder servicing agent fee (Class B) 114,929
Shareholder servicing agent fee (Class C) 15,694
Distribution and service fee (Class A) 362,335
Distribution and service fee (Class B) 522,400
Distribution and service fee (Class C) 104,630
Custodian fee 194,333
Printing 78,882
Postage 55,584
Auditing fees 35,600
Amortization of organizations expenses 14,076
Legal fees 11,597
Miscellaneous 201,767
------------
Total expenses $ 3,382,414
------------
Fees paid indirectly (1,326)
------------
Net expenses $ 3,381,088
------------
Net investment income $ 4,636,931
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 7,079,959
Written option transactions 168,284
Foreign currency transactions (3,498,974)
------------
Net realized gain on investments and
foreign currency transactions $ 3,749,269
------------
Change in unrealized appreciation (depreciation) -
Investments $ 7,918,550
Written options 610,278
Translation of assets and liabilities in foreign currencies (341,371)
------------
Net unrealized gain on investments $ 8,187,457
------------
Net realized and unrealized gain on
investments and foreign currency $ 11,936,726
------------
Increase in net assets from operations $ 16,573,657
------------
</TABLE>
See notes to financial statements
15
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
================================================================================
Year Ended October 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,636,931 $ 3,273,968
------------ ------------
Net realized gain on investments and
foreign currency transactions 3,749,269 636,673
Net unrealized gain on investments and
foreign currency translation 8,187,457 173,343
------------ ------------
Increase in net assets from operations $ 16,573,657 $ 4,083,984
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (734,229) $ (1,963,576)
From net investment income (Class B) (140,223) (497,186)
From net investment income (Class C) (27,610) (102,055)
From net realized gain on investments and
foreign currency transactions (Class A) (453,126) (2,611,400)
From net realized gain on investments and
foreign currency transactions (Class B) (72,338) (661,218)
From net realized gain on investments and
foreign currency transactions (Class C) (13,755) (135,725)
In excess of net realized gain on investments and
foreign currency transactions (Class A) -- (3,060,839)
In excess of net realized gain on investments and
foreign currency transactions (Class B) -- (775,018)
In excess of net realized gain on investments and
foreign currency transactions (Class C) -- (159,084)
From paid-in capital (Class A) -- (774,051)
From paid-in capital (Class B) -- (195,993)
From paid-in capital (Class C) -- (40,231)
------------ ------------
Total distributions declared to shareholders $ (1,441,281) $(10,976,376)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 44,197,817 $109,302,626
Net asset value of shares issued
to shareholders in reinvestment
of distributions 1,279,372 9,514,906
------------ ------------
Cost of shares reacquired (40,657,870) (29,119,416)
------------ ------------
Increase in net assets from Fund
share transactions $ 4,819,319 $ 89,698,116
------------ ------------
Total increase in net assets $ 19,951,695 $ 82,805,724
Net assets:
At beginning of year 158,449,600 75,643,876
------------ ------------
At end of year (including accumulated
undistributed net investment income
[accumulated distributions in excess of
net investment income] of $5,220,666 and
$(335,220), respectively) $178,401,295 $158,449,600
------------ ------------
</TABLE>
See notes to financial statements
16
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights
================================================================================================================================
Year Ended October 31, 1995 1994 1993 1992 1991 1990*
- --------------------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.58 $ 11.19 $ 10.21 $ 9.42 $ 8.55 $ 8.50
-------- ------- ------- ------- ------- -------
Income from investment operations# -
Net investment income $ .33 $ 0.30 $ 0.28 $ 0.36 $ 0.37 $ 0.08
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.79 0.15 1.42 0.86 0.88 (0.03)
-------- ------- ------- ------- ------- -------
Total from investment
operations $ 1.12 $ 0.45 $ 1.70 $ 1.22 $ 1.25 $ 0.05
-------- ------- ------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.08) $ (0.25) $ (0.45) $ (0.26) $ (0.38) $ --
From net realized gain on
investments and foreign
currency transactions (0.05) (0.33) (0.27) (0.17) -- --
In excess of net realized gain on
investments and foreign currency
transactions -- (0.38) -- -- -- --
From paid-in capital -- (0.10) -- -- -- --
-------- ------- ------- ------- ------- -------
Total distributions declared to
shareholders $ (0.13) $ (1.06) $ (0.72) $ (0.43) $ (0.38) $ --
-------- ------- ------- ------- ------- -------
Net asset value - end of period $ 11.57 $ 10.58 $ 11.19 $ 10.21 $ 9.42 $ 8.55
-------- ------- ------- ------- ------- -------
Total return+++ 10.63% 4.10% 17.78% 13.14% 14.94% 3.76%+
Ratios (to average daily net assets)/Supplemental data:
Expenses## 1.77% 1.76% 1.92% 1.84% 2.18% 1.57%+
Net investment income 3.06% 2.81% 2.96% 3.65% 4.05% 3.14%+
Portfolio turnover 160% 118% 112% 72% 134% 2%
Net assets at end of period (000 omitted) $110,294 $99,870 $71,262 $44,707 $30,847 $12,510
-------- ------- ------- ------- ------- -------
<FN>
* For the period from September 4, 1990 (commencement of investment operations) to October 31, 1990.
+ Annualized.
# Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
+++ Total returns do not include the applicable sales charge. If the sales charge had been included the results would have been
lower.
</FN>
</TABLE>
See notes to financial statements
Financial statements - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
==================================================================================================================================
Year Ended October 31, 1995 1994 1993** 1995 1994***
- ----------------------------------------------------------------------------------------------------------------------------------
Class B Class C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.54 $ 11.19 $ 10.84 $ 10.53 $ 11.06
------- ------- ------- ------- -------
Income from investment operations# -
Net investment income $ 0.25 $ 0.25 $ 0.06 $ 0.27 $ 0.27
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.77 0.13 0.35 0.76 (0.29)
------- ------- ------- ------- -------
Total from investment operations $ 1.02 $ 0.38 $ 0.41 $ 1.03 $ (0.02)
------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.03) $ (0.24) $ (0.06) $ (0.03) $ (0.12)
From net realized gain on investments
and foreign currency transactions (0.01) (0.32) -- (0.01) (0.16)
In excess of net realized gain on investments
and foreign currency transactions -- (0.38) -- -- (0.18)
From paid-in capital -- (0.09) -- -- (0.05)
------- ------- ------- ------- -------
Total distributions declared to
shareholders $ (0.04) $ (1.03) $ (0.06) $ (0.04) $ (0.51)
------- ------- ------- ------- -------
Net asset value - end of period $ 11.52 $ 10.54 $ 11.19 $ 11.52 $ 10.53
------- ------- ------- ------- -------
Total return+++ 9.75% 3.38% 3.79% 9.84% (0.15)%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.49% 2.49% 2.77% 2.42% 2.39%+
Net investment income 2.34% 2.33% 2.15% 2.41% 2.51%+
Portfolio turnover 160% 118% 112% 160% 118%
Net assets at end of period (000 omitted) $57,214 $47,677 $ 4,381 $10,894 $10,903
<FN>
** For the period from commencement of offering of Class B shares, September 7, 1993 to October 31, 1993.
*** For the period from commencement of offering of Class C shares, January 3, 1994 to October 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for
fees paid indirectly.
+++ Total return does not include the applicable sales charge. If the sales charge had been included the results would have
been lower.
</FN>
</TABLE>
See notes to financial statements
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS World Total Return Fund (the Fund) is a non-diversified series of MFS Series
Trust VI (the Trust). The Trust is organized as a Massachusetts business trust
and registered under the Investment Company Act of 1940, as amended, as an
open-ended management investment company.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valua- tions furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency and
translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options are
valued by brokers through the use of a pricing model which takes into account
closing bond valuations, implied volatility and short-term repurchase rates.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
the realized gain or loss. If a put option is exercised, the premium reduces the
cost basis of the security purchased by the Fund. The Fund, as writer of an
option, may have no control over whether the underlying securities may be sold
(call) or purchased (put) and, as a result, bears the market risk of an
unfavorable change in the price of the securities underlying the written option.
In general, written call options may serve as a partial hedge against decreases
in value in the underlying securities to the extent of the premium received.
Written options may also be used as a part of an income producing strategy
reflecting the view of the Fund's management on the direction of interest rates.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The Fund will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes. The forward foreign currency exchange contracts are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend and interest payments received in additional securities are
recorded on the ex-dividend or ex-interest date in an amount equal to the value
of the security on such date.
The Fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Fund at a constant yield to maturity. Legal fees and other
related expenses incurred to preserve and protect the value of a security owned
are added to the cost of the security; other legal fees are expensed. Capital
infusions, which are generally non-recurring, incurred to protect or enhance the
value of high-yield debt securities, are reported as an addition to the cost
basis of the security. Costs that are incurred to negotiate the terms or
conditions of capital infusions or that are expected to result in a plan of
reorganization are considered workout expenses and are reported as rea lized
losses. Ongoing costs incurred to protect or enhance an investment, or costs
incurred to pursue other claims or legal actions, are reported as operating
expenses.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required under
provisions of the Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return, and consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Foreign taxes have been provided for on interest
and dividend income earned on foreign investments in accordance with the
applicable country's tax rates and to the extent unrecoverable are recorded as a
reduction of investment income. Distributions to shareholders are recorded on
the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended October 31, 1995, $1,821,017 was reclassified from
accumulated net realized gain on investments to accumulated undistributed net
investment income due to differences between book and tax accounting for
mortgage-backed securities and currency transactions. This change had no effect
on the net assets or net asset value per share. At October 31, 1995, accumulated
undistributed net investment income (realized gain on investments and foreign
currency transactions) under book accounting were different from tax accounting
due primarily to temporary differences in accounting for currency transactions.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee, computed daily and paid monthly at an annual rate of 0.65% of
average daily net assets and 5.0% of investment income.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $4,468 for the year ended
October 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$48,590 for the year ended October 31, 1995, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted separate
distribution plans for Class A, Class B and Class C shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD retains the service fee for accounts
not attributable to a securities dealer, which amounted to $36,067 for the year
ended October 31, 1995. Fees incurred under the distribution plan during the
year ended October 31, 1995 were 0.35% of average daily net assets attributable
to Class A shares on an annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per annum,
of the Fund's average daily net assets attributable to Class B and Class C
shares. MFD will pay to securities dealers that enter into a sales agreement
with MFD all or a portion of the service fee attributable to Class B and Class C
shares, and will pay to such securities dealers all of the distribution fee
attributable to Class C shares. The service fee is intended to be additional
consideration for services rendered by the dealer with respect to Class B and
Class C shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $5,559 and $6,814 for Class B and Class C
shares, respectively, for the year ended October 31, 1995. Fees incurred under
the distribution
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
plans during the year ended October 31, 1995 were 1.00% of average daily net
assets attributable to Class B and Class C shares on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended October 31, 1995 were $376 and $91,996 for
Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
U.S. government securities $ 53,477,082 $ 58,834,510
------------ ------------
Investments (non-U.S. government securities) $166,820,503 $161,085,256
------------ ------------
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $ 163,041,889
-------------
Gross unrealized appreciation $ 18,235,002
Gross unrealized depreciation (2,548,588)
-------------
Net unrealized appreciation $ 15,686,414
=============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares 1995 1994
-------------------------- --------------------------
Year Ended October 31, Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,123,469 $ 22,961,533 4,057,858 $ 44,108,242
Shares issued to shareholders in
reinvestment of distributions 98,593 1,061,212 650,058 7,016,535
Shares reacquired (2,125,319) (22,992,718) (1,634,278) (17,703,592)
---------- ----------- ---------- -----------
Net increase 96,743 $ 1,030,027 3,073,638 $ 33,421,185
========== =========== ========== ===========
</TABLE>
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Class B Shares 1995 1994
--------------------------- -------------------------
Year Ended October 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sares sold 1,673,616 $ 18,044,111 4,787,651 $ 52,159,264
Shares issued to shareholders in
reinvestment of distributions 17,272 186,186 201,731 2,142,482
Shares reacquired (1,250,017) (13,498,802) (856,456) (9,240,107)
---------- ------------ --------- ------------
Net increase 440,871 $ 4,731,495 4,132,926 $ 45,061,639
========== ============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
Class C Shares 1995 1994*
------------------------ -------------------------
Year Ended October 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 296,274 $ 3,192,173 1,206,568 $ 13,035,120
Shares issued to shareholders in
reinvestment of distributions 2,966 31,974 33,846 355,889
Shares reacquired (389,108) (4,166,350) (205,230) (2,175,717)
-------- ------------ --------- ------------
Net increase (decrease) (89,868) $ (942,203) 1,035,184 $ 11,215,292
======== ============ ========= ============
<FN>
*For the period from the commencement of offering of Class C shares, January 3, 1994 to October 31, 1994.
</FN>
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended October 31,
1995 was $2,338.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options and forward foreign currency exchange
contracts. The notional or contractual amounts of these instruments represent
the investment the Fund has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at October 31, 1995, is as
follows:
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Written Option Transactions
1995 Calls 1995 Puts
----------------------------- ----------------------------
Principal Principal
Amounts Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
==============================================================================================================
<S> <C> <C> <C> <C>
Outstanding, beginning of period -
Deutsche Marks 14,075 $ 178,737 7,555 $ 21,587
Japanese Yen 731,609 93,043 321,000 34,499
Options written -
Australian Dollars 5,523 55,012 10,098 123,900
British Pounds 2,562 44,204 2,390 44,204
Canadian Dollars 2,042 4,282 9,854 41,541
Deutsche Marks 73,374 276,420 69,276 426,840
Deutsche Marks/British Pounds 7,238 46,604 8,335 28,494
Italian Lire/Deutsche Marks 24,618,706 245,454 16,512,683 441,878
Japanese Yen 3,443,674 809,348 10,264,446 1,081,268
Spanish Pesetas/Deutsche Marks -- -- 230,690 15,118
Swiss Francs/Deutsche Marks 2,841 11,963 -- --
Swedish Kronor/Deutsche Marks40,961 27,341 -- --
U.S. Dollars -- -- 4,100 54,133
Options terminated in closing transactions -
Australian Dollars (3,570) (31,281) (8,194) (99,490)
British Pounds (2,562) (44,204) -- --
Canadian Dollars (2,042) (4,282) (9,854) (41,541)
Deutsche Marks (9,005) (44,696) (45,391) (333,640)
Deutsche Marks/British Pounds (1,928) (12,526) (8,335) (28,494)
Italian Lire/Deutsche Marks -- -- (1,815,331) (13,582)
Japanese Yen (3,137,289) (774,102) (10,151,245) (1,088,229)
Swedish Kronor/Deutsche Marks (40,961) (27,341) --
Spanish Pesetas/Deutsche Marks -- -- (230,690) (15,118)
U.S. Dollars -- -- (4,100) (54,133)
Options exercised -
Deutsche Marks (19,434) (195,866) -- --
Italian Lire/Deutsche Marks -- -- (4,320,269) (58,746)
Swiss France/Deutsche Marks (2,841) (11,963) -- --
Options expired -
British Pounds -- -- (2,390) (44,204)
Deutsche Marks (53,622) (200,150) (19,809) (76,771)
Italian Lire/Deutsche Marks (14,677,386) (80,701) (435,763) (3,500)
Japanese Yen (709,632) (71,154) -- --
---------- ------------ ---------- ------------
Outstanding, end of period 10,282,333 $ 294,142 10,389,056 $ 456,014
========== ============ ========== ============
Outstanding, end of period -
Australian Dollars 1,953 $ 23,731 1,904$ 24,410
Deutsche Marks 5,388 14,445 11,631 38,016
Deutsche Marks/British Pounds 5,310 34,078 -- --
Italian Lire/Deutsche Marks 9,941,320 164,753 9,941,320 366,050
Japanese Yen 328,362 57,135 434,201 27,538
---------- ------------ ---------- ------------
10,282,333 $ 294,142 10,389,056 $ 456,014
========== ============ ========== ============
</TABLE>
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
At October 31, 1995, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
Net Unrealized
Contracts To Contracts at Appreciation
Settlement Date Delivery/Receive In Exchange For Value (Depreciation)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 12/07/95 - 12/20/95 AUD 5,040,381 $ 3,790,784 $ 3,828,448 $ (37,664)
11/09/95 - 11/30/95 CAD 14,816,238 10,980,807 11,023,164 (42,357)
12/15/95 - 12/18/95 CHF 5,914,253 5,140,777 5,235,979 (95,202)
11/02/95 - 12/21/95 DEM 156,189,757 109,231,662 111,133,063 (1,901,401)
11/09/95 - 4/12/96 DKK 26,855,768 4,907,590 4,919,856 (12,266)
12/07/95 ESP 407,821,691 3,299,288 3,332,719 (33,431)
12/15/95 FIM 5,603,682 1,273,854 1,321,572 (47,718)
11/17/95 - 4/12/96 FRF 49,899,893 10,080,306 10,210,083 (129,777)
11/14/95 GBP 2,889,635 4,508,032 4,567,213 (59,181)
11/06/95 IEP 1,560,676 2,547,380 2,528,099 19,281
12/07/95 - 12/11/95 ITL 19,032,897,185 11,729,975 11,914,594 (184,619)
12/07/95 - 12/14/95 JPY 4,674,765,628 48,228,354 46,006,901 2,221,453)
11/24/95 NLG 4,726,181 2,986,509 2,998,899 (12,390)
11/15/95 NZD 2,418,044 1,551,054 1,595,116 (44,062)
11/20/95 - 12/21/95 SEK 61,910,856 8,760,568 9,317,575 (557,007)
------------- -------------- -------------
$ 229,016,940 $ 229,933,281 $ (916,341)
============= ============== =============
Purchases 11/27/95 - 12/20/95 AUD 5,296,998 $ 3,897,519 $ 4,026,296 $ 128,777
11/30/95 CAD 6,741,663 4,988,838 5,015,400 26,562
12/14/95 - 12/18/95 CHF 10,740,930 9,272,743 9,507,698 234,955
11/07/95 - 2/29/96 DEM 157,335,992 110,764,220 112,026,126 1,261,906
11/09/95 - 4/12/96 DKK 30,016,854 5,420,847 5,498,615 77,768
12/07/95 ESP 251,421,371 1,979,500 2,054,616 75,116
12/14/95 FIM 5,472,479 1,275,059 1,290,607 15,548
12/27/95 - 4/12/96 FRF 27,374,840 5,590,341 5,597,794 7,453
11/14/95 GBP 2,310,291 3,624,338 3,651,531 27,193
11/06/95 IEP 1,560,676 2,509,706 2,528,099 18,393
12/07/95 - 1/31/96 ITL 15,178,641,805 9,394,375 9,497,696 103,321
11/27/95 - 2/23/96 JPY 5,567,707,184 57,000,631 54,876,893 (2,123,738)
12/04/95 - 12/20/95 NZD 4,351,333 2,870,518 2,866,244 (4,274)
11/20/95 - 12/15/95 SEK 106,556,832 14,850,936 16,032,242 1,181,306
------------- -------------- --------------
$ 233,439,571 $ 234,469,857 $ 1,030,286
============= ============== ==============
Forward currency purchases and sales under master netting arrangements and
closed forward foreign currency exchange contracts excluded from above amounted
to a net payable of $44,215 at October 31, 1995.
At October 31, 1995, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At October 31, 1995, the
Fund owned the following restricted securities (constituting 2.88% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers. All of these securities may
be offered and sold to "qualified institutional buyers" under Rule 144A of the
1933 Act.
Date of Share/Par
Description Acquisition Amount Cost Value
==============================================================================================
Central Costanera, ADR 12/17/93 13,167 $ 316,008 $ 358,801
Compania Inversiones Telephones, 7s 2/24/94 6,000 432,000 261,000
Consolidated Electric Power Asia
Ltd., ADR 11/29/93 13,600 220,364 275,400
Fokus Bank A.S 10/09/95 30,200 140,195 160,084
Mirgor Sacifia, ADR 10/20/94 47,930 431,370 95,860
Petronas Gas Berhad 7/31/95 47,800 155,636 161,843
PIV Investment Finance
Cayman Ltd., 4.5s, 2000 1/26/94 - 9/29/94 455,000 413,600 369,688
Roche Holdings, Inc., 0s, 2010 4/12/95 - 7/26/95 3,200,000 1,225,385 1,330,000
Sandoz Capital BVI Ltd., 2s, 2002 9/28/95 334,000 271,107 293,085
Woolworth Ltd., ADR 7/12/93 78,500 1,670,457 1,825,125
----------
$5,130,886
==========
</TABLE>
27
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of Mfs World Total Return Fund:
We have audited the accompanying statement of assets and liabilities of MFS
World Total Return Fund, including the schedule of portfolio investments, as of
October 31, 1995 and the related statement of operations for the year then ended
and the statement of changes in net assets and financial highlights for each of
the two years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the three years in the
period ended October 31, 1993 and for the period September 4, 1990 (commencement
of investment operations) to October 31, 1990 for Class A shares, and for the
period September 7, 1993 (commencement of investment operations) to October 31,
1993 for Class B shares, were audited by other auditors whose report dated
December 16, 1993 expressed an unqualified opinion on those statements and
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
World Total Return Fund at October 31, 1995, the results of its operations for
the year then ended and the changes in its net assets and financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
[Signature of Ernst & Young LLP]
Boston, Massachusetts
December 8, 1995
---------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
29
<PAGE>
THE MFS FAMILY OF FUNDS [Registration Mark]
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any
time). This material should be read carefully before investing or sending money.
STOCK
================================================================================
Massachusetts Investors Trust
- --------------------------------------------------------------------------------
Massachusetts Investors Growth Stock Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Capital Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Emerging Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Gold & Natural Resources Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Growth Opportunities Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Managed Sectors Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] OTC Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Research Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Value Fund
- --------------------------------------------------------------------------------
STOCK AND BOND
================================================================================
MFS [Registration Mark] Total Return Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Utilities Fund
- --------------------------------------------------------------------------------
BOND
================================================================================
MFS [Registration Mark] Bond Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Mortgage Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Securities Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] High Income Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Intermediate Income Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Strategic Income Fund
(formerly MFS [Registration Mark] Income & Opportunity Fund)
- --------------------------------------------------------------------------------
LIMITED MATURITY BOND
================================================================================
MFS [Registration Mark] Government Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal Limited Maturity Fund
- --------------------------------------------------------------------------------
WORLD
================================================================================
MFS [Registration Mark] World Asset Allocation Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Equity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Governments Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Total Return Fund
- --------------------------------------------------------------------------------
NATIONAL TAX-FREE BOND
================================================================================
MFS [Registration Mark] Municipal Bond Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal High Income Fund
(closed to new investors)
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal Income Fund
- --------------------------------------------------------------------------------
STATE TAX-FREE BOND
================================================================================
Alabama, Arkansas, California, Florida, Georgia, Louisiana, Maryland,
Massachusetts, Mississippi, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia, Washington, West Virginia
- --------------------------------------------------------------------------------
MONEY MARKET
================================================================================
MFS [Registration Mark] Cash Reserve Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Money Market Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Money Market Fund
- --------------------------------------------------------------------------------
<PAGE>
MFS [Registration Mark] WORLD [Dalbar Logo] Bulk Rate
TOTAL RETURN FUND TOP RATED SERVICE U.S. Postage
P A I D
500 Boylston Street Permit #55638
Boston, MA 02116 Boston, MA
[MFS Logo]
THE FIRST NAME IN MUTUAL FUNDS
MWT-2 12/95/25M 24/224/324
<PAGE>
<PAGE>
PROSPECTUS -- March 1, 1996
MFS(R) UTILITIES FUND Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- -------------------------------------------------------------------------------
Page
1. Expense Summary ...................................................... 2
2. The Fund ............................................................. 3
3. Condensed Financial Information ...................................... 4
4. Investment Objective and Policies .................................... 6
5. Investment Techniques ................................................ 7
6. Additional Risk Factors .............................................. 11
7. Management of the Fund ............................................... 14
8. Information Concerning Shares of the Fund ............................ 16
Purchases ......................................................... 16
Exchanges ......................................................... 19
Redemptions and Repurchases ....................................... 20
Distribution Plans ................................................ 22
Distributions ..................................................... 24
Tax Status ........................................................ 24
Net Asset Value ................................................... 24
Description of Shares, Voting Rights and Liabilities .............. 24
Performance Information ........................................... 25
Expenses .......................................................... 26
9. Shareholder Services ................................................. 26
Appendix A ........................................................... A-1
Appendix B ........................................................... B-1
Appendix C ........................................................... C-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
MFS UTILITIES FUND -- 500 Boylston Street, Boston, MA 02116 (617) 954-5000
This Prospectus pertains to MFS Utilities Fund (the "Fund"), a non-diversified
series of MFS Series Trust VI (the "Trust"), an open-end management investment
company consisting of three series. The Fund's investment objective, is to seek
capital growth and current income (income above that available from a portfolio
invested entirely in equity securities). The Fund seeks to achieve its objective
by investing at least 65% of its assets under normal market conditions in equity
and debt securities issued by domestic and foreign utility companies (see
"Investment Objective and Policies"). The minimum initial investment generally
is $1,000 per account (see "Information Concerning Shares of the Fund --
Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY,
AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL
INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU
MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information, dated March 1, 1996, as
amended or supplemented from time to time (the "SAI"), which contains more
detailed information about the Trust and the Fund and is incorporated into this
Prospectus by reference. See page 28 for a further description of the
information set forth in the SAI. A copy of the SAI may be obtained without
charge by contacting the Shareholder Servicing Agent (see back cover for address
and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as a
percentage of offering price) .......................................... 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) .................. See Below(1) 4.00% 0.00%
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees (after applicable fee reduction)(2) ...................... 0.375% 0.375% 0.375%
Rule 12b-1 Fees .......................................................... 0.25%(3) 1.00%(4) 1.00%(4)
Other Expenses ........................................................... 0.49% 0.55% 0.50%
---- ---- ----
Total Operating Expenses (after applicable expense reduction)(5)........ 1.115% 1.925% 1.875%
</TABLE>
- ----------
(1) Purchases of $1 million or more are not subject to an initial sales
charge; however, a contingent deferred sales charge ("CDSC") of 1% will be
imposed on such purchases in the event of certain redemption transactions
within 12 months following such purchases (see "Information Concerning the
Fund -- Purchases" below).
(2) The Adviser has voluntarily reduced the management fee to 0.375% of the
Fund's average daily net assets for an indefinite period of time. Absent
this reduction, the management fee would have been 0.70% of the Fund's
average daily net assets for the fiscal year ended October 31, 1995. See
"Management of the Fund" below.
(3) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per
annum of the average daily net assets attributable to the Class A shares
(see "Information Concerning the Fund -- Distribution Plans below").
Distribution fees under this Plan equal to 0.10% per annum of the average
daily net assets attributable to Class A shares are not currently being
imposed and will be imposed only upon approval by the Trust's Board of
Trustees. Distribution expenses under this Plan, together with the initial
sales charge, may cause long-term shareholders to pay more than the
maximum sales charge that would have been permissible if imposed entirely
as an initial sales charge.
(4) The Fund has adopted separate Distribution Plans for its Class B and its
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which
provide that it will pay distribution/service fees aggregating up to (but
not necessarily all of) 1.00% per annum of the average daily net assets
attributable to the Class B shares under the Class B Distribution Plan and
the Class C shares under the Class C Distribution Plan (see "Information
Concerning the Fund -- Distribution Plans" below). Distribution expenses
paid under these Plans, together with any CDSC payable upon redemption of
Class B shares, may cause long-term shareholders to pay more than the
maximum sales charge that would have been permissible if imposed entirely
as an initial sales charge.
(5) Absent the fee reductions described above, "Total Operating Expenses" for
Class A, Class B and Class C shares would have been 1.44%, 2.25% and
2.20%, respectively, of the Fund's average daily net assets attributable
to such shares on an annualized basis.
<PAGE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
<TABLE>
<CAPTION>
PERIOD CLASS A CLASS B CLASS C
------ ------- ------- -------
<S> <C> <C> <C> <C>
(1)
1 year .......................................... $ 58 $ 60 $ 20 $ 19
3 years ......................................... 81 90 60 59
5 years ......................................... 106 124 104 101
10 years ......................................... 177 204(2) 204(2) 220
</TABLE>
- ----------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear
directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections of the Prospectus: (i)
varying sales charges on share purchases -- "Purchases"; (ii) varying CDSCs --
"Purchases"; (iii) management fees -- "Investment Adviser"; and (iv) Rule 12b-
1 (i.e., distribution plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUND
The Fund is a non-diversified series of the Trust, an open-end management
investment company which was organized as a business trust under the laws of
The Commonwealth of Massachusetts on April 30, 1990. The Trust presently
consists of three series, each of which represents a portfolio with separate
investment objectives and policies. Shares of the Fund are continuously sold
to the public and the Fund then uses the proceeds to buy securities for its
portfolio. Three classes of shares of the Fund currently are offered to the
general public. Class A shares are offered at net asset value plus an initial
sales charge (or a CDSC in the case of certain purchases of $1 million or
more) and subject to a Distribution Plan, providing for an annual distribution
fee and service fee. Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC and Distribution Plan providing for
an annual distribution fee and service fee which are greater than the Class A
annual distribution fee and service fee. Class B shares will convert to Class
A shares approximately eight years after purchase. Class C shares are offered
at net asset value without an initial sales charge or a CDSC but subject to a
Distribution Plan providing for an annual distribution fee and service fee
which are equal to the Class B annual distribution fee and service fee. Class
C shares do not convert to any other class of shares of the Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of
the Fund. A majority of the Trustees are not affiliated with the Adviser. The
adviser is responsible for the management of the Fund's assets and the
officers of the Trust are responsible for the Fund's operations. The Adviser
manages the portfolio from day to day in accordance with the Fund's investment
objective and policies. The selection of investments and the way they are
managed depend on the conditions and trends in the utilities industry and in
the economy and the financial marketplaces of the United States ("U.S.") and
various countries of the world. The Fund also offers to buy back (redeem) its
shares from its shareholders at any time at net asset value less any
applicable CDSC.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited since inception of the Fund and
should be read in conjunction with financial statements included in the Fund's
Annual Report to shareholders which are incorporated by reference into the SAI
in reliance upon the report of the Fund's independent auditors, given upon
their authority as experts in accounting and auditing. The Fund's independent
auditors are Ernst & Young LLP.
FINANCIAL HIGHLIGHTS
CLASS A, CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1995 1994 1993 1992*
------ ------ ------ ------
CLASS A
- ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C>
Net asset value - beginning of period .................. $ 7.00 $ 7.86 $ 6.68 $ 6.33
----- ----- ----- ------
Income from investment operations# -
Net investment income(#) . ........................... $ 0.31 $ 0.33 $ 0.40 $ 0.17
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ...... 1.22 (0.63) 1.19 0.30
------ ----- ----- -----
Total from investment operations ................. $ 1.53 (0.30) $ 1.59 $ 0.47
----- ----- ----- ------
Less distributions declared to shareholders -
From net investment income ........................... (0.33) (0.35) (0.38) (0.12)
From net realized gain on investments and foreign
currency transactions .............................. -- (0.21) (0.03) --
----- ----- ----- ------
Total distributions declared to shareholders ..... $(0.33) $(0.56) $(0.41) $(0.12)
----- ----- ----- -----
Net asset value - end of period ........................ $ 8.20 $ 7.00 $ 7.86 $ 6.68
====== ====== ====== ======
TOTAL RETURN++ ........................................ 22.48% (3.89)% 24.39% 11.02%+
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA**:
Expenses## ........................................... 0.83% 0.65% 0.65% 0.65%+
Net investment income ................................ 4.30% 4.58% 4.57% 5.44%+
PORTFOLIO TURNOVER ..................................... 152% 115% 119% 63%
NET ASSETS AT END OF PERIOD (000 OMITTED) .............. $52,474 $42,027 $43,423 $12,859
*For the period from the commencement of investment operations, February 14, 1992 to October 31, 1992.
+Annualized.
#Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
++Total returns for Class A shares do not include the applicable sales charge. If the sales charge had been included,
the results would have been lower.
**The investment adviser did not impose a portion of its management fee and agreed to reduce expenses of the Fund. If
these expenses had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income .............................. $ 0.28 $ 0.28 $ 0.31 $ 0.13
RATIOS (TO AVERAGE NET ASSETS):
Expenses ......................................... 1.23% 1.41% 1.68% 2.63%+
Net investment income ............................ 3.90% 3.82% 4.20% 3.46%+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1995 1994 1993 1995 1994***
------ ------ ------ ------ -------
CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period ..................... $ 6.98 $ 7.84 $ 7.83 $ 6.99 $ 7.48
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income* .................................. $ 0.24 $ 0.25 $ 0.05 $ 0.24 $ 0.25
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ......... 1.22 (0.63) 0.01 1.21 (0.54)
------ ------ ------ ------ ------
Total from investment operations .................... $ 1.46 $(0.38) $ 0.06 $ 1.45 (0.29)
------ ------ ------ ------ -----
Less distributions declared to shareholders -
From net investment income .............................. $(0.26) $(0.27) $(0.05) $(0.26) $(0.20)
From net realized gain on investments and
foreign currency transactions ......................... -- (0.21) -- -- --
------ ------ ------ ------ -----
Total distributions declared to shareholders ........ $(0.26) $(0.48) $(0.05) $(0.26) $(0.20)
------ ------ ------ ------ -----
Net asset value - end of period ........................... $ 8.18 $ 6.98 $ 7.84 $ 8.18 $ 6.99
====== ====== ====== ====== ======
TOTAL RETURN .............................................. 21.43% (4.92)% 0.69%++ 21.19% (3.87)%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA*:
Expenses## .............................................. 1.74% 1.72% 1.50%+ 1.81% 1.65%+
Net investment income ................................... 3.33% 3.51% 1.80%+ 3.23% 3.56%+
PORTFOLIO TURNOVER ........................................ 152% 115% 119% 152% 115%
NET ASSETS AT END OF PERIOD (000 OMITTED) ................. $33,239 $19,774 $ 5,412 $4,943 $2,399
*The investment adviser did not impose a portion of its management fee and agreed to reduce expenses of the Fund. If
these expenses had been incurred by the Fund, the net investment income per share and the ratios would have been:
**For the period from the commencement of offering of Class B shares, September 7, 1993 to October 31, 1993.
***For the period from the commencement of offering of Class C shares, January 3, 1994 to October 31, 1994.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
Net investment income (loss) .......................... $ 0.21 $ 0.20 $ (0.07) $ 0.21 $ 0.20
RATIOS (TO AVERAGE NET ASSETS):
Expenses ............................................ 2.14% 2.48% 3.27%+ 2.21% 2.41%+
Net investment income ............................... 2.93% 2.74% 1.53%+ 2.83% 2.80%+
</TABLE>
<PAGE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to seek capital
growth and current income (income above that available from a portfolio
invested entirely in equity securities). Any investment involves risk and
there can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES --
INVESTMENT IN THE UTILITIES INDUSTRY: Fund will seek to achieve its
objective by investing, under normal circumstances, at least 65% (but up to
100% at the discretion of the Adviser) of its assets in equity and debt
securities of both domestic and foreign companies in the utilities industry.
Equity securities in which the Fund may invest include common stocks,
preferred stocks, securities convertible into common stocks or preferred
stocks, and warrants to purchase common or preferred stocks. At least 80% of
the debt securities held by the Fund will be rated at the time of investment
at least Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard
& Poor's Ratings Group ("S&P") or by Fitch Investors Service, Inc. ("Fitch")
or will be of comparable quality as determined by the Adviser (see "Additional
Risk Factors -- Lower Rated Debt Securities" below for a discussion of
securities rated Baa or BBB and securities rated below Baa and BBB (commonly
referred to as "junk bonds")). The Fund may also invest in debt and equity
securities of issuers in other industries, as discussed below. In addition,
the Fund may hold a portion of its assets in cash and money market
instruments.
Companies in the utilities industry include (i) companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
electric, gas or other types of energy, water or other sanitary services and
(ii) companies engaged in telecommunications, including telephone, cellular
telephones, telegraph, satellite, microwave, cable television and other
communications media (but not companies engaged in public broadcasting). The
Adviser deems a particular company to be in the utilities industry if, at the
time of investment, the Adviser determines that at least 50% of the company's
assets or revenues are derived from one or more of those industries.
The portion of the Fund's assets invested in a particular type of utility and
in equity or debt securities will vary in light of changes in interest rates,
market conditions and economic conditions and other factors. The Fund may
invest in foreign securities, including non-dollar denominated securities,
although under normal circumstances it is not expected that more than 35% of
the Fund's assets will be so invested (not including American Depositary
Receipts). Securities that are issued by foreign companies or are denominated
in foreign currencies are subject to the risks outlined below under
"Additional Risk Factors -- Foreign Securities." For further information on
the principal sectors of the utilities industry in which the Fund may invest,
see Appendix B.
INVESTMENT OUTSIDE THE UTILITIES INDUSTRY: The Fund is permitted to
invest in securities of issuers that are outside the utilities industry,
although under normal circumstances not more than 35% of the Fund's assets
will be so invested. Such investments may include common stocks, debt
securities (including municipal debt securities) and preferred stocks and will
be selected to meet the Fund's investment objective of both capital
appreciation and current income. These securities may be issued by either U.S.
or non-U.S. companies. Some of these issuers may be in industries related to
the utilities industry and, therefore, may be subject to similar risks.
Investments outside the utilities industry may also include securities that
are issued or guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities ("Government Securities"). See
"Investment Techniques -- Government Securities" below.
When and if available, Government Securities may be purchased at a discount
from face value. However, the Fund does not intend to hold such securities to
maturity for the purpose of achieving potential capital gains, unless current
yields on these securities remain attractive.
Government Securities do not generally involve the credit risks associated
with other types of interest bearing securities, although, as a result, the
yields available from Government Securities are generally lower than the
yields available from corporate interest bearing securities. Like other
interest bearing securities, however, the values of Government Securities
change as interest rates fluctuate as noted under "Risk Factors -- Lower Rated
Debt Securities."
When unfavorable economic or market conditions exist, the Fund may, until
favorable conditions return, invest up to 75% of its assets in cash (or
foreign currency), cash equivalents (such as certificates of deposit, bankers'
acceptances and time deposits), commercial paper, short-term obligations,
repurchase agreements and obligations issued or guaranteed by the U.S. or any
foreign government or any of their agencies, authorities or instrumentalities.
5. INVESTMENT TECHNIQUES
Consistent with the Fund's investment objective and policies, the Fund may
engage in the following investment techniques, many of which are described
more fully in the SAI. See "Investment Objective, Policies and Restrictions"
in the SAI.
GOVERNMENT SECURITIES: The Fund may invest in securities that are issued
or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities, including: (1) U.S. Treasury
obligations, which differ only in their interest rates, maturities and times
of issuance -- U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to 10 years) and U.S. Treasury bonds
(generally maturities of greater than 10 years), all of which are backed by
the full faith and credit of the U.S. Government; and (2) obligations issued
or guaranteed by U.S. Government agencies, authorities or instrumentalities,
some of which are backed by the full faith and credit of the U.S. Treasury,
e.g., direct pass-through certificates of the Government National Mortgage
Association ("GNMA"), some of which are supported by the right of the issuer
to borrow from the U.S. Government but are not guaranteed by the U.S.
Government, e.g., obligations of Federal Home Loan Banks, and some of which
are backed only by the credit of the issuer itself, e.g., obligations of the
Student Loan Marketing Association. Government Securities also include
interests in trusts or other entities representing interests in obligations
that are backed by the full faith and credit of the U.S. Government or are
issued or guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in
order to earn income on available cash or as a temporary defensive measure.
Under a repurchase agreement, the Fund acquires securities subject to the
seller's agreement to repurchase at a specified time and price. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Fund's right to liquidate the
securities may be restricted (during which time the value of the securities
could decline). As discussed in the SAI, the Fund has adopted certain
procedures intended to minimize risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made to member firms (and
subsidiaries thereof) of the New York Stock Exchange (the "Exchange") and to
member banks of the Federal Reserve System, and would be required to be
secured continuously by collateral in cash, Government Securities or an
irrevocable letter of credit maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The Fund will
continue to collect the equivalent of interest on the securities loaned and
will also receive either interest (through investment of cash collateral) or a
fee (if the collateral is Government Securities). As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
the loans would be made only to entities deemed by the Adviser to be of good
standing, and when, in the judgment of the Adviser, the consideration which
can be earned currently from securities loans of this type justifies the
attendant risk.
ZERO COUPON BONDS: Debt securities in which the Fund may invest also
include zero coupon bonds. Zero coupon bonds are debt obligations which are
issued or purchased at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity, at a rate of interest reflecting the market
rate of the security at the time of issuance. Zero coupon bonds do not require
the periodic payment of interest. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such investments may experience greater volatility in market value due
to changes in interest rates than debt obligations which make regular payments
of interest. The Fund will accrue income on such investments for tax and
accounting purposes, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of
other portfolio securities to satisfy the Fund's distribution obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES: The Fund may invest a portion of its assets in collateralized
mortgage obligations ("CMOs") which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities (such collateral is
collectively referred to as "Mortgage Assets"). The Fund may also invest a
portion of its assets in multiclass pass-through securities which are
interests in a trust composed of Mortgage Assets. Payments of principal of
and interest on the Mortgage Assets, and any reinvestment income thereon,
provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. The Fund may also
invest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds").
MORTGAGE PASS-THROUGH SECURITIES: The Fund 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. Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government (in the case of
securities guaranteed by the GNMA); or guaranteed by U.S. Government-sponsored
corporations (such as the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation, which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations).
Mortgage pass-through securities may also be issued by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers).
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or
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. Most
isssuers of automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the automobile receivables may not have a proper security interest
in all of the obligations backing such receivables. 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
on underlying assets to make payments, the securities may contain elements of
credit support which fall into two categories: (i) liquidity protection; and
(ii) 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. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an instrument in such a
security.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-
issued" or on a "forward delivery" basis, which means that the securities will
be delivered to the Fund at a future date usually 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. The Fund does not pay for the
securities until received, and does not start earning interest on the
securities until the contractual settlement date. In order to invest its
assets immediately, while awaiting delivery of securities purchased on such
bases, the Fund will normally invest in cash, short-term money market
instruments and high quality debt securities. Although the Fund does not
intend to make such purchases for speculative purposes, purchases of
securities on such bases may involve more risk than other types of purchases.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value
is linked to foreign currencies, interest rates, commodities, indices, or
other financial indicators. Most indexed securities are short to intermediate
term fixed-income securities whose values at maturity or interest rates rise
or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their value may increase or decrease if the underlying instrument
appreciates), and may have return characteristics similar to direct
investments in the underlying instrument or to one or more options on the
underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage
"dollar roll" transactions with selected banks and broker-dealers pursuant to
which the Fund sells mortgage-backed securities for delivery in the future
(generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. The Fund will only enter into covered rolls. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before the
forward settlement date of the dollar roll transaction.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities
created through the exchange of existing commercial bank loans to public and
private entities in certain emerging markets for new bonds in connection with
debt restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas P. Brady (the "Brady Plan"). Brady Plan
debt restructurings have been implemented to date in Argentina, Brazil,
Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria,
Panama, the Philippines, Poland, Uruguay and Venezuela. Brady Bonds have been
issued only recently, and for that reason do not have a long payment history.
Brady Bonds may be collateralized or uncollateralized, are issued in various
currencies (but primarily the U.S. dollar) and are actively traded in over-
the-counter secondary markets. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds
having the same maturity as the bonds. Brady Bonds are often viewed as having
three or four valuation components: the collateralized repayment of principal
at final maturity; the collateralized interest payments; the uncollateralized
interest payments; and any uncollateralized repayment of principal at maturity
(these uncollateralized amounts consitituting the "residual risk"). In light
of the residual risk of Brady Bonds and the history of defaults of countries
issuing Brady Bonds with respect to commercial bank loans by public and
private entities, investments in Brady Bonds may be viewed as speculative.
EMERGING MARKET SECURITIES: Consistent with the Fund's objective and
policies, the Fund may invest in securities of issuers whose principal
activities are located in emerging market countries. Emerging market countries
include any country determined by the Adviser to have an emerging market
economy, taking into account a number of factors, including whether the
country has a low- to middle-income economy according to the International
Bank for Reconstruction and Development, the country's foreign currency debt
rating, its political and economic stability and the development of its
financial and capital markets. The Adviser determines whether an issuer's
principal activities are located in an emerging market country by considering
such factors as its country of organization, the principal trading market for
its securities and the source of its revenues and assets. The issuer's
principal activities generally are deemed to be located in a particular
country if: (a) the security is issued or guaranteed by the government of that
country or any of its agencies, authorities or instrumentalities; (b) the
issuer is organized under the laws of, and maintains a principal office in,
that country; (c) the issuer has its principal securities trading market in
that country; (d) the issuer derives 50% or more of its total revenues from
goods sold or services performed in that country; or (e) the issuer has 50% or
more of its assets in that country.
AMERICAN DEPOSITARY RECEIPTS: The Fund 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. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign
securities such as changes in exchange rates and more limited information
about foreign issuers (see "Additional Risk Factors -- Foreign Securities"
below).
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a
continuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to a Fund's limitation on
investing not more than 10% of its net assets in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily
function of determining and monitoring the liquidity of Rule 144A securities.
The Board, however, will retain sufficient oversight and be ultimately
responsible for the determinations. The Board will carefully monitor the
Fund's investments in Rule 144A securities, focusing on such important
factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of decreasing the
level of liquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities held
in the Fund's portfolio. Subject to the Fund's 10% limitation on investments
in illiquid investments, the Fund may also invest in restricted securities
that may not be sold under Rule 144A, which presents certain risks. As a
result, the Fund might not be able to sell these securities when the Adviser
wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment
may at times play a greater role in valuing these securities than in the case
of unrestricted securities.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options and purchase call and put options on domestic and foreign stock
indices ("Stock Index Options"). The Fund may write such options for the
purpose of increasing its gross income and protecting its portfolio against
declines in the value of securities it owns or increases in the value of
securities to be acquired. When the Fund writes an option on a stock index,
and the value of the index moves adversely to the holder's position, the
option will not be exercised, and the Fund will either close out the option at
a profit or allow it to expire unexercised. The Fund will thereby retain the
amount of the premium, which will increase its gross income and offset part of
the reduced value of portfolio securities or the increased cost of securities
to be acquired. Such transactions, however, will constitute only partial
hedges against adverse price fluctuations, since any such fluctuations will be
offset only to the extent of the premium received by the Fund for the writing
of the option. In addition, if the value of an underlying index moves
adversely to the Fund's option position, the option may be exercised, and the
Fund will experience a loss which may only be paritally offset by the amount
of the premium received.
The Fund may also purchase a Stock Index Option in order to hedge its
investments against a decline in value or to attempt to reduce the risk of
missing a market or industry segment advance. The Fund's possible loss in
either case will be limited to the premium paid for the Stock Index Option,
plus related transaction costs. See "Risk Factors -- Options, Futures
Contracts and Forward Contracts" below and the SAI for further information on
Stock Index Options and the risks associated therewith.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or
sale for future delivery of fixed income securities or foreign currencies or
contracts based on indices of foreign currencies or fixed income securities
including municipal bond indices (as such instruments become available for
trading) as well as stock index futures contracts (collectively "Futures
Contracts"). Such transactions may be entered into for hedging purposes, in
order to protect the Fund's current or intended investments from the effects
of changes in interest or exchange rates or declines in the stock market, as
well as for non-hedging purposes to the extent permitted by applicable law.
The Fund will incur brokerage fees when it purchases and sells Futures
Contracts, and will be required to maintain margin deposits. In addition,
Futures Contracts entail risks. Although the Adviser believes that use of such
contracts will benefit the Fund, if its investment judgment about the general
direction of interest, exchange rates or the stock market is incorrect, the
Fund's overall performance may be poorer than if it had not entered into any
such contract and the Fund may realize a loss. The Fund will not enter into
any Futures Contract if immediately thereafter the value of securities and
other obligations underlying all such Futures Contracts would exceed 50% of
the value of its total assets.
OPTIONS ON FUTURES CONTRACTS: The Fund may also purchase and write options
on Futures Contracts ("Options on Futures Contracts") for hedging purposes in
order to protect against declines in the value of portfolio securities or
against increases in the cost of such securities to be acquired, as well as
for non-hedging purposes to the extent permitted by applicable law. Purchases
of Options on Futures Contracts may present less risk in hedging the portfolio
of the Fund than the purchase or sale of the underlying Futures Contracts,
since the potential loss is limited to the amount of the premium paid for the
option, plus related transaction costs. The writing of such options, however,
does not present less risk than the trading of Futures Contracts, and will
constitute only a partial hedge, up to the amount of the premium received,
less related transaction costs. In addition, if an option is exercised, the
Fund may suffer a loss on the transaction.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency
exchange contracts for the purchase or sale of a fixed quantity of a foreign
currency at a future date ("Forward Contracts"). The Fund may enter into
Forward Contracts for hedging purposes as well as for non-hedging purposes
(i.e., speculative purposes). By entering into transactions in Forward
Contracts, however, the Fund may be required to forego the benefits of
advantageous changes in exchange rates and, in the case of Forward Contracts
entered into for non-hedging purposes, the Fund may sustain losses which will
reduce its gross income. Such transactions, therefore, could be considered
speculative. Forward Contracts are traded over-the-counter and not on
organized commodities or securities exchanges. As a result, Forward Contracts
operate in a manner distinct from exchange-traded instruments, and their use
involves certain risks beyond those associated with transactions in Futures
Contracts or options traded on exchanges. The Fund may choose to, or be
required to, receive delivery of the foreign currencies underlying Forward
Contracts it has entered into. Under certain circumstances, such as where the
Adviser believes that the applicable exchange rate is unfavorable at the time
the currencies are received or the Adviser anticipates, for any other reason,
that the exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. The Fund may also enter into a Forward Contract on
one currency 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 Adviser, a reasonable degree of correlation can be expected
between movements in the values of the two currencies. The Fund has
established procedures consistent with statements of the SEC and its staff
regarding the use of Forward Contracts by registered investment companies,
which requires use of segregated assets or "cover" in connection with the
purchase and sale of such contracts.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write
options on foreign currencies ("Options on Foreign Currencies") for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. As in the case of other types of options, however, the writing of an
Option on Foreign Currency will constitute only a partial hedge, up to the
amount of the premium received, and the Fund may be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an Option on Foreign Currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, it may forfeit the entire
amount of the premium paid for the option plus related transaction costs. The
Fund may also choose to, or be required to, receive delivery of the foreign
currencies underlying Options on Foreign Currencies it has entered into. Under
certain circumstances, such as where the Adviser believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the
Adviser anticipates, for any other reason, that the exchange rate will
improve, the Fund may hold such currencies for an indefinite period of time.
6. ADDITIONAL RISK FACTORS
UTILITY COMPANIES: Since the Fund's investments are concentrated in
utility securities, the value of the shares of the Fund will be especially
affected by factors peculiar to the utilities industry, and may fluctuate more
widely than the value of shares of a fund that invests in a broader range of
industries. The rates many utility companies may charge their customers are
controlled by governmental regulatory commissions which may result in a delay
in the utility company passing along increases in costs to its customers.
Furthermore, there is no assurance that regulatory authorities will, in the
future, grant rate increases or that such increases will be adequate to permit
the payment of dividends on common stocks. Many utility companies, especially
electric and gas and other energy related utility companies, are subject to
various uncertainties, including: risks of increases in fuel and other
operating costs; the high cost of borrowing to finance capital construction
during inflationary periods; difficulty obtaining adequate returns on invested
capital, even if frequent rate increases are approved by public service
commissions; restrictions on operations and increased costs and delays as a
result of environmental and nuclear safety regulations; securing financing for
large construction projects during an inflationary period; difficulties of the
capital markets in absorbing utility debt and equity securities; difficulty in
raising capital in adequate amounts on reasonable terms in periods of high
inflation and unsettled capital markets; technological innovations which may
render existing plants, equipment or products obsolete; the potential impact
of natural or man-made disasters; difficulties in obtaining natural gas for
resale or fuel for electric generation at reasonable prices; coping with the
general effects of energy conservation, particularly in light of changing
policies regarding energy; and special risks associated with the construction
and operation of nuclear power generating facilities, including technical
factors and costs, and the possibility that federal, state and municipal
government authorities may from time to time review existing requirements and
impose additional requirements. Certain utility companies, especially gas and
telephone utility companies, have in recent years been affected by increased
competition, which could adversely affect the profitability of such utility
companies. Furthermore, there are uncertainties resulting from certain
telecommunications companies' diversification into new domestic and
international businesses as well as agreements by many such companies linking
future rate increases to inflation or other factors not directly related to
the active operating profits of the enterprise.
FOREIGN UTILITY COMPANIES: Foreign utility companies are also subject to
regulation, although such regulations may or may not be comparable to those in
the U.S. Foreign utility companies may be more heavily regulated by their
respective governments than utilities in the U.S. and, as in the U.S.,
generally are required to seek government approval for rate increases. In
addition, since many foreign utilities use fuel that causes more pollution
than those used in the U.S., such utilities may be required to invest in
pollution control equipment to meet any proposed pollution restrictions.
Foreign regulatory systems vary from country to country and may evolve in ways
different from regulation in the U.S.
FOREIGN SECURITIES: The Fund may invest in foreign securities. Under
normal circumstances, the Fund may invest up to 35% (and expects generally to
invest between 10% to 35%) of its total assets in foreign securities (not
including ADRs). Investing in securities of foreign issuers generally involves
risks not ordinarily associated with investing in securities of domestic
issuers. These include changes in currency rates, exchange control
regulations, governmental administration, economic or monetary policy (in the
U.S. or abroad) or circumstances in dealings between nations. Costs may be
incurred in connection with conversions between various currencies. Special
considerations also include more limited information about foreign issuers,
higher brokerage costs, different accounting standards and thinner trading
markets. Foreign securities markets are generally less liquid, more volatile
and less subject to government supervision than in the U.S. Investments in
foreign countries are generally affected by other factors including
expropriation, confiscatory taxation and potential difficulties in enforcing
contractual obligations and are generally subject to extended settlement
periods. The Fund may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Adviser, it
would be beneficial to convert such currency into U.S. dollars at a later
date, based on anticipated changes in the relevant exchange rate. The Fund may
also hold foreign currency in anticipation of purchasing foreign securities.
EMERGING MARKET SECURITIES: The risks of investing in foreign securities
may be intensified in the case of investments in emerging markets. Securities
of many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. Emerging markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to the Fund due to subsequent declines in value of the
portfolio security, a decrease in the level of liquidity in the Fund's
portfolio, or if the Fund has entered into a contract to sell the security, in
possible liability to the purchaser. Certain markets may require payment for
securities before delivery and in such markets the Fund bears the risk that
the securities will not be delivered and that the Fund's payments will not be
returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions against repatriation of assets, and may
have less protection of property rights than more developed countries. The
economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of the Fund.
LOWER RATED DEBT SECURITIES: Securities rated BBB by S&P or Fitch or Baa
by Moody's (and comparable unrated 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 higher rated
securities. If a security purchased by the Fund is subsequently downgraded to
below BBB by S&P or Fitch or Baa by Moody's (or comparable standards for
unrated securities), the security will be sold only if the Adviser believes it
is advantageous to do so.
As indicated above, up to 20% of the debt securities held by the Fund may be
bonds 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 Fund. 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. However, since yields vary over time, no specific level of
income can ever be assured. These lower rated high yielding fixed income
securities generally tend to reflect economic changes and short-term corporate
and industry developments to a greater extent than higher rated securities
which react primarily to fluctuations in the general level of interest rates.
These lower rated fixed income securities are also affected by changes in
interest rates, the market's perception of their credit quality, and the
outlook for economic growth. In the past, economic downturns or an increase in
interest rates have, under certain circumstances, caused a higher incidence of
default by the issuers of these securities and may do so in the future,
especially in the case of highly leveraged issuers. During certain periods,
the higher yields on the Fund's lower rated high yielding fixed income
securities are paid primarily because of the increased risk of loss of
principal and income, arising from such factors as the heightened possibility
of default or bankruptcy of the issuers of such securities. Due to the fixed
income payments of these securities, the Fund may continue to earn the same
level of interest income while its net asset value declines due to portfolio
losses, which could result in an increase in the Fund's yield despite the
actual loss of principal. The market for these lower rated fixed income
securities may be less liquid than the market for investment grade fixed
income securities. Therefore, judgment may at times play a greater role in
valuing these securities than in the case of investment grade fixed income
securities. See Appendix C for a further description of these and other bond
ratings and see "Investment Objective, Policies and Restrictions -- Risk of
Investing in Lower Rated Bonds" in the SAI for further information on these
lower rated securities.
The value of debt securities, including utility debt securities and Government
Securities, generally has an inverse relationship to the movement of interest
rates and, to the extent the Fund invests in debt securities, the value of the
Fund's shares will also have this relationship.
NON-DIVERSIFIED STATUS: The Fund has registered as a "non-diversified"
investment company. As a result, the proportion of its assets that may be
invested in the securities of any one issuer is limited only by the Fund's own
investment restrictions and the diversification requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). Government Securities are not
subject to any investment limitation. Since the Fund may invest a relatively
high percentage of its assets in a limited number of issuers, the Fund will be
more susceptible to any single economic, political or regulatory occurrence
and to the financial conditions of the issuers in which it invests.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the Fund will
enter into certain transactions in Futures Contracts, Options on Futures
Contracts and Options on Foreign Currencies for hedging purposes, such
transactions nevertheless involve certain risks. For example, a lack of
correlation between the instrument or index underlying a Stock Index Option or
Futures Contract and the assets being hedged, or unexpected adverse price
movements, could render the Fund's hedging strategy unsuccessful and could
result in losses. The Fund also may enter into transactions in such
instruments for non-hedging purposes, to the extent permitted by applicable
law which involves greater risk. In particular, such transactions may result
in losses for the Fund which are not offset by gains on other portfolio
positions, thereby reducing gross income. In addition, foreign currency
markets may be extremely volatile from time to time. There also can be no
assurance that a liquid secondary market will exist for any contract purchased
or sold, and the Fund may be required to maintain a position until exercise or
expiration, which could result in losses. The SAI contains a description of
the nature and trading mechanics of Stock Index Options, Futures Contracts,
Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies, and includes a discussion of the risks related to transactions
therein.
Transactions in Forward Contracts may be entered into only in the over-the-
counter market. Futures Contracts and Options on Futures Contracts may be
entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities underlying
Stock Index Options, Futures Contracts and Options on Futures Contracts traded
by the Fund will include both domestic and foreign securities.
------------------------
Because of the Fund's significant investments in the utilities industry and
the risks discussed above, an investment in shares of the Fund should not be
considered a complete investment program. Each prospective purchaser should
take into account his investment objectives as well as his other investments
when considering the purchase of shares of the Fund.
------------------------
PORTFOLIO TRADING -- The primary consideration in placing portfolio security
transactions with broker-dealers is execution at the most favorable prices.
Consistent with the forgoing primary consideration, the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. (the "NASD") and such
other policies as the Trustees may determine, the Adviser may consider sales
of shares of the Fund and of the other investment company clients of MFD, the
Fund's distributor, as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions. From time to time, the Adviser may direct
certain portfolio transactions to broker-dealer firms which, in turn, have
agreed to pay a portion of the Fund's operating expenses (e.g., fees charged
by the custodian of the Fund's assets). For a further discussion of portfolio
trading, see "Portfolio Transactions and Brokerage Commissions" in the SAI.
The portfolio will be managed actively and the selection of securities
modified as the Adviser deems necessary. Although the Fund does not intend to
seek short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so without regard to the length of
time the particular asset may have been held. For the fiscal year ended
October 31, 1995, the Fund had a portfolio turnover rate in excess of 100%.
Transaction costs incurred by the Fund and the realized capital gains and
losses of the Fund may be greater than a fund with a lesser portfolio turnover
rate.
The investment objective and policies described above are not fundamental and
may be changed without shareholder approval. A change in the Fund's investment
objective may result in the Fund having an investment objective different from
the objective which the shareholder considered appropriate at the time of
investment in the Fund.
The SAI includes a discussion of investment policies and a listing of specific
investment restrictions which govern the Fund's investment policies. The
specific investment restrictions listed in the SAI may be changed without
shareholder approval unless indicated otherwise (see "Investment Objective,
Policies and Restrictions -- Investment Restrictions" in the SAI).
The Fund's investment limitations, policies and rating standards are adhered
to at the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
7. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated September 1, 1993 (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Maura A. Shaughnessy, a Vice
President of the Adviser, has been the Fund's portfolio manager since 1992.
Ms. Shaughnessy has been employed as a portfolio manager by the Adviser since
1991. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. For its services and facilities, the
Adviser is entitled to receive a management fee, computed and paid monthly, in
an amount equal to the sum of 0.375% of the Fund's average daily net assets
and 6.25% of the Fund's 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 Fund for its then-current fiscal year. Commencing March 1, 1995, the
Adviser voluntarily agreed to reduce the management fee to 0.375% of the
Fund's average daily net assets. This voluntary fee reduction may be rescinded
at any time without notice to shareholders as to the fee accruing after the
date of such rescission. Prior to March 1, 1995, the Adviser voluntarily
agreed to reduce the management fee to 0% of the Fund's average daily net
assets.
For the Fund's fiscal year ended October 31, 1995, MFS received management
fees totalling $219,400. If MFS had not reduced its management fee, MFS would
have received management fees of $505,241 (of which $270,402 would have been
based on average daily net assets and $234,839 on gross income), equivalent to
0.70% of the Fund's average daily net assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust,
MFS Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance
Trust, MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and
seven variable accounts, each of which is a registered investment company
established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of
Canada (U.S.)") in connection with the sale of various fixed/variable annuity
contracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc.,
provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the U.S., Massachusetts Investors Trust.
Net assets under the management of the MFS organization were approximately
$43.2 billion on behalf of approximately 1.8 million investor accounts as of
January 31, 1996. As of such date, the MFS organization managed approximately
$18.7 billion of assets invested in equity securities and approximately $20.6
billion of assets invested in fixed income securities. Approximately $3.8
billion of the assets managed by MFS are invested in securities of foreign
issuers. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.), which
in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames,
Arnold D. Scott, John D. McNeil and John R. Gardner. Mr. Brodkin is the
Chairman of MFS, Mr. Shames is the President of MFS and Mr. Scott is a Senior
Executive Vice President and the Secretary of MFS. Messrs. McNeil and Gardner
are the Chairman and the President, respectively, of Sun Life. Sun Life, a
mutual life insurance company, is one of the largest international life
insurance companies and has been operating in the U.S. since 1895,
establishing a headquarters office here in 1973. The executive officers of MFS
report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is also the Chairman,
President and Trustee of the Trust. W. Thomas London, Stephen E. Cavan, James
O. Yost and James R. Bordewick, Jr., all of whom are officers of MFS, are
officers of the Trust.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG),
the oldest publicly listed bank in Germany, founded in 1835. As part of this
alliance, the portfolio managers and investment analysts of MFS and Foreign &
Colonial will share their views on a variety of investment related issues,
such as the economy, securities markets, portfolio securities and their
issuers, investment recommendations, strategies and techniques, risk analysis,
trading strategies and other portfolio management matters. MFS will have
access to the extensive international equity investment expertise of Foreign &
Colonial, and Foreign & Colonial will have access to the extensive U.S. equity
investment expertise of MFS. One or more MFS investment analysts are expected
to work for an extended period with Foreign & Colonial's portfolio managers
and investment analysts at their offices in London. In return, one or more
Foreign & Colonial employees are expected to work in a similar manner at MFS'
Boston offices.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial,
particularly when the same security is suitable for more than one client.
While in some cases this arrangement could have a detrimental effect on the
price or availability of the security as far as the Fund is concerned, in
other cases, however, it may produce increased investment opportunities for
the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
8. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
dealer and other financial institutions ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to
investments in the Fund.
The Fund offers three classes of shares (Class A, Class B and Class C shares)
which bear sales charges and distribution fees in different forms and amounts,
as described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus
an initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
<S> <C> <C> <C>
Less than $100,000 ................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000 .... 4.00 4.17 3.20
$250,000 but less than $500,000 .... 2.95 3.04 2.25
$500,000 but less than $1,000,000 .. 2.20 2.25 1.70
$1,000,000 or more ................. None** None** See Below**
</TABLE>
- ----------
*Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
**A CDSC will apply to such purchases, as discussed below.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 4% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the
sales charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge).
In the following two circumstances, Class A shares are also offered at net
asset value without an initial sales charge but subject to a CDSC, equal to 1%
of the lesser of the value of the shares redeemed (exclusive of reinvested
dividend and capital gain distributions) or the total cost of such shares, in
the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject
to the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that
either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirement plan of Class A shares of the MFS Funds will
be in an amount of at least $250,000 within a reasonable period of time,
as determined by MFD in its sole discretion.
In the case of such purchases, MFD will pay a commission to dealers as
follows: 1% on sales up to $5 million, plus 0.25% on the amount in excess of
$5 million. Purchases of $1 million or more for each shareholder account will
be aggregated over a 12-month period (commencing from the date of the first
such purchase) for purposes of determining the level of commissions to be paid
during the period with respect to such account. In addition, with respect to
sales to retirement plans under the second circumstance described above, MFD
may pay a commission, on sales in excess of $5 million to certain retirement
plans, of 1% to certain dealers which, at MFD's invitation, enter into an
agreement with MFD in which the dealer agrees to return any commission paid to
it on the sale (or on a pro rata portion thereof) if the shareholder redeems
his or her shares within a period of time after purchase as specified by MFD.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" below
for further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- ---------------
First ...................................................... 4%
Second ..................................................... 4%
Third ...................................................... 3%
Fourth ..................................................... 3%
Fifth ...................................................... 2%
Sixth ...................................................... 1%
Seventh and following ...................................... 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B
shares purchased through dealers. MFD will also advance to dealers the first
year service fee payable under the Fund's Class B Distribution Plan (see
"Distribution Plans" below) at a rate equal to 0.25% of the purchase price of
such shares. Therefore, the total amount paid to a dealer upon the sale of
Class B shares is 4% of the purchase price of the shares (commission rate of
3.75% plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" below
for further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Distribution Plan
applicable to Class B shares. See "Distribution Plans" below. However, for
purposes of conversion to Class A shares, all shares in a shareholder's
account that were purchased through the reinvestment of dividends and
distributions paid in respect of Class B shares (and which have not converted
to Class A shares as provided in the following sentence) will be held in a
separate sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A shares, a
portion of the Class B shares then in the sub-account will also convert to
Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares not acquired through reinvestment of dividends
and distributions that are converting to Class A shares bear to the
shareholder's total Class B shares not acquired through reinvestment. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will not constitute a taxable event for federal
tax purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not
occur if such ruling or opinion is not available. In such event, Class B
shares would continue to be subject to higher expenses than Class A shares for
an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an
initial sales charge or a CDSC. Class C shares do not convert to any other
class of shares of the Fund. The maximum investment in Class C shares that may
be made is $5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Code, if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar recordkeeping program made available by the
Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other
than IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and
the minimum additional investment is $50 per account. Accounts being
established for participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. There are also
other limited exceptions to these minimums for certain tax-deferred retirement
programs. Any minimums may be changed at any time at the discretion of MFD.
The Fund reserves the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserve the
right to reject any specific purchase order or to restrict purchases by a
particular purchaser (or group of related purchasers). The Fund or MFD may
reject or restrict any purchases by a particular purchaser or group, for
example, when such purchase is contrary to the best interests of the Fund's
other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of shares of certain MFS Funds (as determined by MFD)
which follow a timing pattern, and with individuals or entities acting on such
shareholders' behalf (collectively, "market timers"), setting forth the terms,
procedures and restrictions with respect to such exchanges. In the absence of
such an agreement, it is the policy of the Fund and MFD to reject or restrict
purchases by market timers if (i) more than two exchange purchases are
effected in a timed account in the same calendar quarter or (ii) a purchase
would result in shares being held in timed accounts by market timers
representing more than (x) one percent of the Fund's net assets or (y)
specified dollar amounts in the case of certain MFS Funds which may include
the Fund and which may change from time to time. The Fund and MFD each reserve
the right to request market timers to redeem their shares at net asset value,
less any applicable CDSC, if either of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with
respect to sales of Class A, Class B and Class C shares. In addition, from
time to time, MFD may pay dealers 100% of the applicable sales charge on sales
of Class A shares of certain specified MFS Funds sold by such dealer during a
specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset
value of all of the Class B shares of certain specified MFS Funds sold by such
dealer during a specified sales period. In addition, from time to time, MFD,
at its expense, may provide additional commissions, compensation or
promotional incentives ("concessions") to dealers which sell shares of the
Fund. Such concessions provided by MFD may include financial assistance to
dealers in connection with preapproved conferences or seminars, sales or
training programs for invited registered representatives, payment for travel
expenses, including lodging, incurred by registered representatives for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding one or more MFS Funds, and/or other dealer-sponsored
events. From time to time, MFD may make expense reimbursements for special
training of a dealer's registered representatives in group meetings or to help
pay the expenses of sales contests. Other concessions may be offered to the
extent not prohibited by state laws or any self-regulatory agency, such as the
NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal
charitable contribution on their behalf.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting,
selling or distributing securities. Although the scope of the prohibition has
not been clearly defined, MFD believes that such Act should not preclude banks
from entering into agency agreements with MFD. If, however, a bank were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services in respect of Shareholders who invested in the Fund through a
national bank. It is not expected that shareholders would suffer any adverse
financial consequence as a result of these occurrences. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required to
register as broker-dealers pursuant to state law.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services)
that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds at net asset value (if available for sale). In
addition, Class C shares may be exchanged for shares of the MFS Money Market
Fund at net asset value. Shares of one class may not be exchanged for shares
of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of
an MFS Fund to shares of any other MFS Fund, except with respect to exchanges
from an MFS money market fund to another MFS Fund which is not an MFS money
market fund (discussed below). With respect to an exchange involving shares
subject to a CDSC, the CDSC will be unaffected by the exchange and the holding
period for purposes of calculating the CDSC will carry over to the acquired
shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to
the imposition of an initial sales charge or a CDSC for exchanges from an MFS
money market fund to another MFS Fund which is not an MFS money market fund.
These rules are described under the caption "Exchanges" in the Prospectuses of
those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and Units may be exchanged for Class A shares of any MFS Fund. With
respect to exchanges between Class A shares subject to a CDSC and Units, the
CDSC will carry over to the acquired shares or Units and will be deducted from
the redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units
and then exchanges into Class A shares subject to an initial sales charge of
an MFS Fund, the initial sales charge shall be due upon such exchange, but
will not be imposed with respect to any subsequent exchanges between such
Class A shares and Units with respect to shares on which the initial sales
charge has already been paid. In the event that a shareholder initially
purchases Units and then exchanges into Class A shares subject to a CDSC of an
MFS Fund, the CDSC period will commence upon such exchange, and the
applicability of the CDSC with respect to subsequent exchanges shall be
governed by the rules set forth above in this paragraph.
GENERAL: Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed
by the record owner(s) exactly as the shares are registered; if by telephone
- -- proper account identification is given by the dealer or shareholder of
record) and each exchange must involve either shares having an aggregate value
of at least $1,000 ($50 in the case of retirement plan participants whose
sponsoring organizations subscribe to the MFS FUNDamental 401(k) Plan or
another similar 401(k) recordkeeping system made available by the Shareholder
Servicing Agent) or all the shares in the account. If an Exchange Request is
received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the Exchange (generally, 4:00 p.m., Eastern time),
the exchange will occur on that day if all the requirements set forth above
have been complied with at that time and subject to the Fund's right to reject
purchase orders. No more than five exchanges may be made in any one Exchange
Request by telephone. Additional information concerning this exchange
privilege and prospectuses for any of the other MFS Funds may be obtained from
dealers or the Shareholder Servicing Agent. A shareholder should read the
prospectus of the other MFS Fund and consider the differences in objectives,
policies and restrictions before making any exchange. For federal and
(generally) state income tax purposes, an exchange is treated as a sale of the
shares exchanged and, therefore, an exchange could result in a gain or loss to
the shareholder making the exchange. Exchanges by telephone are automatically
available to most non-retirement plan accounts and certain retirement plan
accounts. For further information regarding exchanges by telephone, see
"Redemptions by Telephone." The exchange privilege (or any aspect of it) may
be changed or discontinued and is subject to certain limitations, including
certain restrictions on purchases by market timers. Special procedures,
privileges and restrictions with respect to exchanges may apply to market
timers who enter into an agreement with MFD, as set forth in such agreement.
See "Purchases -- General -- Right to Reject Purchase Orders/Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the
shares in his account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or letter of instruction, together with his share certificates (if
any were issued), all in "good order" for transfer. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or certificate must be endorsed by the record owner(s) exactly as
the shares are registered and the signature(s) must be guaranteed in the
manner set forth below under the caption "Signature Guarantee." In addition,
in some cases "good order" will require the furnishing of additional
documents. The Shareholder Servicing Agent may make certain de minimis
exceptions to the above requirements for redemption. Within seven days after
receipt of a redemption request in "good order" by the Shareholder Servicing
Agent, the Fund will make payment in cash of the net asset value of the shares
next determined after such redemption request was received, reduced by the
amount of any applicable CDSC described above and the amount of any income tax
required to be withheld, except during any period in which the right of
redemption is suspended or date of payment is postponed because the Exchange
is closed or trading on such Exchange is restricted or to the extent otherwise
permitted by the 1940 Act if an emergency exists. See "Tax Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his
account by telephoning the Shareholder Servicing Agent toll-free at (800) 225-
2606. Shareholders wishing to avail themselves of this telephone redemption
privilege must so elect on their Account Application, designate thereon a bank
and account number to receive the proceeds of such redemption, and sign the
Account Application Form with the signature(s) guaranteed in the manner set
forth below under the caption "Signature Guarantee." The proceeds of such a
redemption, reduced by the amount of any applicable CDSC and the amount of any
income tax required to be withheld, are mailed by check to the designated
account, without charge, if the redemption proceeds do not exceed $1,000, and
are wired in federal funds to the designated account if the redemption
proceeds exceed $1,000. If a telephone redemption request is received by the
Shareholder Servicing Agent by the close of regular trading on the Exchange on
any business day, shares will be redeemed at the closing net asset value of
the Fund on that day. Subject to the conditions described in this section,
proceeds of a redemption are normally mailed or wired on the next business day
following the date of receipt of the order for redemption. The Shareholder
Servicing Agent will not be responsible for any losses resulting from
unauthorized telephone transactions if it follows reasonable procedures
designed to verify the identity of the caller. The Shareholder Servicing Agent
will request personal or other information from the caller, and will normally
also record calls. Shareholders should verify the accuracy of confirmation
statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares
through his dealer (a repurchase), the shareholder can place a repurchase
order with his dealer, who may charge the shareholder a fee. IF THE DEALER
RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME
DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY,
REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in
the case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month.
Class B shares purchased on or after January 1, 1993 will be aggregated on a
calendar month basis -- all transactions made during a calendar month,
regardless of when during the month they have occurred, will age one year at
the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior
to January 1, 1993, transactions will be aggregated on a calendar year basis
- -- all transactions made during a calendar year, regardless of when during the
year they have occurred, will age one year at the close of business on
December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases
exceeds the sum of the six calendar year aggregations (12 months in the case
of purchases of $1 million or more of Class A shares or purchases by certain
retirement plans of Class A shares) of Direct Purchases may be redeemed
without charge ("Free Amount"). Moreover, no CDSC is ever assessed on
additional shares acquired through the automatic reinvestment of dividends or
capital gain distributions ("Reinvested Shares"). Therefore, at the time of
redemption of a particular class, (i) any Free Amount is not subject to the
CDSC and (ii) the amount of the redemption equal to the then-current value of
Reinvested Shares is not subject to the CDSC, but (iii) any amount of the
redemption in excess of the aggregate of the then-current value of Reinvested
Shares and the Free Amount is subject to a CDSC. The CDSC will first be
applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days
of the redemption pursuant to the Reinstatement Privilege. If the shares
credited for any CDSC paid are then redeemed within six years of the initial
purchase in the case of Class B shares or within 12 months of the initial
purchase for certain Class A share purchases, a CDSC will be imposed upon
redemption. Such purchases under the Reinstatement Privilege are subject to
all limitations in the SAI regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations,
the Fund has reserved the right to pay the redemption or repurchase price of
shares of the Fund, either totally or partially, by a distribution in-kind of
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in
any account for their then-current value if at any time the total investment
in such account drops below $500 because of redemptions, except in the case of
accounts being established for monthly automatic investments and certain
payroll savings programs, Automatic Exchange Plan accounts and tax-deferred
retirement plans, for which there is a lower minimum investment requirement.
See "Purchases -- General -- Minimum Investment." Shareholders will be
notified that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and
its shareholders.
In certain circumstances, the fees described below have not yet been imposed
or are being waived. These circumstances are described below under the
heading "Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom
such dealer is the dealer or holder of record. MFD may from time to time
reduce the amount of the service fees paid for shares sold prior to a certain
date. Service fees may be reduced for a dealer that is the holder or dealer of
record for an investor who owns shares of the Fund having an aggregate net
asset value at or above a certain dollar level. Dealers may from time to time
be required to meet certain criteria in order to receive service fees. MFD or
its affiliates are entitled to retain all service fees payable under each
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay
MFD a distribution fee based on the average daily net assets attributable to
the Designated Class as partial consideration for distribution services
performed and expenses incurred in the performance of MFD's obligations under
its distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the
use by MFD of such distribution fees. Such amounts and uses are described
below in the discussion of the separate Distribution Plans. While the amount
of compensation received by MFD in the form of distribution fees during any
year may be more or less than the expense incurred by MFD under its
distribution agreement with the Fund, the Fund is not liable to MFD for any
losses MFD may incur in performing services under its distribution agreement
with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are
charged to, and therefore reduce, income allocated to shares of the Designated
Class. The Distribution Plans have substantially identical provisions with
respect to their operating policies and their initial approval, renewal,
amendment and termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered with an
initial sales charge, a substantial portion of which is paid to or retained by
the dealer making the sale (and the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In addition to the initial sales charge,
the dealer also generally receives the ongoing 0.25% per annum service fee, as
discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal,
on an annual basis, to 0.10% of the Fund's average daily net assets
attributable to Class A shares. As noted above, MFD may use the distribution
fee to cover distribution-related expenses incurred by it under its
distribution agreement with the Fund, including commissions to dealers and
payments to wholesalers employed by MFD (e.g., MFD pays commission to dealers
with respect to purchases of $1 million or more of Class A shares which are
sold at net asset value but which are subject to a 1% CDSC for one year after
purchase). See "Purchases -- Class A Shares" above. In addition, to the
extent that the aggregate service and distribution fees paid under the Class A
Distribution Plan do not exceed 0.35% per annum of the average daily net
assets of the Fund attributable to Class A shares, the Fund is permitted to
pay such distribution-related expenses or other distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases --
Class B Shares" above. MFD will advance to dealers the first year service fee
described above at a rate equal to 0.25% of the purchase price of such shares
and, as compensation therefor, MFD may retain the service fee paid by the Fund
with respect to such shares for the first year after purchase. Dealers will
become eligible to receive the ongoing 0.25% per annum service fee with
respect to such shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee
equal, on an annual basis, to 0.75% of the Fund's average daily net assets
attributable to Class B shares. As noted above, this distribution fee may be
used by MFD to cover its distribution-related expenses under its distribution
agreement with the Fund (including the 3.75% commission it pays to dealers
upon purchase of Class B shares, as described under "Purchases -- Class B
Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value
without a sales charge or a CDSC. See "Purchases -- Class C shares" above.
Unlike the case with respect to the sale of Class A and Class B shares, where
the dealer retains a portion of the initial sales charge (Class A shares) or
receives an up-front payment from MFD (Class B shares), a dealer who sells
Class C shares does not receive any initial payment, but instead receives
distribution and service fees equal, on an annual basis, to 1% of the Fund's
average daily net assets attributable to Class C shares owned by investors for
whom the dealer is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to
MFD under the Class C Distribution Plan (which MFD in turn pays to dealers),
as discussed above, and a distribution fee paid to MFD (which MFD also in turn
pays to dealers) under the Class C Distribution Plan equal, on an annual
basis, to 0.75% of the Fund's average daily net assets attributable to Class C
shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B
and Class C distribution and service fees for its current fiscal year are
0.25%, 1.00% and 1.00% per annum, respectively. Payment of the 0.10% per annum
Class A distribution fee will commence on such date as the Trustees of the
Trust may determine.
DISTRIBUTIONS
The Fund intends to declare daily and pay to its shareholders substantially
all of its net investment income as dividends on a monthly basis. Dividends
are generally distributed on the first business day of the following month.
The Fund may make one or more distributions during the calendar year to its
shareholders from any long-term capital gains, and may also make one or more
distributions to its shareholders from short-term capital gains. Shareholders
may elect to receive dividends and capital gain distributions in either cash
or additional shares of the same class with respect to which a distribution is
made (see "Tax Status" and "Shareholder Services -- Distributions Options"
below). Distributions paid by the Fund with respect to Class A shares will
generally be greater than those paid with respect to Class B and Class C
shares because expenses attributable to Class B and Class C shares will
generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust
for federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, and to make
distributions to its shareholders in accordance with the timing requirements
imposed by the Code. It is expected that the Fund will not be required to pay
any federal income or excise taxes, although foreign-source income received by
the Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes (and
any state or local taxes) on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or additional shares. A portion of
the dividends received from the Fund (but none of the Fund's capital gain
distributions) may qualify for the dividends-received deduction for
corporations. Shortly after the end of each calendar year, each shareholder
will be sent a statement setting forth the federal income tax status of all
dividends and distributions for that year, including the portion taxable as
ordinary income, the portion taxable as long-term capital gain, the portion,
if any, representing a return of capital (which is free of current taxes but
results in a basis reduction) and the amount, if any, of federal income tax
withheld.
Fund distributions of net capital gains or net short-term capital gains will
reduce the Fund's net asset value per share. Shareholders who buy shares
shortly before the Fund makes such a distribution may thus pay the full price
for the shares and then effectively receive a portion of the purchase price
back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at a rate of 30% on
dividends and certain other payments that are subject to such withholding and
that are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable
treaty. The Fund is also required in certain circumstances to apply backup
withholding at a rate of 31% on taxable dividends and redemption proceeds paid
to any shareholder (including a shareholder who is neither a citizen nor a
resident of the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments that have been subject to
30% withholding. Prospective investors should read the Account Application for
information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences of an investment in
the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
each day as of the close of regular trading on the Exchange by deducting the
amount of liabilities attributable to the class from the value of the Fund's
assets attributable to the class and dividing the difference by the number of
shares of the class outstanding. Assets in the Fund's portfolio are valued on
the basis of their current values or otherwise at their fair values, as
described in the SAI. All investments and assets are expressed in U.S. dollars
based upon current currency exchange rates. The net asset value of each class
of shares is effective for orders received by the dealer prior to its
calculation and received by MFD prior to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of three series of the Trust, has three classes of shares,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without
par value). The Trust has reserved the right to create and issue additional
classes and series of shares, in which case each class of shares of a series
would participate equally in the earnings, dividends and assets attributable
to that class of that particular series. Shareholders are entitled to one vote
for each share held and shares of each series would be entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election of
Trustees and selection of accountants. Additionally, each class of shares of a
series will vote separately on any material increases in the fees under its
Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of
the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the SAI).
Each share of a class of the Fund represents an equal proportionate interest
in the Fund with each other class share, subject to the liabilities of that
particular class. Shares have no pre-emptive or conversion rights (except as
set forth above in "Purchases -- Conversion of Class B Shares"). Shares are
fully paid and non-assessable. Should the Fund be liquidated, shareholders of
each class are entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders. Shares will remain on
deposit with the Shareholder Servicing Agent and certificates will not be
issued except in connection with pledges and assignments and in certain other
limited circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance (e.g., fidelity bonding and omissions insurance) existed
and the Trust itself is unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote
fund rankings in the relevant fund category from various sources, such as
Lipper Analytical Services, Inc., Morningstar, Inc. and Wiesenberger
Investment Companies Service. Yield quotations are based on the annualized net
investment income per class share over a 30-day period stated as a percent of
the maximum public offering price on the last day of that period. Yield
calculations for Class B shares assume no CDSC is paid. The current
distribution rate for each class is generally based upon the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months and is computed by dividing the amount of such dividends by the
maximum public offering price of that class at the end of such period. Current
distribution rate calculations for Class B shares assume no CDSC is paid. The
current distribution rate differs from the yield calculation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing, short-term capital
gains, and return of invested capital, and is calculated over a different
period of time. Total rate of return quotations will reflect the average
annual percentage change over stated periods in the value of an investment in
each class of shares of the Fund made at the maximum public offering price of
the shares of that class and with all distributions reinvested and which, if
quoted for periods of six years or less, will give effect to the imposition of
the CDSC assessed upon redemptions of the Fund's Class B shares. Such total
rate of return quotations may be accompanied by quotations which do not
reflect the reduction in value of the initial investment due to the sales
charge or the deduction of the CDSC, and which will thus be higher. All
performance quotations are based on historical performance and are not
intended to indicate future performance. Yield reflects only net portfolio
income as of a stated period of time and current distribution rate reflects
only the rate of distributions paid by the Fund over a stated period of time,
while total rate of return reflects all components of investment return over a
stated period of time. The Fund's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.
For a discussion of the manner in which the Fund will calculate its yield,
current distribution rate and total rate of return, see the SAI. For further
information about the Fund's performance for the fiscal year ended October 31,
1995, please see the Fund's Annual Report. A copy of the Annual Report may be
obtained without charge by contacting the Shareholder Servicing Agent (see
back cover for address and phone number). In addition to information provided
in shareholder reports, the Fund may, in its discretion, from time to time,
make a list of all or a portion of its holdings available to investors upon
request.
EXPENSES
The Trust pays the compensation of the Trustees who are not officers of MFS
and all expenses of the Fund (other than those assumed by MFS) including but
not limited to: governmental fees; interest charges; taxes; membership dues in
the Investment Company Institute allocable to the Fund, fees and expenses of
independent auditors, of legal counsel, and of any transfer agent, registrar
or dividend disbursing agent of the Fund; expenses of repurchasing and
redeeming shares and servicing shareholder accounts; expenses of preparing,
printing and mailing prospectus, periodic reports, notices and proxy
statements to shareholders and to governmental officers and commissions;
brokerage and other expenses connected with the execution, recording and
settlement of portfolio security transactions, insurance premiums; fees and
expenses of the Trust's Custodian, for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of shares of the Fund;
and expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses are borne by the Fund except that the
Distribution Agreement with MFD requires MFD to pay for prospectuses that are
to be used to sales purposes. Expenses of the Trust which are not attributable
to a specific series of the Trust are allocated among the series in a manner
believed by management of the Trust to be fair and equitable.
The Adviser has voluntarily agreed to pay expenses of each class of the Fund
(except fees paid under the Advisory Agreement and Distribution Plans) that
exceed 0.65%, 0.72% and 0.65% of the Fund's average daily net assets
attributable to Class A, Class B and Class C shares, respectively, on an
annualized basis. This temporary expense arrangement may be rescinded at any
time by the Adviser without notice to shareholders as to expenses accruing
after the date of such rescission.
9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of the Fund, should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At
the end of each calendar year, each shareholder will receive income tax
information regarding reportable dividends and capital gain distributions for
that year (see "Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the last business day of the month. Dividends and
capital gain distributions in amounts less than $10 will automatically be
reinvested in additional shares of the Fund. If a shareholder has elected to
receive dividends and/or capital gain distributions in cash and the postal or
other delivery service is unable to deliver checks to the shareholder's
address of record, such shareholder's distribution option will automatically
be converted to having all dividends and other distributions reinvested in
additional shares. Any request to change a distribution option must be
received by the Shareholder Servicing Agent by the record date for a dividend
or distribution in order to be effective for that dividend or distribution. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders,
the Fund makes available the following programs designed to enable
shareholders to add to their investment in an account with the Fund or
withdraw from it with a minimum of paper work. The programs involve no extra
charge to shareholders (other than a sales charge in the case of certain Class
A share purchases) and may be changed or discontinued at any time by a
shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $100,000 or more of Class A
shares of the Fund alone or in combination with shares of any class of other
MFS Funds or MFS Fixed Fund (a bank collective investment fund) within a 13-
month period (or a 36-month period for purchases of $1 million or more), the
shareholder may obtain such shares at the same reduced sales charge as though
the total quantity were invested in one lump sum, subject to escrow agreements
and the appointment of an attorney for redemptions from the escrow amount if
the intended purchases are not completed, by completing the Letter of Intent
section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchase of Class A shares when his new investment, together with
the current offering price value of all holdings of Class A, Class B and Class
C shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank
collective investment fund) reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the
same class of other MFS Funds. Furthermore, distributions made by the Fund may
be automatically invested at net asset value (and without any applicable CDSC)
in shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP will not be subject to a CDSC and are generally limited to
10% of the value of the account at the time of the establishment of the SWP.
The CDSC will not be waived in the case of SWP redemptions of Class A shares
which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or
investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of the other MFS Funds under the Automatic Exchange Plan provided such shares
are available for sale. The Automatic Exchange Plan provides for automatic
monthly or quarterly exchanges of funds from the shareholder's account in such
Fund for investment in the same class of shares of other MFS Funds selected by
the shareholder if such fund is available for sale. Under the Automatic
Exchange Plan, exchanges of at least $50 each may be made to up to four
different funds. A shareholder should consider the objectives and policies of
a fund and review its prospectus before electing to exchange money into such
fund through the Automatic Exchange Plan. No transaction fee is imposed in
connection with exchange transactions under the Automatic Exchange Plan.
However, exchanges of shares of MFS Money Market Fund, MFS Government Money
Market Fund or Class A shares of MFS Cash Reserve Fund will be subject to any
applicable sales charge. For federal and (generally) state income tax purposes
an exchange is treated as a sale of the shares exchanged and, therefore, could
result in a capital gain or loss to the shareholder making the exchange. See
the SAI for further information concerning the Automatic Exchange Plan.
Investors should consult their tax advisers for information regarding the
potential capital gain and loss consequences of transactions under the
Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C
Shares," shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans
and other corporate pension and profit-sharing plans. Investors should consult
with their tax adviser before establishing any of the tax-deferred retirement
plans described above.
------------------------
The Fund's SAI, dated March 1, 1996, contains more detailed information about
the Trust and the Fund, including, but not limited to, information related to:
(i) investment objective, policies and restrictions, including the purchase
and sale of Stock Index Options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and Options on Foreign Currencies; (ii) the
Trustees, officers and investment adviser; (iii) portfolio trading; (iv) the
Fund's shares, including rights and liabilities of shareholders; (v) tax
status of dividends and distributions; (vi) the Distribution Plans; and (vii)
various services and privileges provided by the Fund for the benefit of its
shareholders, including additional information with respect to the exchange
privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable
sales charges are waived (Section I), the initial sales charge and the CDSC
for Class A shares is waived (Section II), and the CDSC for Class B shares is
waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares, as applicable, is
waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any MFS Fund pursuant to the
Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of
assets of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired
employees) and agents of MFS, Sun Life or any of their subsidiary
companies;
* Trustees and retired trustees of any investment company for which
MFD serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
* Employees or registered representatives of dealers and other
financial institution ("dealers") which have a sales agreement with
MFD;
* Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or
other retirement plans for the sole benefit of such persons,
provided the shares are not resold except to the MFS Fund which
issued the shares; and
* Institutional Clients of MFS or MFS Asset Management, Inc.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of
a shareholder's account. See "Redemptions and Repurchases --
General -- Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new
sales for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS
FUNDamental 401(k) Plan or another similar recordkeeping system made
available by the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or
more of the MFS Funds for more than 10 years from the later to occur
of: (i) January 1, 1993 or (ii) the date such Plan first invests
its assets in one or more of the MFS Funds. The sales charges will
be waived in the case of a redemption of all of the Plan's shares in
all MFS Funds (i.e., all the assets of the Plan invested in the MFS
Funds are withdrawn), unless immediately prior to the redemption,
the aggregate amount invested by the Plan in shares of the MFS Funds
(excluding the reinvestment of distributions) during the prior four
years equals 50% or more of the total value of the Plan's assets in
the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
* To an IRA rollover account where any sales charges with respect to
the shares being reregistered would have been waived had they been
redeemed; and
* From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf of
individual participants of such Plan, provided that the Plan sponsor
subscribes to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the CDSC imposed on certain redemptions of Class A shares is
waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not
agreed with such company or its affiliates, formally or informally, to
waive sales charges on Class A shares or provide any other incentive
with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in a
"wrap" account or a similar program under which such clients pay a fee
to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators,
or dealers have entered into an administrative services agreement with
MFD or one of its affiliates to perform certain administrative
services, subject to certain operational and minimum size requirements
specified from time to time by MFD or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan
participant, as applicable, has attained the age of 70 1/2 years
old, but only with respect to the minimum distribution under
applicable Code rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
<PAGE>
APPENDIX B
PRINCIPAL SECTORS OF THE UTILITIES INDUSTRY
The principal sectors of the utility industry in which the Fund may invest are
discussed below.
ELECTRIC -- The electric utility industry consists of companies that are engaged
principally in the generation, transmission and sale of electric energy,
although many also provide other energy-related services. Domestic electric
utility companies, in general, recently have been favorably affected by lower
fuel and financing costs and the full or near completion of major construction
programs. In addition, many of these companies recently have generated cash
flows in excess of current operating expenses and construction expenditures,
permitting some degree of diversification into unregulated businesses. Some
electric utilities have also taken advantage of the right to sell power outside
of their traditional geographic areas. Electric utility companies historically
have been subject to the risks associated with increases in fuel and other
operating costs, high interest costs on borrowings needed for capital
construction programs, costs associated with compliance with environmental and
safety regulations and changes in the regulatory climate.
In the U.S., the construction and operation of nuclear power facilities is
subject to increased scrutiny by, and evolving regulations of, the Nuclear
Regulatory Commission and state agencies having comparable jurisdiction.
Increased scrutiny might result in higher operating costs and higher capital
expenditures, with the risk that the regulators may disallow inclusion of these
costs in rate authorizations or the risk that a company may not be permitted to
operate or complete construction of a facility. In addition, operators of
nuclear power plants may be subject to significant costs for disposal of nuclear
fuel and for the decommissioning of such plants.
TELECOMMUNICATIONS -- The telephone industry is large and highly concentrated.
Companies that distribute telephone services and provide access to the telephone
networks comprise the greatest portion of this segment. Telephone companies in
the U.S. are still experiencing the effects of the breakup of American Telephone
& Telegraph Company, which occurred in 1984. Since 1984, companies engaged in
telephone communication services have expanded their non-regulated activities
into other businesses, including cellular telephone services, data processing,
equipment retailing, computer software and hardware services, and financial
services. This expansion has provided significant opportunities for certain
telephone companies to increase their earnings and dividends at faster rates
than had been allowed in traditionally regulated businesses. Increasing
competition, technological innovations and other structural changes, however,
could adversely affect the profitability of such utilities.
GAS -- Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the U.S., interstate transmission companies
are regulated by the Federal Energy Regulatory Commission, which is reducing its
regulation of the industry. Many companies have diversified into oil and gas
exploration and development, making returns more sensitive to energy prices. In
the recent decade, gas utility companies have been adversely affected by
disruptions in the oil industry and have also been affected by increased
concentration and competition. In the opinion of the Adviser, however,
environmental considerations could improve the gas industry outlook in the
future. For example, natural gas is the cleanest of the hydrocarbon fuels, and
this may result in incremental shifts in fuel consumption toward natural gas and
away from oil and coal.
WATER -- Water supply utilities are companies that collect, purify, distribute
and sell water. In the U.S. and around the world, the industry is highly
fragmented because most of the supplies are owned by local authorities.
Companies in this industry are generally mature and are experiencing little or
no per capita volume growth.
------------------------
There can be no assurance that the positive developments noted above, including
those relating to changing regulation, will occur or that risk factors other
than those noted above will not develop in the future.
<PAGE>
APPENDIX C
DESCRIPTION OF BOND RATINGS
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of various debt instruments. It should be emphasized, however, that ratings are
not absolute standards of quality. Consequently, debt instruments with the same
maturity, coupon and rating may have different yields while debt instruments of
the same maturity and coupon with different ratings may have the same yield.
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.
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 over attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
STANDARD & POOR'S RATING GROUP
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, AND C: Debt rated "BB", "B", "CCC", "CC", and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC: Debt rating "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
which 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 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 SERVICE, 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-l
+".
A: Bonds considered to be investment grade and of very 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
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 protect. 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.
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 lowered, FitchAlert is relatively short-term, and should be
resolved within 12 months.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA02116
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) UTILITIES FUND
500 Boylston Street
Boston, MA 02116
MUF-1 3/96/44M 35/235/335
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) UTILITIES FUND
Prospectus
March 1, 1996
<PAGE>
STATEMENT OF
MFS(R) UTILITIES FUND ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) March 1, 1996
- --------------------------------------------------------------------------------
Page
----
1. Definitions ................................................... 2
2. Investment Objectives, Policies and Restrictions .............. 2
3. Management of the Fund ........................................ 10
Trustees .................................................... 10
Officers .................................................... 11
Investment Adviser .......................................... 11
Custodian ................................................... 12
Shareholder Servicing Agent ................................. 12
Distributor ................................................. 12
4. Portfolio Transactions and Brokerage Commissions .............. 13
5. Shareholder Services .......................................... 14
Investment and Withdrawal Programs .......................... 14
Exchange Privilege .......................................... 16
Tax-Deferred Retirement Plans ............................... 17
6. Tax Status .................................................... 17
7. Determination of Net Asset Value and Performance .............. 18
8. Description of Shares, Voting Rights and Liabilities .......... 20
9. Distribution Plans ............................................ 21
10. Independent Auditors and Financial Statements ................. 22
Appendix A .................................................... A-1
MFS UTILITIES FUND
A Series of MFS Series Trust VI
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information (the "SAI") sets forth information
which may be of interest to investors but which is not necessarily included in
the Fund's Prospectus, dated March 1, 1996. This SAI should be read in
conjunction with the Prospectus, a copy of which may be obtained without
charge by contacting the Shareholder Servicing Agent (see last page for
address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS(R) Utilities Fund, a non-
diversified series of MFS Series
Trust VI, a Massachusetts business
trust (the "Trust"), formerly known
as MFS Worldwide Total Return Fund,
until its name was changed on June
29, 1993. Prior to August 3, 1992,
the Trust was known as MFS
Worldwide Total Return Trust. The
Fund was a separate open-end, non-
diversified management company,
organized as a Massachusetts
business trust in 1991 and was
known as MFS Utilities Trust prior
to August 3, 1992. The Fund became
a series of the Trust on September
7, 1993.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated
March 1, 1996, as amended or
supplemented from time to time.
2. INVESTMENT OBJECTIVE, POLICIES AND
RESTRICTIONS
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek capital
growth and current income (income above that available from a portfolio
invested entirely in equity securities). Any investment involves risk and
there can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective by
investing at least 65% of its assets, under normal market conditions, in
equity and debt securities issued by domestic and foreign utility companies as
well as by investing in certain other securities. The Prospectus contains a
discussion of the various types of securities in which the Fund may invest and
certain risks involved in such investments. Some of these policies and the
risks associated therewith are discussed below.
NON-DIVERSIFIED STATUS: The Fund has registered as a "non-diversified"
investment company so that the proportion of its assets that may be invested
in the securities of any one issuer is limited only by the Fund's own
investment restrictions and the diversification requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). U.S. Government securities,
which are generally considered free of credit risk and are assured as to
payment of principal and interest if held to maturity, are not subject to any
investment limitation.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities as described in the Prospectus. Interests in pools of mortgage-
related securities differ from other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these securities
provide a monthly payment which consists of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly
payments made by the individual borrowers on their mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments
are caused by prepayments of principal resulting from the sale, refinancing or
foreclosure of the underlying property, net of fees or costs which may be
incurred.
The principal governmental guarantor of mortgage pass-through securities is
the Government National Mortgage Association ("'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
Federal Housing Administration (the "FHA")-insured or Veterans Administration
(the "VA")-guaranteed mortgages. These guarantees, however, do not apply to
the market value or yield of mortgage pass-though 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., those whose guarantees are not backed by
the full faith and credit of the U.S. Government) include the Federal National
Mortgage Association ("FNMA") and the 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 seller/servicers which include state and
federally-chartered savings and loan associations, mutual savings banks,
commercial banks, credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment by FNMA of principal and
interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the
U.S. Government for the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC issues Participation Certificates
("PCs") which represent interests in conventional mortgages (i.e., not
federally 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.
FOREIGN SECURITIES: The Fund may invest up to 35% (and expects generally to
invest between 10% to 35%) of its total assets in foreign securities (not
including American Depositary Receipts). Investing in foreign securities
generally represents a greater degree of risk than investing in domestic
securities, due to possible exchange rate fluctuations, less publicly
available information, more volatile markets, less securities regulation, less
favorable tax provisions, war or expropriation. As a result of its investments
in foreign securities, the Fund may receive interest or dividend payments, or
the proceeds of the sale or redemption of such securities, in the foreign
currencies in which such securities are denominated. Under certain
circumstances, such as where the Adviser believes that the applicable exchange
rate is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the exchange rate will improve, the
Fund may hold such currencies for an indefinite period of time. While the
holding of currencies will permit the Fund to take advantage of favorable
movements in the applicable exchange rate, such strategy also exposes the Fund
to risk of loss if exchange rates move in a direction adverse to the Fund's
position. Such losses could reduce any profits or increase any losses
sustained by the Fund from the sale or redemption of securities and could
reduce the dollar value of interest or dividend payments received.
AMERICAN DEPOSITARY RECEIPTS: The Fund 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. Under the terms of most
sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities. The depository of an unsponsored ADR, on
the other hand, is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to ADR holders in respect of the deposited securities.
The Fund 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 Fund may
purchase securities in local markets and direct delivery of these ordinary
shares to the local depository of an ADR agent bank in the foreign country.
Simultaneously, the ADR agents create a certificate which settles at the
Fund's custodian in five days. The Fund may also execute trades on the U.S.
markets using existing ADRs. A foreign issuer of the security underlying an
ADR is generally not subject to the same reporting requirements in the United
States as a domestic issuer. Accordingly, the information available to a U.S.
investor will be limited to the information the foreign issuer is required to
disclose in its own country and the market value of an ADR may not reflect
undisclosed material information concerning the issuer of the underlying
security. ADRs may also be subject to exchange rate risks if the underlying
foreign securities are denominated in foreign currency.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or subsidiaries thereof) of the New York Stock
Exchange (the "Exchange") or members of the Federal Reserve System, recognized
primary U.S. Government securities dealers or institutions which the Adviser
has determined to be of comparable creditworthiness. The securities that the
Fund 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 Fund, or the purchase and repurchase
prices may be the same, with interest at a standard rate due to the Fund
together with the repurchase price on repurchase. In either case, the income
to the Fund is unrelated to the interest rate on the U.S. Government
securities.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the Fund will have the right to liquidate the securities. If at
the time the Fund 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 Fund's exercise
of its right to liquidate the securities may be delayed and result in certain
losses and costs to the Fund. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For
example, the Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the 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
Fund has the right to make margin calls at any time if the value of the
securities falls below the agreed upon margin.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
The Fund may invest a portion of its assets in collateralized mortgage
obligations ("CMOs") which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by certificates issued by the GNMA, FNMA or the FHLMC but may also be
collateralized by whole loans or private mortgage pass-through securities
(such collateral collectively hereinafter referred to as "Mortgage Assets").
The Fund may also invest a portion of its assets in multiclass pass-through
securities which are interests in a trust composed of Mortgage Assets. The
Fund may invest in CMOs and multiclass pass-through securities which are
issued by the U.S. Government, its agencies, authorities or instrumentalities
or 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. Unless the context indicates
otherwise, all references herein to CMOs include multiclass pass-through
securities. Payments of principal of and interest on the Mortgage Assets, and
any reinvestment income thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass pass-through
securities.
In a CMO, a series of bonds or certificates is usually issued in multiple
classes with different maturities. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates resulting in a loss of all
or part of the premium if any has been paid. Certain classes of CMO's have
priority over others with respect to the receipt of prepayments on the
mortgages. Therefore, depending on the type of CMOs in which the Fund invests,
the investment may be subject to a greater or lesser risk of prepayment than
other types of mortgage-related securities. Interest is paid or accrued on all
classes of the CMOs on a monthly, quarterly or semiannual basis. The principal
of and interest on the Mortgage Assets may be allocated among the several
classes of a series of a CMO in innumerable ways. In a common structure,
payments of principal, including any principal prepayments, on the Mortgage
Assets are applied to the classes of the series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment
of principal will be made on any class of CMOs until all other classes having
an earlier stated maturity or final distribution date have been paid in full.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or
final distribution date of each class, which, as with other CMO structures,
must be retired by its stated maturity date or final distribution date but may
be retired earlier. PAC Bonds generally require payments of a specified amount
of principal on each payment date. PAC Bonds are always parallel pay CMOs with
the required principal payment on such securities having the highest priority
after interest has been paid to all classes.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and
automobile loan receivables, representing the obligations of a number of
different parties.
Corporate asset-backed securities present certain risks. 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 a risk that the purchaser
would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws,
the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
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 on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection; and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provisions 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 Fund 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 respecting 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
instrument in such a security.
LENDING OF PORTFOLIO SECURITIES: The Fund may seek to increase its income by
lending portfolio securities. Such loans will usually be made only to member
banks of the Federal Reserve System and member firms (or subsidiaries thereof)
of the Exchange, and would be required to be secured continuously by
collateral in cash, U.S. Government securities or an irrevocable letter of
credit maintained on a current basis in an amount at least equal to the market
value of the securities loaned. The Fund would have the right to call a loan
and obtain the securities loaned at any time on customary industry settlement
notice (which will usually not exceed five days). For the duration of a loan,
the Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive
compensation from the investment of cash collateral. The Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to entities deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk.
"WHEN-ISSUED" SECURITIES: The Fund may purchase debt securities on a "when-
issued" or on a "forward delivery" basis. The commitment to purchase an
obligation for which payment will be made on a future date may be deemed a
separate security. The Fund does not pay for these securities until received,
and does not start earning interest on them until the contractual settlement
date. When the Fund commits to purchase these securities on a "when-issued" or
"forward delivery" basis, it will set up procedures consistent with the
General Statement of Policy of the Securities and Exchange Commission (the
"SEC") concerning such purchases. Since that policy currently recommends that
an amount of the Fund's assets equal to the amount of the purchase be held
aside or segregated to be used to pay for the commitment, the Fund will always
have cash, short-term money market instruments or high quality debt securities
sufficient to cover any commitments or to limit any potential risk. Although
the Fund 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 bases may involve more risk than other types of purchases. For
example, the Fund may have to sell assets which have been set aside in order
to meet redemptions. Also, if the Fund determines it is necessary to sell the
"when-issued" or "forward delivery" securities before delivery, the Fund may
incur a loss because of market fluctuations since the time the commitment to
purchase such securities was made.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than
U.S. dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the mortgage-backed securities. The Fund 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 Fund may also be
compensated by receipt of a commitment fee.
RISKS OF INVESTING IN LOWER RATED BONDS: As noted in the Prospectus, up to 20%
of the debt securities held by the Fund may be bonds rated Ba or lower by
Moody's Investors Service, Inc. ("Moody's") or BB or lower by Standard &
Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch") and
comparable unrated securities (commonly known as "junk bonds"). No minimum
rating standard is required by the Fund. These securities are considered
speculative and, while generally providing greater income than investments in
higher rated securities, will involve greater risk of principal and income
(including the possibility of default or bankruptcy of the issuers of such
securities) and may involve greater volatility of price (especially during
periods of economic uncertainty or change) than securities in the higher
rating categories and because yields vary over time, no specific level of
income can ever be assured. These lower rated high yielding fixed income
securities generally tend to reflect economic changes (and the outlook for
economic growth), short-term corporate and industry developments and the
market's perception of their credit quality (especially during times of
adverse publicity) to a greater extent than higher rated securities which
react primarily to fluctuations in the general level of interest rates
(although these lower rated fixed income securities are also affected by
changes in interest rates). In the past, economic downturns or an increase in
interest rates have, under certain circumstances, caused a higher incidence of
default by the issuers of these securities and may do so in the future,
especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. 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 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 meet redemption requests or to respond to changes in the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. To the extent
the Fund invests in these lower rated securities, the achievement of its
investment objective may be more dependent on the 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
which are described in the Prospectus.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices for the purpose of
increasing its gross income and to protect its portfolio against declines in
the value of securities it owns or increases in the value of securities to be
acquired.
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the index, or by having an absolute and immediate right to acquire
such securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion
or exchange of other securities in its portfolio. Nevertheless, where the Fund
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index and, in that event, the
Fund will not be fully covered and could be subject to risk of loss in the
event of adverse changes in the value of the index. A Fund may also cover call
options on stock indices by holding a call on the same index and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, or high grade government securities in a
segregated account with its custodian. The Fund may cover put options on stock
indices by maintaining cash, or high grade government securities with a value
equal to the exercise price in a segregated account with its custodian, or
else by holding a put on the same stock index and in the same principal amount
as the put written where the exercise price of the put held (a) is equal to or
greater than the exercise price of the put written or (b) is less than the
exercise price of the put written if the difference is maintained by the Fund
in cash or high grade government securities in a segregated account with its
custodian. Put and call options on stock indices written by the Fund 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, they are traded and
applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the
Fund assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by a Fund correlate with changes in the value of
the index, writing covered put options on indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
The purchase of call options on stock indices may be used by the Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call
options for this purpose, the Fund will also bear the risk of losing all or a
portion of the premium paid, and related transaction costs, if the value of
the index does not rise. The purchase of call options on stock indices when
the Fund is substantially fully invested is a form of leverage, up to the
amount of the premium and related transaction costs, and involves risks of
loss and of increased volatility similar to those involved in purchasing calls
on securities the Fund owns.
The Fund also may purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, the Fund will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option
does not increase, the Fund's loss will be limited to the premium paid for the
option, plus related transaction costs. The success of this strategy will
largely depend on the correlation between the changes in value of the index
and the changes in value of the Fund's security holdings.
Stock Index Options, and stock index futures contracts, described below,
provide for the making and acceptance of a cash settlement based on changes in
the value of the underlying index, rather than delivery of an underlying
security. The index underlying a Stock Index Option is typically a broad-based
index, such as the Standard & Poor's 500 Index, designed to measure movements
in the equity market as a whole. In the event that Stock Index Options, or
stock index futures contracts, are introduced on indices of utility
securities, the Fund would likely trade such instruments for the same purposes
described herein.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies (or
contracts based on indices of foreign currencies or fixed income securities,
including municipal bond indices, as such instruments become available for
trading) as well as stock index futures contracts (collectively "Futures
Contracts"). This investment technique is designed to hedge (i.e., to protect)
against anticipated future changes in interest or exchange rates or declines
in the stock market which otherwise might adversely affect the value of the
Fund's portfolio securities or adversely affect the prices of long-term bonds
or other securities which the Fund intends to purchase at a later date. Such
transactions may also be entered into for non-hedging purposes, to the extent
permitted by applicable law, which involves greater risks.
The following discussion applies to Futures Contracts other than stock index
Futures Contracts.
A "sale" of a Futures Contract means a contractual obligation to deliver the
securities or foreign currency called for by the contract at a fixed price at
a specified time in the future. A "purchase" of a Futures Contract means a
contractual obligation to acquire the securities or foreign currency at a
fixed price at a specified time in the future.
While Futures Contracts provide for the delivery of securities or currencies,
such deliveries are very seldom made. Generally, a Futures Contract is
terminated by entering into an offsetting transaction. The Fund will incur
brokerage fees when it purchases and sells Futures Contracts. At the time such
a purchase or sale is made, the Fund must allocate cash or securities as a
margin deposit ("initial deposit"). It is expected that the initial deposit
will vary but may be as low as 5% or less of the value of the contract. The
Futures Contract is valued daily thereafter and the payment of "variation
margin" may be required to be paid or received, so that each day the Fund may
provide or receive cash that reflects the decline or increase in the value of
the contract.
The purpose of the purchase or sale of a Futures Contract, in the case of a
portfolio holding long-term debt securities, is to protect the Fund from
fluctuations in interest rates without actually buying or selling long-term
debt securities. For example, if the Fund owned long-term bonds and interest
rates were expected to increase, the Fund might enter into Futures Contracts
for the sale of debt securities. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value of the
Fund's Futures Contracts should increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. The Fund could accomplish similar results by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase or by buying bonds with long
maturities and selling bonds with short maturities when interest rates are
expected to decline. However, since the futures market is more liquid than the
cash market, the use of Futures Contracts as an investment technique allows
the Fund to maintain a defensive position without having to sell its portfolio
securities.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures
Contracts should be similar to that of long-term bonds, the Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the
Futures Contracts could be liquidated and the Fund could buy long-term bonds
on the cash market. Purchases of Futures Contracts would be particularly
appropriate when the cash flow from the sale of new shares of the Fund could
have the effect of diluting dividend earnings. To the extent the Fund enters
into Futures Contracts for this purpose, the assets in the segregated asset
account maintained to cover the Fund's obligations with respect to such
Futures Contracts will consist of cash, cash equivalents or high quality debt
securities from the portfolio of the Fund in an amount equal to the difference
between the fluctuating market value of such Futures Contracts and the
aggregate value of the initial and variation margin payments made by the Fund
with respect to such Futures Contracts, thereby assuring that the transactions
are unleveraged.
Futures Contracts on foreign currencies may be used in a similar manner, in
order to protect against declines in the dollar value of portfolio securities
denominated in foreign currencies, or increases in the dollar value of
securities to be acquired.
A Futures Contract on an index of fixed income securities provides for the
making and acceptance of a cash settlement based on changes in value of the
underlying index. The index underlying such a Futures Contract will generally
be a broad based index of fixed income securities designed to reflect
movements in the relevant market as a whole.
Stock Index Futures Contracts. The Fund may enter into stock index Futures
Contracts in order to protect the Fund's current or intended stock investments
from broad fluctuations in stock prices. For example, the Fund may sell
Futures Contracts in anticipation of or during a decline in market prices to
attempt to offset the decrease in market value of the Fund's securities
portfolio that might otherwise result. If such market decline occurs, the loss
in value of portfolio securities may be offset, in whole or in part, by gains
on the futures position. When the Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase Futures
Contracts in order to gain rapid market exposure that may, in part or in
whole, offset increases in the cost of securities that the Fund intends to
purchase. As such acquisitions are made, the corresponding positions in
Futures Contracts will be closed out. In a substantial majority of these
transactions, the Fund will purchase such securities upon the termination of
the futures position, but under unusual market conditions, a long futures
position may be terminated without a related purchase of securities. The
trading of stock index Futures Contracts is also subject to the initial
deposit and margin requirements described above. The Fund may also enter into
transactions in Futures Contracts for non-hedging purposes to the extent
permitted by applicable law.
OPTIONS ON FUTURES CONTRACTS: The Fund may write and purchase options to buy
or sell Futures Contracts ("Options on Futures Contracts"). The writing of a
call Option on a Futures Contract may constitute a partial hedge against
declining prices of the security or currency underlying the Futures Contract
or the securities or currency comprising the index underlying the Futures
Contract. If the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium,
less related transaction costs, which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing
of a put Option on a Futures Contract may constitute a partial hedge against
increasing prices of the security or currency underlying the Futures Contract
or the securities or currency comprising the index underlying the Futures
Contract. If the futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the option premium,
less related transaction costs, which provides a partial hedge against any
increase in the price of securities which the Fund intends to purchase. If a
put or call option the Fund has written is exercised, the Fund will incur a
loss which will be reduced by the amount of the premium it receives. Depending
on the degree of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the Fund's
losses from existing Options on Futures Contracts may to some extent be
reduced or increased by changes in the value of portfolio securities. Such
transactions may also be entered into for non-hedging purposes to the extent
permitted by applicable law, which involves greater risks.
The Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline, a rise in interest rates or a
decline in the dollar value of foreign currencies in which portfolio
securities are denominated, the Fund may, in lieu of selling Futures
Contracts, purchase put options thereon. In the event that such decrease in
portfolio value occurs, it may be offset, in whole or part, by a profit on the
option. Conversely, where it is projected that the value of securities to be
acquired by the Fund will increase prior to acquisition, due to a market
advance, or a decline in interest rates or a rise in the dollar value of
foreign currencies in which securities to be acquired are denominated, the
Fund may purchase call Options on Futures Contracts, rather than purchasing
the underlying Futures Contracts. As in the case of options, the writing of
Options on Futures Contracts may require the Fund to forgo all or a portion of
the benefits of favorable movements in the price of portfolio securities, and
the purchase of Options on Futures Contracts may require the Fund to forgo all
or a portion of such benefits up to the amount of the premium paid and related
transaction costs. The Fund may also enter into transactions in Options on
Futures Contracts for non-hedging purposes, to the extent permitted by
applicable law.
The Fund 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 Fund in cash, short-term money market
instruments or high quality debt securities in a segregated account with its
custodian. The Fund may cover the writing of put Options on Futures Contracts
(a) through sales of the underlying Futures Contract, (b) through segregation
of cash, short-term money market instruments or high quality debt securities
in an amount equal to the value of the security or index underlying the
Futures Contract, 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 is less than the exercise price of the put written if
the difference is maintained by the Fund in cash, short-term money market
instruments or high quality debt securities 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 the option is traded and applicable laws and regulations. Upon the
exercise of a call Option on a Futures Contract written by the Fund, the Fund
will be required to sell the underlying Futures Contract which, since the Fund
has covered its obligation through the purchase of such Contract, will serve
to liquidate its futures position. Similarly, where a put Option on a Futures
Contract written by the Fund is exercised, the Fund will be required to
purchase the underlying Futures Contract which, if the Fund has covered its
obligation through the sale of such Futures Contract, will close out its
futures position. An Option on a Futures Contract is traded on the same
contract market as the underlying Futures Contact, subject to regulation by
the Commodity Futures Trading Commission ("CFTC") and the performance
guarantee of the exchange clearing house. Options on Futures Contracts, as
noted in the Prospectus, are also traded on foreign exchanges.
FORWARD CONTRACTS: The Fund 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 Fund may
enter into Forward Contracts for hedging purposes as well as for non-hedging
purposes. The Fund may also enter into Forward Contracts for "cross hedging"
as noted in the Prospectus. 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 Fund may be required to forgo the benefits of advantageous changes in
exchange rates. The Fund may also enter into transactions in Forward Contracts
for other than hedging purposes which present greater profit potential but
also involve increased risk. For example, if the Adviser believes that the
value of a particular foreign currency will increase or decrease relative to
the value of the U.S. dollar, the Fund may purchase or sell such currency,
respectively, through a Forward Contract. If the expected changes in the value
of the currency occur, the Fund will realize profits which will increase its
gross income. Where exchange rates do not move in the direction or to the
extent anticipated, however, the Fund may sustain losses which will reduce its
gross income. Such transactions, therefore, could be considered speculative.
The Fund 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
Fund satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash equivalents or high grade debt
securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the
purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Fund may purchase put Options on the Foreign
Currency. If the value of the currency did decline, the Fund would have the
right to sell such currency for a fixed amount in dollars and would thereby
offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, the Fund 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 Fund deriving from purchases of Options on Foreign
Currencies would 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 Fund could sustain losses on
transactions in Options on Foreign Currencies which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.
The Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar
value of foreign-denominated securities due to adverse fluctuations in
exchange rates it may, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurred, the option would
most likely not be exercised, and the diminution in value of portfolio
securities would be offset by the amount of the premium received less related
transaction costs. As in the case of other types of options, therefore, the
writing of Options on Foreign Currencies will constitute only a partial hedge.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO -- The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, and Forward
Contracts will depend on the degree to which price movements in the underlying
index or instrument correlate with price movements in the relevant portion of
the Fund's portfolio. If the values of the portfolio securities being hedged
do not move in the same amount or direction as the instruments underlying
options, Futures Contracts or Forward Contracts traded, the Fund's hedging
strategy may not be successful and the Fund could sustain losses on its
hedging strategy which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the instrument
underlying an option, Futures Contract or Forward Contract traded and the
portfolio securities being hedged, which could result in losses both on the
hedging transaction and the portfolio securities. In such instances, the
Fund's overall return could be less than if the hedging transaction had not
been undertaken. In the case of Futures and options, the portfolio securities
which are being hedged may not be the same type of obligation underlying such
contract. As a result, the correlation probably will not be exact.
Consequently, the Fund bears the risk that the price of the portfolio
securities being hedged will not move in the same amount or direction as the
underlying index or obligation. It should be noted that Futures Contracts or
options, based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than options or Futures
Contracts based on a broad market index, because a narrower index is more
susceptible to rapid and extreme fluctuations as a result of changes in the
value of a small number of securities. The correlation between prices of
securities and prices of options, Futures Contracts or Forward Contracts may
be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the option, Futures Contract and Forward
Contract markets. Due to the possibility of distortion, a correct forecast of
general interest rate trends by the Adviser may still not result in a
successful transaction. The trading of Options on Futures Contracts 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. The risk of imperfect
correlation, however, generally tends to diminish as the maturity or
termination date of the option, Futures Contract or Forward Contract
approaches. In addition, where the Fund enters into Forward Contracts as a
"cross hedge" (i.e., the purchase or sale of a Forward Contract on one
currency to hedge against risk of loss arising from changes in value of a
second currency), the Fund incurs the risk of imperfect correlation between
changes in the values of the two currencies which would result in losses.
It should also be noted that the Fund may purchase and sell options, Futures
Contracts, Options on Futures Contracts and Forward Contracts not only for
hedging purposes, but also for non-hedging purposes, including for the purpose
of increasing its return on portfolio securities. As a result, in the event of
adverse market movements, the Fund might be subject to losses, which would not
be offset by increases in the value of portfolio securities or declines in the
cost of securities to be acquired. In addition, the method of covering an
option employed by the Fund may not fully protect it against risk of loss and,
in any event, the Fund could suffer losses on the option position which might
not be offset by corresponding portfolio gains.
The trading of options, Futures Contracts and Forward Contracts also entails
the risk that, if the Adviser's judgment as to the general direction of the
stock market or interest or exchange rates is incorrect, the Fund's overall
performance may be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an increase in
interest rates, and rates instead decline, the Fund will lose part or all of
the benefit of the increased value of the securities being hedged, and may be
required to meet ongoing daily variation margin payments.
As a result, the Fund will incur the risk that losses on such transactions
will not be offset by corresponding increases in the value of portfolio
securities or decreases in the cost of securities to be acquired.
RISK FACTORS: POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise
or expiration, a position in an exchange-traded Stock Index Option, Futures
Contract, Option on a Futures Contract or Option on a Foreign Currency can
only be terminated by entering into a closing purchase or sale transaction,
which requires a secondary market for such instruments on the exchange on
which the initial transaction was entered into. If no such market exists, it
may not be possible to close out a position, and the Fund could be required to
purchase or sell the underlying instrument or meet ongoing variation margin
requirements. The inability to close out option or futures positions also
could have an adverse effect on the Fund's ability to hedge its portfolio
effectively.
The liquidity of a secondary market in an option or Futures Contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Such limits could prevent the Fund from liquidating open
positions, which could render its hedging strategy unsuccessful and result in
trading losses. The exchanges on which options and Futures Contracts are
traded have also established a number of limitations governing the maximum
number of positions which may be traded by a trader, whether acting alone or
in concert with others. Further, the purchase and sale of exchange-traded
options and Futures Contracts is subject to the risk of trading halts,
suspensions, exchange or clearing corporation equipment failures, government
intervention, insolvency of a brokerage firm, intervening broker or clearing
corporation or other disruptions of normal trading activity, which could make
it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
RISK FACTORS: OPTIONS ON FUTURES CONTRACTS -- In order to profit from the
purchase of an Option on a Futures Contract, it may be necessary to exercise
the Option and liquidate the underlying Futures Contract, subject to all of
the risks of futures trading. The writer of an Option on a Futures Contract is
subject to the risks of futures trading, including the requirement of initial
and variation margin deposits.
ADDITIONAL RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND
TRANSACTIONS NOT CONDUCTED ON U.S. EXCHANGES -- The available information on
which the Fund will make trading decisions concerning transactions related to
foreign currencies or foreign securities may not be as complete as the
comparable data on which the Fund makes investment and trading decisions in
connection with other transactions. Moreover, because the foreign currency
market is a global, 24-hour market, and the markets for foreign securities as
well as markets in foreign countries may be operating during non-business
hours in the U.S., events could occur in such markets which would not be
reflected until the following day, thereby rendering it more difficult for the
Fund to respond in a timely manner.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position, unless the institution acts as broker and is able to find
another counter-party willing to enter into the transaction with the Fund.
This could make it difficult or impossible to enter into a desired transaction
or liquidate open positions, and could therefore result in trading losses.
Further, over-the-counter transactions are not subject to the performance
guarantee of an exchange clearing house and the Fund will therefore be subject
to the risk of default by, or the bankruptcy of, a financial institution or
other counter-party.
Transactions on exchanges located in foreign countries may not be conducted in
the same manner as those entered into on U.S. exchanges, and may be subject to
different margin, exercise, settlement or expiration procedures.
As a result, many of the risks of over-the-counter trading may be present in
connection with such transactions. Moreover, the SEC or CFTC have jurisdiction
over the trading in the U.S. of many types of over-the-counter and foreign
instruments, and such agencies could adopt regulations or interpretations
which would make it difficult or impossible for the Fund to enter into the
trading strategies identified herein or to liquidate existing positions.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the
Fund will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that the Fund 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 Fund's assets. In addition, the Fund must comply with the requirements of
various state securities laws in connection with such transactions.
The Fund has adopted the additional policy that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets.
When the Fund purchases a Futures Contract, an amount of cash, cash
equivalents or high quality debt securities will be deposited in a segregated
account with the Fund's custodian so that the amount so segregated will at all
times equal the value of the Futures Contract, thereby insuring that the
leveraging effect of such Futures Contract is minimized.
The investment objective and policies described above are not fundamental and
may be changed without shareholder approval.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this SAI, means the lesser of (i) more than
50% of the outstanding shares of the Trust (or a class or series, as
applicable) or (ii) 67% or more of the outstanding shares of the Trust (or a
class or series, as applicable) present at a meeting at which holders of more
than 50% of the outstanding shares of the Trust (or a class or series, as
applicable) are represented in person or by proxy):
The Fund may not:
(1) Borrow amounts in excess of 33 1/3% of its gross assets, and then
only as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate its assets (taken at market value) to an
extent greater than 33 1/3% of its gross assets, in each case taken at the
lower of cost or market value and subject to a 300% asset coverage
requirement (for the purpose of this restriction, collateral arrangements
with respect to options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies and payments of
initial and variation margin in connection therewith are not considered a
pledge of assets); while such borrowings exceed 5% of the Fund's gross
assets, no securities may be purchased; however, the Fund may complete the
purchase of securities already contracted for;
(2) Underwrite securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the Securities Act
of 1933 in selling a portfolio security;
(3) Invest 25% or more of the market value of its total assets in
securities of issuers in any one industry (excluding obligations of the
U.S. Government and repurchase agreements collateralized by obligations of
the U.S. Government), except that the Fund will invest at least 25% of its
total assets in the utilities industry;
(4) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except foreign currencies, Forward Contracts, Futures
Contracts, options, Options on Futures Contracts and Options on Foreign
Currencies) in the ordinary course of its business. The Fund reserves the
freedom of action to hold and to sell real estate and commodities acquired
as a result of the ownership of securities;
(5) Make loans to other persons except through the lending of its
portfolio securities and except through repurchase agreements. For these
purposes the purchase of commercial paper or all or a portion of an issue
of debt securities shall not be considered the making of a loan;
(6) Invest for the purpose of exercising control or management;
(7) Purchase any securities or evidences of interest therein on
margin, except that the Fund may obtain such short-term credit as may be
necessary for the clearance of any transactions and except that the Fund
may make margin deposits in connection with Futures Contracts, Options on
Futures Contracts, Forward Contracts, options and Options on Foreign
Currencies;
(8) Sell any security which the Fund does not own unless by virtue of
its ownership of other securities the Fund has at the time of sale a right
to obtain securities without payment of further consideration equivalent
in kind and amount to the securities sold and provided that if such right
is conditional the sale is made upon the same conditions;
(9) Invest in illiquid investments, including securities which are
subject to legal or contractual restrictions on resale, or for which there
is no readily available market (e.g., trading in the security is suspended
or, in the case of unlisted securities, market makers do not exist or will
not entertain bids or offers), unless the Board of Trustees has determined
that such securities are liquid based upon trading markets for the
specific security, if more than 10% of the Fund's assets (taken at market
value) would be invested in such securities.
Except with respect to Investment Restriction (1), these investment
restrictions are adhered to at the time of purchase or utilization of assets;
a subsequent change in circumstances will not be considered to result in a
violation of policy.
OTHER INVESTMENT POLICIES. The Fund has also adopted the following additional
investment policies that may be required by various laws and administrative
positions. These investment policies are not fundamental and may be changed by
the Fund without approval of its shareholders.
(a) Repurchase agreements maturing in more than seven days will be deemed to
be illiquid for purposes of the Fund's limitation on investment in illiquid
securities; (b) during the coming year, (i) less than 5% of the Fund's assets
will be used to engage in short sales permitted by Investment Restriction (8)
and (ii) purchases of warrants will not exceed 5% of the Fund's net assets
(included within that amount, but not exceeding 2% of the Fund's net assets,
may be warrants not listed on the New York or American Stock Exchange); (c)
the Fund will not invest more than 5% of its total assets in companies which,
including their respective predecessors, have a record of less than three
years' continuous operation; (d) the Fund will not purchase or retain in its
portfolio any securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Fund, or is a
partner, officer, Director or Trustee of the Adviser, if after the purchase of
the securities of such issuer by the Fund one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, of
such issuer, and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or
securities, or both; (e) the Fund will not write, purchase or sell any put or
call option or any combination thereof, provided that this shall not prevent
the Fund from writing, purchasing and selling puts, calls or combinations
thereof with respect to securities (including yields on securities), indexes
of securities, foreign currencies and Futures Contracts; (f) the Fund may not
purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund (for this purpose, all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an issuer
shall be deemed a single class); (g) the Fund will not purchase securities
issued by any closed-end investment company except by purchase in the open
market where no commission or profit to a sponsor or dealer results from such
purchase other than the customary broker's commission, or except when such
purchase, though not made in the open market, is part of a plan of merger or
consolidation; provided, however, that the Fund shall not purchase such
securities if such purchase at the time thereof would cause more than 10% of
its total assets (taken at market value) to be invested in the securities of
such issuers, or more than 3% of the total outstanding voting securities of
any closed-end investment company to be held by the Fund. The Fund shall not
purchase securities issued by any open-end investment company; (h) the Fund
will only borrow amounts from banks and then only has permitted by Investment
Restriction (1); and (i) the Board of Trustees will determine a security is
liquid based upon trading markets for the specific security as stated in
Investment Restriction No. 9 only if the security is a Rule 144A restricted
security.
3. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the investment management of the Fund's assets,
and the officers of the Trust are responsible for its operations. The Trustees
and officers are listed below, together with their principal occupations
during the past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
MARSHALL N. COHAN
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D.
Brigham and Women's Hospital, Chief of Cardiac Surgery; Harvard Medical
School, Professor of Surgery
Address: 75 Francis Street, Boston, Massachusetts
THE HON. SIR J. DAVID GIBBONS, KBE
Edmund Gibbons Limited, Chief Executive Officer; The Bank of N.T. Butterfield
& Son Ltd., Chairman
Address: 21 Reid Street, Hamilton, Bermuda
ABBY M. O'NEILL
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: 30 Rockefeller Plaza, Room 5600, New York, New York
WALTER E. ROBB, III
Benchmark Advisors, Inc. (corporate financial consultants), President and
Treasurer; Benchmark Consulting Group, Inc. (office services), President;
Landmark Funds (mutual funds), Trustee
Address: 110 Broad Street, Boston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
J. DALE SHERRATT
Insight Resources, Inc. (acquisition planning specialists), President
Address: One Liberty Square, 10th Floor, Boston, Massachusetts
WARD SMITH
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)
Address: 5875 Landerbrook Drive, Mayfield Heights, Ohio
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
- ----------
*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose
address is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary is the
investment adviser or distributor. Mr. Brodkin, the Chairman of MFD, Messrs.
Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretaryretary of MFD,
hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who
currently receive a fee of $1,250 per year plus $225 per meeting and $225 per
committee meeting attended, together with such Trustee's out-of-pocket
expenses) and has adopted a retirement plan for non-interested Trustees and
Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 72 and if
the Trustee has completed at least five 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 72
and receive reduced payments if he has completed at least five 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 Trust for
any interested Trustee, except Mr. Bailey. The Fund will accrue its allocable
share of compensation expenses each year to cover current year's service and
amortize past service cost.
Set forth in Appendix A hereto is certain information concerning the cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of January 31, 1996, the Trustees and officers as a group, owned less than
1% of the outstanding shares of the Fund.
The Declaration of Trust provides that the Trust 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
Trust, unless as to liability to the Trust or its shareholders, it is
determined 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 Trust. In the case of settlement, such indemnification will
not be provided unless it has been determined pursuant to the Declaration of
Trust, that they have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada
(U.S.), which is a wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life").
The Adviser manages the Fund pursuant to an Investment Advisory Agreement,
dated September 1, 1993 (the "Advisory Agreement"). The Adviser provides the
Fund with overall investment advisory and administrative services, as well as
general office facilities. Subject to such policies as the Trustees may
determine, the Adviser makes investment decisions for the Fund. For its
services and facilities, the Adviser is entitled to receive a management fee,
computed and paid monthly, in an amount equal to the sum of 0.375% of the
Fund's average daily net assets and 6.25% of the Fund's 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 Fund for its then-current fiscal year.
Commencing March 1, 1995, the Adviser voluntarily agreed to reduce the
management fee to 0.375% of the Fund's average daily net assets. This
voluntary fee reduction may be rescinded at any time without notice to
shareholders as to fees accruing after the date of such rescission. Prior to
March 1, 1995, the Adviser voluntarily agreed to reduce the management fee to
0% of the Fund's average daily net assets. The Adviser has also voluntarily
agreed to pay expenses of the Fund (except fees paid under the Advisory
Agreement and Distribution Plan) that exceed 0.65%, 0.72% and 0.65% of the
Fund's average daily net assets attributable to Class A, Class B and Class C
shares, respectively, on an annualized basis. This temporary expense reduction
may be rescinded at any time by the Adviser without notice to shareholders as
to expenses accruing after the date of such rescission.
For the Fund's fiscal year ended October 31, 1995, MFS received management
fees of $219,400. If MFS had not reduced its management fee, MFS would have
received management fees under a prior investment advisory agreement of
$505,241 (of which $270,402 would have been based on average daily net assets
and $234,839 on gross income), equivalent to 0.70% of the Fund's net assets on
an annualized basis.
For the Fund's fiscal year ended October 31, 1994, MFS voluntarily reduced its
management fee to $0. If MFS had not reduced its management fee, MFS would
have received management fees of $416,085 of which $222,761 would have been
based on daily net assets and $193,324 on gross income, equivalent to .70% of
the Fund's net assets on an annualized basis.
For the Fund's fiscal year ended October 31, 1993, MFS voluntarily reduced its
management fee to $0. If MFS had not reduced its management fee, MFS would
have received management fees of $190,472 of which $96,807 would have been
based on average daily net assets and $93,665 on gross income, equivalent to
0.74% of the Fund's net assets on an annualized basis.
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by the Fund in any fiscal year to the extent such
expenses exceed the most restrictive of such state expense limitations. The
Adviser will make appropriate adjustments to such reimbursements in response
to any amendment or rescission of the various state requirements.
The Fund pays all of the Fund's expenses (other than those assumed by MFS or
MFD, the Fund's principal underwriter), including: governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable
to the Fund; fees and expenses of independent auditors, of legal counsel, and
of any transfer agent, registrar or dividend disbursing agent of the Fund;
expenses of repurchasing and redeeming shares; expenses of preparing, printing
and mailing share certificates, shareholder reports, notices, proxy statements
and reports to governmental officers and commissions; brokerage and other
expenses connected with the execution, recording and settlement of portfolio
security transactions; insurance premiums; fees and expenses of State Street
Bank and Trust Company, the Fund's Custodian, for all services to the Fund,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of calculating the net asset value of shares of the
Fund; and expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses for such purposes are borne by the Fund
except that the Fund's Distribution Agreement with MFD requires MFD to pay for
prospectuses that are to be used for sales purposes. For a list of the Fund's
expenses, including the compensation paid to Trustees who are not officers of
MFS, for the fiscal year ended October 31, 1995, see the "Statement of
Operations" in the Fund's Annual Report incorporated by reference into this
SAI. Payment by the Fund of brokerage commissions for brokerage and research
services of value to the Adviser in serving its clients is discussed under the
caption "Portfolio Transactions and Brokerage Commissions" below.
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The 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 Fund's investments, effecting its
portfolio transactions, and, in general, administering its affairs.
The Advisory Agreement will remain in effect until August 1, 1996 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 Fund's shares (as defined in "Investment Restrictions") 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 Fund's shares (as defined in "Investment
Restrictions") or by either party on not more than 60 days' nor less than 30
days' written notice. The Advisory Agreement provides that if MFS ceases to
serve as the Adviser to the Fund, the Fund will change its name so as to
delete the initials "MFS" and that MFS may render services to others and may
permit other fund clients to use the term "MFS" in their names. The Advisory
Agreement also provides that neither the Adviser 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 Fund, 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.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily
net asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also acts as the dividend disbursing agent of the
Fund. The Custodian has contracted with the Adviser for the Adviser to perform
certain accounting functions related to options transactions for which the
Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated December 11, 1991 (the "Agency
Agreement") with the Fund. The Shareholder Servicing Agent's responsibilities
under the Agency Agreement include administering and performing transfer agent
functions and the keeping of records in connection with the issuance, transfer
and redemption of each class of shares of the Fund. For these services, the
Shareholder Servicing Agent will receive a fee calculated as a percentage of
the average daily net assets of each class of shares at an effective annual
rate of up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A,
Class B and Class C shares, respectively. In addition, the Shareholder
Servicing Agent will be reimbursed by the Fund for certain expenses incurred
by the Shareholder Servicing Agent on behalf of the Fund. State Street Bank
and Trust Company, the dividend and distribution disbursing agent of the Fund,
has contracted with the Shareholder Servicing Agent to perform certain
dividend and distribution disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the
continuous offering of shares of the Fund pursuant to a Distribution
Agreement, dated January 1, 1995 (the "Distribution Agreement"). Prior to
January 1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned
subsidiary of MFS, was the Fund's distributor. Where this SAI refers to MFD in
relation to the receipt or payment of money with respect to a period or
periods prior to January 1, 1995, such reference shall be deemed to include
FSI, as the predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies
based upon the quantity purchased. The public offering price of Class A shares
of the Fund is calculated by dividing the net asset value of a Class A share
by the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "Purchases" in
the Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS
Funds") and other funds (as noted under Right of Accumulation) by any person,
including members of a family unit (e.g., husband, wife and minor children)
and bona fide trustees, and also applies to purchases made under the Right of
Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs"
below). A group might qualify to obtain quantity sales charge discounts (see
"Shareholder Services -- Investment and Withdrawal Programs" below).
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain instances as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because
the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may
be more or less than the sales charge calculated using the sales charge
expressed as a percentage of offering price or as a percentage of the net
amount invested as listed in the Prospectus. In the case of the maximum sales
charge the dealer retains 4% and MFD retains approximately 3/4 of 1% of the
public offering price. MFD also pays a commission to dealers who initiate and
are responsible for purchases of $1 million or more as described in the
Prospectus.
CLASS B AND CLASS C SHARES: MFD acts as agent in selling Class B and Class C
shares of the Fund to dealers. The public offering price of Class B and Class
C shares is their net asset value next computed after the sale (see
"Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD may obtain brokers
loans from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers
for the purchase of Fund shares.
During the Fund's fiscal year ended October 31, 1995, gross sales charges on
sales of Class A shares of the Fund amounted to $161,721, of which $135,056
was retained by MFD and $26,665 by dealers and certain other financial
institutions; the Fund received $6,475,310, representing the aggregate net
asset value of such shares. During the Fund's fiscal year ended October 31,
1994, gross sales charges on sales of Class A shares of the Fund amounted to
$376,781, of which $64,642 was retained by MFD and $312,139 by dealers and
certain banks and other financial institutions; the Fund received $11,364,968,
representing the aggregate net asset value of such shares. During the Fund's
fiscal year ended October 31, 1993, gross sales charges on sales of Class A
shares of the Fund amounted to $925,217, of which $154,399 was retained by MFD
and $770,818 by dealers and certain banks and other financial institutions;
the Fund received $22,563,670, representing the aggregate net asset value of
such shares.
During the Fund's fiscal years ended October 31, 1995, 1994 and 1993, the CDSC
imposed on certain redemptions of Class A shares was $41, $16 and $155,
respectively.
During the Fund's fiscal years ended October 31, 1995 and 1994, the CDSC
imposed on redemption of Class B shares was $76,193 and $45,345,
respectively. During the period from September 7, 1993 to October 31, 1993,
the CDSC imposed on redemption of Class B shares was $0.
The Distribution Agreement will remain in effect until August 1, 1996, 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 Fund's shares (as defined in "Investment Restrictions") and in either
case, by a majority of the Trustees who are not parties to the Distribution
Agreement or interested persons of any such party. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without
penalty by either party on not more than 60 days' nor less than 30 days'
notice.
4. PORTFOLIO TRANSACTIONS AND
BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by
persons affiliated with the Adviser. Any such person may serve other clients
of the Adviser, or any subsidiary of the Adviser in a similar capacity.
Changes in the Fund's investments are reviewed by the Board of Trustees.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. In the
U.S. and in some other countries debt securities are traded principally in the
over-the-counter market on a net basis through dealers acting for their own
account and not as brokers. In other countries both debt and equity securities
are traded on exchanges at fixed commission rates. The cost of securities
purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's mark-up or mark-down. The Adviser normally seeks
to deal directly with the primary market makers or on major exchanges unless,
in its opinion, better prices are available elsewhere. Subject to the
requirement of seeking execution at the best available price, securities
transactions may, as authorized by the Advisory Agreement, be bought from or
sold to dealers who have furnished statistical, research and other information
or services to the Adviser. At present no arrangements for the recapture of
commission payments are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the NASD and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Fund and of the other
investment company clients of MFD as a factor in the selection of broker-
dealers to execute the Fund's portfolio transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Fund to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction for the Fund in
excess of the amount other broker-dealers would have charged for the
transaction if the 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 their respective overall responsibilities
to the Fund or to their other clients. Not all of such services are useful or
of value in advising the Fund.
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 performing
functions incidental thereto, such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may
be paid to broker-dealers who were selected to execute transactions on behalf
of the Fund and the Adviser's other clients in part for providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and 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 Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Fund. The Trustees (together with the Trustees of the other MFS Funds)
have directed the Adviser to allocate a total of $23,100 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 Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality
of Research provided by brokers. Results of this effort are sometimes used by
the Adviser as a consideration in the selection of brokers to execute
portfolio transactions. However, the Adviser is unable to quantify the amount
of commissions set forth below which were paid as a result of such Research
because a substantial number of transactions were effected through brokers
which provide Research but which were selected principally because of their
execution capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To
the extent the Fund's portfolio transactions are used to obtain brokerage and
Research services, the brokerage commissions paid by the Fund will exceed
those that might otherwise be paid for such portfolio transactions, or for
such portfolio transactions and Research, by an amount which cannot be
presently determined. Such services would be useful and of value to the
Adviser in serving both the Fund and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients
would be useful to the Adviser in carrying out its obligations to the Fund.
While such services are not expected to reduce the expenses of the Adviser,
the 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.
During the Fund's fiscal year ended October 31, 1995, the Fund paid brokerage
commissions of $293,905 on total transactions of $137,197,646. During the
Fund's fiscal year ended October 31, 1994, the Fund paid brokerage commissions
of $165,973, on total transactions of $144,237,566. During the Fund's fiscal
year ended October 31, 1993, the Fund paid brokerage commissions of $62,297,
on total transactions of $90,155,650.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser or any subsidiary of the Adviser. Investment decisions for the Fund
and for such other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though 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 or sale of
the same security, the securities are allocated among clients in a manner
believed by the Adviser to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. In other cases, however, the
Fund believes that its ability to participate in volume transactions will
produce better executions for the Fund.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS --The Fund makes available the following
programs designed to enable shareholders to add to their investment or
withdraw from it with a minimum of paper work. These are described below and,
in certain cases, in the Prospectus. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain Class A share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $100,000 or more of Class A shares of the Fund
alone or in combination with shares of Class B or Class C of the Fund or any
of the classes of other MFS Funds or MFS Fixed Fund (a bank collective
investment fund) within a 13-month period (or 36-month period, in the case of
purchases of $1 million or more), the shareholder may obtain Class A shares of
the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by completing the Letter of Intent section of the
Fund's Account Application or filing a separate Letter of Intent application
(available from the Shareholder Servicing Agent) within 90 days of the
commencement of purchases. Subject to acceptance by MFD and the conditions
mentioned below, each purchase will be made at a public offering price
applicable to a single transaction of the dollar amount specified in the
Letter of Intent application. The shareholder or his dealer must inform MFD
that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36 months, in the case of purchases of $1
million or more) plus the value of shares credited toward completion of the
Letter of Intent do not total the sum specified, he will pay the increased
amount of the sales charge as described below. Instructions for issuance of
shares in the name of a person other than the person signing the Letter of
Intent application must be accompanied by a written statement from the dealer
stating that the shares were paid for by the person signing such Letter.
Neither income dividends nor capital gain distributions taken in additional
shares will apply toward the completion of the Letter of Intent. Dividends and
distributions of other MFS Funds automatically reinvested in shares of the
Fund at net asset value pursuant to the Distribution Investment Program will
also not apply toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder
or to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month or 36-month period, as applicable), the
shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released
by the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in
the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of all classes of shares
of that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund) reaches a discount level. See "Purchases" in the Prospectus
for the sales charges on quantity discounts. For example, if a shareholder
owns shares valued at $75,000 and purchases an additional $25,000 of Class A
shares of the Fund, the sales charge for the $25,000 purchase would be at the
rate of 4.00% (the rate applicable to single transactions of $100,000). A
shareholder must provide the Shareholder Servicing Agent (or his investment
dealer must provide MFD) with information to verify that the quantity sales
charge discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital
gains made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at
net asset value (exclusive of any sales charge) and not subject to any CDSC.
Distributions will be invested at the close of business on the payable date
for the distribution. A shareholder considering the Distribution Investment
Program should obtain and read the prospectus of the other fund and consider
the differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP generally are limited to 10% of the value of the account at
the time of establishment of the SWP. SWP payments are drawn from the proceeds
of share redemptions (which would be a return of principal and, if reflecting
a gain, would be taxable). Redemptions of Class B shares will be made in the
following order: (i) any "Reinvested Shares"; (ii) to the extent necessary,
any "Free Amount"; and (iii) to the extent necessary, the "Direct Purchase"
subject to the lowest CDSC (as such terms are defined in "Contingent Deferred
Sales Charge" in the Prospectus). The CDSC will be waived in the case of
redemptions of Class B shares pursuant to a SWP but will not be waived in the
case of SWP redemptions of Class A shares which are subject to a CDSC. To the
extent that redemptions for such periodic withdrawals exceed dividend income
reinvested in the account, such redemptions will reduce and may eventually
exhaust the number of shares in the shareholder's account. All dividend and
capital gain distributions for an account with a SWP will be reinvested in
additional full and fractional shares of the Fund at the net asset value in
effect at the close of business on the record date for such distributions. To
initiate this service, shares having an aggregate value of at least $5,000
either must be held on deposit by, or certificates for such shares must be
deposited with, the Shareholder Servicing Agent. With respect to Class A
shares, maintaining a withdrawal plan concurrently with an investment program
would be disadvantageous because of the sales charges included in share
purchases in the case of Class A shares, and because of the assessment of the
CDSC (on certain share redemptions in the case of Class A shares). The
shareholder may deposit into the account additional shares of the Fund, change
the payee or change the dollar amount of each payment. The Shareholder
Servicing Agent may charge the account for services rendered and expenses
incurred beyond those normally assumed by the Fund with respect to the
liquidation of shares. No charge is currently assessed against the account,
but one could be instituted by the Shareholder Servicing Agent on 60 days'
notice in writing to the shareholder in the event that the Fund ceases to
assume the cost of these services. The Fund may terminate any SWP for an
account if the value of the account falls below $5,000 as a result of share
redemptions (other than as a result of a SWP) or an exchange of shares of the
Fund for shares of another MFS Fund. Any SWP may be terminated at any time by
either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any
time by mailing a check payable to the Fund directly to the Shareholder
Servicing Agent. The shareholder's account number and the name of his
investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort; (2)
has been in existence for at least six months and has a legitimate purpose
other than to purchase mutual fund shares at a discount; (3) is not a group of
individuals whose sole organizational nexus is as credit cardholders of a
company, policyholders of an insurance company, customers of a bank or broker-
dealer, clients of an investment adviser or other similar groups; and (4)
agrees to provide certification of membership of those members investing money
in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of the other MFS Funds under the Automatic Exchange Plan. The Automatic
Exchange Plan provides for automatic exchanges of funds from the shareholder's
account in an MFS Fund for investment in the same class of shares of other MFS
Funds selected by the shareholder. Under the Automatic Exchange Plan,
exchanges of at least $50 each may be made to up to four different funds
effective on the seventh day of each month or of every third month, depending
whether monthly or quarterly exchanges are elected by the shareholder. If the
seventh day of the month is not a business day, the transaction will be
processed on the next business day. Generally, the initial exchange will occur
after receipt and processing by the Shareholder Servicing Agent of an
application in good order. Exchanges will continue to be made from a
shareholder's account in any MFS Fund, as long as the balance of the account
is sufficient to complete the transfers. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to
be made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before a
transfer is scheduled, such funds may not be available for transfer until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges from either of MFS Money Market
Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve
Fund will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions
in writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record). Each Exchange Change Request (other than termination of participation
in the program) must involve at least $50. Generally, if an Exchange Change
Request is received by telephone or in writing before the close of business on
the last business day of a month, the Exchange Change Request will be
effective for the following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds,
to make exchanges of shares from one MFS Fund to another and to withdraw from
an MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market
Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where
the shares are acquired through direct purchase or reinvested dividends) who
have redeemed their shares have a one-time right to reinvest the redemption
proceeds in shares of any of the MFS Funds (if shares of the fund are
available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of proceeds reinvested
in shares of MFS Money Market Fund, MFS Government Money Market Fund and Class
A shares of MFS Cash Reserve Fund, the shareholder has the right to exchange
the acquired shares for shares of another MFS Fund at net asset value pursuant
to the exchange privilege described below. Such a reinvestment must be made
within 90 days of the redemption and is limited to the amount of the
redemption proceeds. If the shares credited for any CDSC paid are then
redeemed within six years of the initial purchase in the case of Class B
shares or 12 months of the initial purchase in the case of certain Class A
shares, a CDSC will be imposed upon redemption. Although redemptions and
repurchases of shares are taxable events, a reinvestment within a certain
period of time in the same fund may be considered a "wash sale" and may result
in the inability to recognize currently all or a portion of a loss realized on
the original redemption for federal income tax purposes. Please see your tax
adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares in an account with the Fund for which payment has been received
by the Fund (i.e., an established account) may be exchanged for shares of the
same class of any of the other MFS Funds (if available for sale) at their net
asset value. In addition, Class C shares may be exchanged for shares of MFS
Money Market Fund at net asset value. Exchanges will be made only after
instructions in writing or by telephone (an "Exchange Request") for an
established account are received by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record), and each exchange must involve either shares having an aggregate
value of at least $1,000 or all the shares in the account (except that the
minimum is $50 for accounts of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by the Shareholder Servicing
Agent). Each exchange involves the redemption of the shares of the Fund to be
exchanged and the purchase at net asset value (i.e., without a sales charge)
of shares of the same class of another MFS Fund. Any gain or loss on the
redemption of the shares exchanged is reportable on the shareholder's federal
income tax return, unless such shares were and the shares received in the
exchange are held in a tax-deferred retirement plan or other tax-exempt
account. No more than five exchanges may be made in any one Exchange Request
by telephone. If an Exchange Request is received by the Shareholder Servicing
Agent prior to the close of regular trading on the Exchange, the exchange
usually will occur on that day if all the restrictions set forth above have
been complied with at that time. However, payment of the redemption proceeds
by the Fund, and thus the purchase of shares of another MFS Fund, may be
delayed for up to seven days if the Fund determines that such a delay would be
in the best interest of all its shareholders. Investment dealers which have
satisfied criteria established by MFD may also communicate a shareholder's
Exchange Request to the Shareholder Servicing Agent by facsimile subject to
the restrictions and requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for
the CDSC is carried forward to the exchanged shares. For purposes of
calculating the CDSC upon redemption of shares acquired in an exchange, the
purchase of shares acquired in one or more exchanges is deemed to have
occurred at the time of the original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should
obtain and read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any exchange.
Shareholders of the other MFS Funds (except holders of shares of MFS Money
Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash
Reserve Fund acquired through direct purchase or dividends reinvested prior to
June 1, 1992) have the right to exchange their shares for shares of the Fund,
subject to the conditions, if any, set forth in their respective prospectuses.
In addition, unitholders of the MFS Fixed Fund (a bank collective investment
fund) have the right to exchange their units (except units acquired through
direct purchases) for shares of the Fund, subject to the conditions, if any,
imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state-
specific series of MFS Municipal Series Trust may only benefit residents of
such states. Investors should consult with their own tax advisers to be sure
this is an appropriate investment based on their residency and each state's
income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued
and is subject to certain limitations, including certain restrictions on
purchases by market timer accounts (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may
be purchased by all types of tax-deferred retirement plans. MFD makes
available through investment dealers plans and/or custody agreements for the
following:
Individual Retirement Accounts ("IRAs") (for individuals and their non-
employed spouses who desire to make limited contributions to a tax-deferred
retirement program and, if eligible, to receive a federal income tax
deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Code, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested
automatically. For further details with respect to any plan, including fees
charged by the trustee, custodian or MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other
than those provided by MFD may be used to establish any of the plans described
above. Third party administrative services, available for some corporate
plans, may limit or delay the processing of transactions.
Investors should consult with their tax adviser before establishing any of the
tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan
qualified under section 401(a) or 403(b) of the Code if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available
by the Shareholder Servicing Agent.
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition and holding period of the Fund's portfolio assets. Because the
Fund 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 Fund will be required to pay
any federal income or excise taxes, although the Fund's foreign-source income
may be subject to foreign withholding taxes. If the Fund should fail to
qualify as a "regulated investment company" in any year, the Fund would incur
a regular corporate federal income tax upon its taxable income and Fund
distributions would generally be taxable as ordinary dividend income to the
shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions
from net short-term capital gains (whether paid in cash or reinvested in
additional shares) are taxable to shareholders as ordinary income for federal
income tax purposes. A portion of the Fund's ordinary income dividends (but
none of its capital gain distributions) is normally eligible for the
dividends-received deduction for corporations if the recipient otherwise
qualifies for that deduction with respect to its holding of Fund shares.
Availability of the deduction for particular corporate shareholders is subject
to certain limitations, and deducted amounts may be subject to the alternative
minimum tax or result in certain basis adjustments. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net short-
term capital losses), whether paid in cash or reinvested in additional shares,
are taxable to the Fund's shareholders as long-term capital gains for federal
income tax purposes regardless of how long they have owned shares in the Fund.
Fund dividends declared in October, November or December, payable to
shareholders of record in such a month, and paid the following January will be
taxable to shareholders as if received on December 31 of the year in which
they are declared.
Any dividend or distribution of net capital gains or net short-term capital
gains will have the effect of reducing the per share net asset value of shares
in the Fund by the amount of the dividend or distribution. Shareholders
purchasing shares shortly before the record date of any such distribution may
thus pay the full price for the shares and then effectively receive a portion
of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than 12 months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent
of any distributions of net capital gain made with respect to those shares.
Any loss realized upon a redemption of shares may also be disallowed under
rules relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within ninety days after their
purchase followed by any purchase (including purchases by exchange or by
reinvestment) without payment of an additional sales charge of Class A shares
of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Fund's transactions in options, Futures Contracts and Forward Contracts
will be subject to special tax rules that may affect the amount, timing and
character of Fund income and distributions to shareholders. For example,
certain positions held by the Fund on the last business day of each taxable
year will be marked to market (i.e., treated as if closed out) on such day,
and any gain or loss associated with such positions will be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by
the Fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles," and may be subject to
special tax rules that would cause deferral of Fund losses, adjustments in the
holding periods of Fund securities, and conversion of short-term into long-
term capital losses. Certain tax elections exist for straddles that may alter
the effects of these rules. The Fund will limit its activities in options,
Futures Contracts and Forward Contracts to the extent necessary to meet the
requirements of Subchapter M of the Code.
The Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders and may, under certain
circumstances, make an economic return of capital taxable to shareholders. The
Fund's investment in zero coupon securities and certain securities purchased
at a market discount will cause it to realize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Fund, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.
An investment in residual interests of a CMO that has elected to be treated as
a real estate mortgage investment conduit, or "REMIC", can create complex tax
problems, especially if the Fund has state or local governments or other tax-
exempt organizations as shareholders.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income or losses. The holding of foreign currencies for
nonhedging purposes and investment by the Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on the Fund.
Investment income received by the Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source; the Fund does
not expect to be able to pass through to shareholders foreign tax credits and
deductions with respect to such foreign taxes. The United States has entered
into tax treaties with many foreign countries that may entitle the Fund to a
reduced rate of tax or an exemption from tax on such income; the Fund intends
to qualify for treaty reduced rates where available. It is impossible to
determine the effective rate of foreign tax in advance since the amount of the
Fund's assets to be invested within various countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on taxable dividends
and other payments to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund
with the U.S. Internal Revenue Service within the time period appropriate to
such claims.
The Fund is also required in certain circumstances to apply backup withholding
at a rate of 31% on taxable dividends and redemption proceeds paid to any
shareholder (including a Non-U.S. Person) who does not furnish to the Fund
certain information and certifications or who is otherwise subject to backup
withholding. Backup withholding will not, however, be applied to payments that
have been subject to 30% withholding. Distributions received from the Fund by
Non-U.S. Persons may also be subject to tax under the laws of their own
jurisdiction.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes in certain states. The
Fund intends to advise shareholders of the extent, if any, to which its
distributions consist of such interest. Shareholders are urged to consult
their tax advisers regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes as well as regarding the tax
consequences of an investment in the Fund.
7. DETERMINATION OF NET ASSET VALUE AND
PERFORMANCE
NET ASSET VALUE: The net asset value per share of each class of the Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, the Exchange is open for trading every weekday except for
the following holidays or the days on which they are observed: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.) This determination is made once each day
as of the close of regular trading on the Exchange by deducting the amount of
the liabilities attributable to each class from the value of the assets
attributable to the class and dividing the difference by the number of shares
of the class outstanding.
Equity securities in the Fund's portfolio are valued at the last sale price on
the exchange on which they are primarily traded or on the NASDAQ system for
unlisted national market issues, at the last quoted bid price for securities
in which there were no sales during the day or for unlisted securities not
reported on the NASDAQ system. Bonds and other fixed income securities (other
than short-term obligations, but including listed issues) of U.S. issuers in
the Fund's portfolio are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect the fair value
of such securities. Forward Contracts will be valued using a pricing model
taking into consideration market data from an external pricing source. Use of
the pricing services has been approved by the Board of Trustees. All other
securities, futures contracts and options in the Fund's portfolio (other than
short-term obligations) for which the principal market is one or more
securities or commodities exchanges (whether domestic or foreign) will be
valued at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities, futures contracts or options
are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available,
be valued at current bid prices, unless such securities are reported on the
NASDAQ system, in which case they are valued at the last sale price or, if no
sales occurred during the day, at the last quoted bid price. Short-term
obligations with remaining maturities in excess of 60 days will be valued upon
dealer supplied valuations. Other short-term obligations in the Fund's
portfolio are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Portfolio investments for which there are
no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Board of Trustees.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the Exchange. Occasionally, events
affecting the values of such securities may occur between the times at which
they are determined and the close of the Exchange which will not be reflected
in the computation of the Fund's net asset value unless the Trustees deem that
such event would materially affect the net asset value in which case an
adjustment would be made.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD in its
capacity as the Fund's distributor, or its agent, the Shareholder Servicing
Agent, prior to the close of that business day.
The Trustees annually review the appropriateness of the time of day as of
which the net asset value is computed.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for
each class of shares for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment
of $1,000 (made with all distributions reinvested and reflecting the CDSC or
the maximum public offering price) to reach the value of that investment at
the end of the periods. The Fund may also calculate (i) a total rate of
return, which is not reduced by the CDSC (4% maximum for Class B shares) and
therefore may result in a higher rate of return, (ii) a total rate of return
assuming an initial account value of $1,000, which will result in a higher
rate of return with respect to Class A shares since the value of the initial
account will not be reduced by the maximum sales charge (currently 4.75% for
Class A shares) and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance, and which may or may
not reflect the effect of the maximum or other sales charge or CDSC. The
average annual total rate of return for Class A shares for the one-year ended
October 31, 1995 and for the period from February 14, 1992 (commencement of
investment operations) to October 31, 1995 was 16.65% and 11.63%, respectively
(including the effect of the sales charge) and 22.48% and 13.08%, respectively
(without the effect of the sales charge). The Fund's average total rate of
return for Class B shares, for the one year period ended October 31, 1995 and
for the period from September 7, 1993 (commencement of offering of this class
of shares) to October 31, 1995 was 17.43% and 5.97%, respectively (including
the effect of the CDSC) and 21.43% and 7.26%, repectively (without the effect
of the CDSC). The Fund's average annual total rate of return for Class C for
the one-year ended October 31, 1995 and for the period from January 3, 1994
(commencement of offering of this class of shares) to October 31, 1995 was
21.19% and 8.73%, respectively. The total rates of return presented above for
Class A, Class B and Class C shares may not be indicative of future
performance.
PERFORMANCE RESULTS: The performance results below, based on an assumed
initial investment of $10,000 in Class A shares, cover the period from
February 14, 1992 (commencement of investment operations) through December 31,
1995. It has been assumed that dividends and capital gain distributions were
reinvested in additional shares. These performance results, as well as any
total rate of return or yield quotation provided by the Fund, should not be
considered as representative of the performance of the Fund in the future
since the net asset value and public offering price of shares of the Fund will
vary based not only on the type, quality and maturities of the securities held
in the Fund's portfolio, but also on changes in the current value of such
securities and on changes in the expenses of the Fund. These factors and
possible differences in the methods used to calculate yields and total rates
of return should be considered when comparing the yield and total rate of
return of the Fund to yields and total rates of return published for other
investment companies or other investment vehicles. Total rate of return
reflects the performance of both principal and income whereas yield reflects
only net portfolio income. Current net asset value and account balance
information may be obtained by calling 1-800-MFS-TALK (637-8255).
MFS UTILITIES FUND
---------------------------------------------------------------
VALUE OF
VALUE OF REINVESTED VALUE OF
YEAR ENDED INITIAL $10,000 CAPITAL GAINS REINVESTED TOTAL
DECEMBER 31 INVESTMENT DISTRIBUTION DIVIDENDS VALUE
- ----------- --------------- ------------- ---------- -----
12/31/92* $10,287 $ 42 $ 326 $10,655
12/31/93 11,389 112 1,236 12,737
12/31/94 10,332 102 1,672 12,106
12/31/95 12,809 196 3,041 16,046
*Fund commenced investment operations on February 6, 1992.
EXPLANATORY NOTES: The results assume that the initial $10,000 investment on
February 14, 1992 has been reduced by the current maximum applicable sales
charge of 4.75%. No adjustment has been made for any income taxes payable by
shareholders.
YIELD: Any yield quotation of a class of shares of the Fund is based on the
annualized net investment income per share allocated to that class of the Fund
over a 30-day period. The yield for each class of the Fund is calculated by
dividing the net investment income allocated to that class earned during the
period by the maximum public offering price per share of that class of the
Fund on the last day of that period. The resulting figure is then annualized.
Net investment income per share of a class is determined by dividing (i) the
dividends and interest allocated to that class during the period, minus
accrued expenses of that class for the period, by (ii) the average number of
shares of the class entitled to receive dividends during the period multiplied
by the maximum public offering price per share on the last day of the period.
The Fund's yield calculations for Class A shares assume a maximum sales charge
of 4.75%. The Fund's yield calculation for Class B shares assumes no CDSC is
paid.
The yield calculation for Class A shares of the Fund for the 30-day period
ended October 31, 1995 was 3.48%, taking into account certain fee waivers;
without these waivers, the yield would have been 3.07%. The yield calculation
for Class B shares for the 30-day period ended October 31, 1995 was 2.95%,
taking into account certain fee waivers; without these waivers, the yield
would have been 2.63%. The yield calculation for Class C shares for the 30-day
period ended October 31, 1995 was 3.00% taking into account certain fee
waivers; without these waivers, the yield would have been 2.67%.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the Securities and Exchange Commission, is not indicative of the
amounts which were or will be paid to the Fund's shareholders. Amounts paid to
shareholders of each class are reflected in the quoted "current distribution
rate" for that class. The current distribution rate for a class computed by
dividing the total amount of dividends per share paid by the Fund to
shareholders of that class during the past twelve months by the maximum public
offering price of that class at the end of such period. Under certain
circumstances, such as when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such policies were
in effect, rather than using the dividends during the past twelve months. The
current distribution rate differs from the yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income for option writing, short-term capital gains
and return of invested capital, and is calculated over a different period of
time. The Fund's current distribution rate calculation for Class A shares
assumes a maximum sales charge of 4.75%. The Fund's current distribution rate
calculation for Class B shares assumes no CDSC is paid. The current
distribution rate for Class A, Class B and Class C shares of the Fund for the
twelve-month period ended on October 31, 1995 was 3.79%, 3.18% and 3.13%,
respectively.
GENERAL: From time to time each Fund may, as appropriate, quote Fund rankings
or reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to
the following: Money, Fortune, U.S. News and World Report, Kiplinger's
Personal Finance, The Wall Street Journal, Barron's, Investors Business Daily,
Newsweek, Financial World, Financial Planning, Investment Advisor, USA Today,
Pensions and Investments, SmartMoney, Forbes, Global Finance, Registered
Representative, Institutional Investor, the Investment Company Institute,
Johnson's Charts, Morningstar, Lipper Analytical Services, Inc., CDA
Wiesenberger, Shearson Lehman and Salomon Bros. Indices, Ibbotson, Business
Week, Lowry Associates, Media General, Investment Company Data, The New York
Times, Your Money, Strangers Investment Advisor, Financial Planning on Wall
Street, Standard and Poor's, Individual Investor, The 100 Best Mutual Funds
You Can Buy, by Gordon K. Williamson, Consumer Price Index, and Sanford C.
Bernstein & Co. Fund performance may also be compared to the performance of
other mutual funds tracked by financial or business publications or
periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund; the Fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment
and evaluation of credit, interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or
television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding
and tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against a loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first
mutual fund to make full public disclosure of its
operations in shareholder reports.
-- 1932 -- One of the first internal research departments
is established to provide in-house analytical
capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first
mutual fund to register under the Securities Act of
1933 ("Truth in Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first
mutual fund to allow shareholders to take capital gain
distributions either in additional shares or in cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first
municipal bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/
variable annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income
mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first
open-end mutual fund to seek high tax-free income from
lower-rated municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first
mutual fund to target and shift investments among
industry sectors for shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first
closed-end, high-yield municipal bond fund traded on
the New York Stock Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the
New York Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-
qualified market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS World Growth Fund is the first global
emerging markets fund to offer the expertise of two
sub-advisers.
-- 1993 -- MFS becomes money manager of MFS Union Standard
Trust, the first trust to invest in companies deemed to
be union-friendly by an Advisory Board of senior labor
officials, senior managers of companies with
significant labor contracts, academics and other
national labor leaders or experts.
8. DESCRIPTION OF SHARES, VOTING RIGHTS AND
LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one
or more separate series and to divide or combine the shares of any series into
a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in that series. The Trustees have currently
authorized shares of the Fund and two other series. The Declaration of Trust
further authorizes the Trustees to classify or reclassify any series of shares
into one or more classes. Pursuant thereto, the Trustees have authorized the
issuance of three classes of shares of each of the Trust's three series, Class
A shares, Class B and Class C shares. Each share of a class of the Fund
represents an equal proportionate interest in the assets of the Fund allocable
to that class. Upon liquidation of the Fund, shareholders of each class are
entitled to share pro rata in the net assets of the Fund allocable to such
class available for distribution to shareholders. The Trust reserves the right
to create and issue additional series or classes of shares, in which case the
shares of each class of a series would participate equally in the earnings,
dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have under certain circumstances the right to remove one or more
Trustees in accordance with the provisions of Section 16(c) of the 1940 Act.
No material amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the Trust's outstanding shares. Shares have
no pre-emptive or conversion rights (except as described in "Purchases --
Conversion of Class B Shares" in the Prospectus). Shares are fully paid and
non-assessable. The Trust may enter into a merger or consolidation, or sell
all or substantially all of its assets (or all or substantially all of the
assets belonging to any series of the Trust), if approved by the vote of the
holders of two-thirds of the Trust's outstanding shares voting as a single
class, or of the affected series of the Trust, as the case may be, except that
if the Trustees of the Trust recommend such merger, consolidation or sale, the
approval by vote of the holders of a majority of the Trust's or the affected
series' outstanding shares (as defined in "Investment Restrictions") will be
sufficient. The Trust or any series of the Trust may also be terminated (i)
upon liquidation and distribution of its assets, if approved by the vote of
the holders of two-thirds of its outstanding shares, or (ii) by the Trustees
by written notice to the shareholders of the Trust or the affected series. If
not so terminated, the Trust will continue indefinitely.
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 Trust and provides for
indemnification and reimbursement of expenses out of Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of the Trust and its shareholders and the Trustees,
officers, employees and agents of the Trust 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 existed and the Trust itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action 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 his willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
9. DISTRIBUTION PLANS
The Trustees have adopted a Distribution Plan for each of Class A, Class B and
Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that
there is a reasonable likelihood that each Distribution Plan would benefit the
Fund and the respective class of shareholders. The Distribution Plans are
designed to promote sales, thereby increasing the net assets of the Fund. Such
an increase may reduce the expense ratio to the extent the Fund's fixed costs
are spread over a larger net asset base. Also, an increase in net assets may
lessen the adverse effects that could result were the Fund required to
liquidate portfolio securities to meet redemptions. There is, however, no
assurance that the net assets of the Fund will increase or that the other
benefits referred to above will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, no service fees
will be paid: (i) to any dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time by MFD
(MFD, however, may waive this minimum amount requirement from time to time);
or (ii) to any insurance company which has entered into an agreement with the
Fund and MFD that permits such insurance company to purchase Class A shares
from the Fund at their net asset value in connection with annuity agreements
issued in connection with the insurance company's separate accounts. Dealers
may from time to time be required to meet certain other criteria in order to
receive service fees.
With respect to the Class B Distribution Plan, except in the case of the first
year service fee, no service fees will be paid to any securities dealer who is
the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined by MFD from time to time. MFD, however, may waive this minimum
amount requirement from time to time. Dealers may from time to time be
required to meet certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable
under any Distribution Plan for which there is no dealer of record or for
which qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates for shareholder accounts.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended October 31, 1995, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------- ------------- -------------
Class A Distribution Plan $ 12,209 $ 0 $12,209
Class B Distribution Plan $221,808 $189,286 $32,522
Class C Distribution Plan $ 35,932 $ 83 $35,849
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties to such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Fund and MFD each shall
provide to the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under such
Plan. Each of the Distribution Plans may be terminated at any time by vote of
a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions"). All agreements relating to any of the
Distribution Plans entered into between the Fund or MFD and other
organizations must be approved by the Board of Trustees, including a majority
of the Distribution Plan Qualified Trustees. Agreements under any of the
Distribution Plans must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of
the holders of a majority of the respective class of the Fund's shares. None
of the Distribution Plans may be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the Fund's shares (as defined in "Investment
Restrictions") or may be materially amended in any case without a vote of the
Trustees and a majority of the Distribution Plan Qualified Trustees. The
selection and nomination of Distribution Plan Qualified Trust- ees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
10. INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS
Ernst & Young LLP are the Fund's independent auditors, providing audit
services, tax services, and assistance and consultation with respect to the
preparation of filings with the SEC.
The Portfolio of Investments at October 31, 1995, the Statement of Assets and
Liabilities at October 31, 1995, the Statement of Operations for the year
ended October 31, 1995, the Statement of Changes in Net Assets for each of the
two years in the period ended October 31, 1995, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this SAI and have been so incorporated in reliance upon the report of
Ernst & Young LLP, independent auditors, given upon their authority as experts
in accounting and auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
APPENDIX A
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND FUND EXPENSE\1/ OF SERVICE\2/ FUND COMPLEX\3/
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Richard B. Bailey .................................. $3,725 $350 8 $263,815
A. Keith Brodkin ................................... 0 0 N/A 0
Marshall N. Cohan .................................. 4,175 440 8 148,624
Dr. Lawrence Cohn .................................. 3,725 797 20 135,874
Sir J. David Gibbons ............................... 3,725 372 8 135,874
Abby M. O'Neill .................................... 3,500 327 9 129,499
Walter E. Robb, III ................................ 4,175 440 8 148,624
Arnold D. Scott .................................... 0 0 N/A 0
Jeffrey L. Shames .................................. 0 0 N/A 0
J. Dale Sherratt ................................... 4,175 857 22 148,624
Ward Smith ......................................... 4,175 440 12 148,624
\1/ For fiscal year ended October 31, 1995.
\2/ Based on normal retirement age of 72.
\3/ For calendar year 1995. All Trustees receiving compensation served as
Trustees of 36 funds within the MFS fund complex (having aggregate net
assets at December 31, 1995, of approximately $12.5 billion) except Mr.
Bailey, who served as Trustee of 73 funds within the MFS fund complex
(having aggregate net assets at December 31, 1995, of approximately $31.7
billion).
</TABLE>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT\4/
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
$3,150 $473 $ 768 $1,103 $1,575
3,440 516 860 1,204 1,720
3,730 560 933 1,306 1,885
4,020 603 1,005 1,407 2,010
4,310 647 1,078 1,509 2,155
4,600 690 1,150 1,610 2,300
</TABLE>
\4/ Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116
MFS(R)
UTILITIES
FUND
500 BOYLSTON STREET
BOSTON, MA 02116
MUF-13-3/96/500 35/235/335
<PAGE>
<PAGE>
[MFS Logo] ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS YEAR ENDED
OCTOBER 31, 1995
MFS(R) UTILITIES FUND
[Front cover
A photo of a dam.]
<PAGE>
<TABLE>
<S> <C>
MFS(R) UTILITIES FUND
TRUSTEES SECRETARY
A. Keith Brodkin* - Chairman and President Stephen E. Cavan*
Richard B. Bailey* - Private Investor; ASSISTANT SECRETARY
Former Chairman and Director (until 1991), James R. Bordewick, Jr.*
Massachusetts Financial Services Company;
Director, Cambridge Bancorp; Director, CUSTODIAN
Cambridge Trust Company State Street Bank and Trust Company
Marshall N. Cohan - Private Investor AUDITORS
Ernst & Young LLP
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; INVESTOR INFORMATION
Professor of Surgery, Harvard Medical School For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
The Hon. Sir J. David Gibbons, KBE - Chief a touch-tone telephone.
Executive Officer, Edmund Gibbons Ltd.;
Chairman, Bank of N.T. Butterfield & Son Ltd. For information on MFS mutual funds,
call your financial adviser or, for an
Abby M. O'Neill - Private Investor; information kit, call toll free:
Director, Rockefeller Financial Services, Inc. 1-800-637-2929 any business day from
(investment adviser) 9 a.m. to 5 p.m. Eastern time (or leave
a message anytime).
Walter E. Robb, III - President and Treasurer,
Benchmark Advisers, Inc. (corporate financial INVESTOR SERVICE
consultants); President, Benchmark Consulting MFS Service Center, Inc.
Group, Inc. (office services); Trustee, P.O. Box 2281
Landmark Funds (mutual funds) Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice For general information, call toll free:
President, Director and Secretary, 1-800-225-2606 any business day from
Massachusetts Financial Services Company 8 a.m. to 8 p.m. Eastern time.
Jeffrey L. Shames* - President and Director, For service to speech- or hearing-impaired,
Massachusetts Financial Services Company call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
J. Dale Sherratt - President, Insight Resources, (To use this service, your phone must be
Inc. (acquisition planning specialists) equipped with a Telecommunications Device for
the Deaf.)
Ward Smith - Former Chairman (until 1994),
NACCO Industries; Director, Sundstrand For share prices, account balances and
Corporation exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
INVESTMENT ADVISER telephone.
Massachusetts Financial Services Company
500 Boylston Street -----------------------------------------------------
Boston, MA 02116-3741 TOP RATED SERVICE
DISTRIBUTOR NUMBER For the second year in a row, MFS earned
MFS Fund Distributors, Inc. 1 a #1 ranking in DALBAR, Inc's.
500 Boylston Street DALBAR Broker/Dealer Survey, Main Office
Boston, MA 02116-3741 Operations Service Quality category.
The firm achieved a 3.49 overall score - on
PORTFOLIO MANAGER a scale of 1 to 4 - in the 1995 survey. A total of
Maura Shaughnessy* 71 firms responded, offering input on the quality
of service they receive from 36 mutual fund companies
TREASURER nationwide. The survey contained questions about service
W. Thomas London* quality in 17 categories, including "knowledge of phone
service contacts," "accuracy of transaction processing,"
ASSISTANT TREASURER and "overall ease of doing business with the firm."
James O. Yost* -------------------------------------------------------
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
Declining interest rates provided a positive environment for utility stocks over
the past 12 months and helped bring their performance in line with broad market
averages. During the year ended October 31, 1995, the Standard & Poor's Utility
Index (the S&P Utility Index), an unmanaged, market-value-weighted total return
index of all utility stocks in the Standard & Poor's 500 Composite Index (the
S&P 500), returned +29.28%, while the return of the S&P 500, a popular,
unmanaged index of common stock performance, was +26.41%. Over this same period,
Class A shares of the Fund provided a total return of+ 22.48%, Class B shares
+21.43%, and Class C shares +21.19%. These figures assume the reinvestment of
distributions but exclude the effects of any sales charges. A discussion of the
Fund's performance may be found in the Portfolio Performance and Strategy
Section of this letter.
Economic Outlook
Moderate, but sustainable, growth appears to be the hallmark of the economic
expansion's fifth year. While initial estimates showed the U.S. economy growing
at an annual rate of 4.2% in the third quarter, this surprisingly strong growth
was mainly driven by a pickup in consumer spending and an increase in business
and government outlays. Although impressive, this growth rate is not expected to
continue in coming months. Recent retail sales have been disappointing, in part
because of rising levels of consumer debt. An extended period of lower mortgage
rates seems to have relieved much of the pent-up demand for housing. Growth is
not expected to get much help from the manufacturing sector, either, as order
flows from manufacturers have moderated. Export activity, meanwhile, is also
expected to remain modest as continued weakness abroad has limited demand for
many U.S. goods. However, the Federal Reserve Board's consistent and, so far,
successful efforts to fight inflation seem to be giving consumers and businesses
enough longer term confidence to help maintain modest growth in real (adjusted
for inflation) gross domestic product into 1996.
Interest Rates
Given the unexpected strength of the economy in the third quarter, prospects for
further decreases in short-term interest rates by the Federal Reserve seem
uncertain in the near term. Long-term rates, meanwhile, have moved noticeably
downward in recent months in anticipation of more modest fourth-quarter growth
with continued low inflation. While there have been some increases in commodity
prices, companies have found it difficult to pass these on at the consumer level
as they continue to fight for market share. Additionally, unit labor costs
remain under control and seem to be growing at a pace that is near or below the
ongoing inflation rate. Thus, with long-term government bonds yielding over 6%
in an environment of 2% to 3% inflation, real rates of return in the
fixed-income markets remain relatively attractive.
Stock Market
After some volatility late in the third quarter, the stock market appears to
have stabilized. Although many companies reported solid third-quarter results,
there was some weakness in the earnings of retail, financial services and even
some technology companies. However, a slowdown in earnings may be a positive
development if it is an indication that the economy is not overheating and that
inflation - an enemy of long-term equity valuations - is under control. While we
see a deceleration of corporate earnings as the inevitable consequence of
traditional business cycles, we remain encouraged by the high absolute level of
profitability among U.S. companies. Also, many companies' increasing emphasis on
cost containment and growing use of technology have helped keep them highly
competitive and reasonably profitable. Looking ahead, we believe that a
stabilizing interest rate environment, coupled with reasonable earnings reports,
could justify current market valuations.
Portfolio Performance and Strategy
Currently, the Fund remains overweighted in domestic utility stocks relative to
the S&P Utility Index. Although competition is emerging in this industry, the
pace of change is slower than had been anticipated. Along with solid cost
control, we could see relatively strong earnings from this industry for the next
several quarters. The Fund is currently emphasizing electric utilities which are
taking the necessary steps to improve their competitive position. At this
juncture, we believe the mid-tier-quality group offers much higher risk-
adjusted returns than the high-quality segment. Portland General and PECO
Energy, two of the Fund's largest holdings, fit these criteria.
The Fund is underweighted in the regional Bell operating companies because
we believe most of the good news in terms of legislation and growth prospects is
reflected in the prices of the stocks, which have been strong performers so far
this year. Although stocks of the long-distance companies have been solid
performers, the Fund remains overweighted in these stocks because we are seeing
accelerating growth in long-distance volume and more reasonable valuations. Two
of the Fund's largest holdings, Frontier Corporation and MCI Communications, are
in the long-distance telephone sector.
The Fund is overweighted in gas utility stocks, focusing on pipeline
companies with expansion opportunities and/or those which are improving the
performance of their non-regulated subsidiaries. Williams Cos. and Westcoast
Energy are two such companies.
Currently, 13% of the Fund's total net assets is invested in international
utilities. These investments may offer growth opportunities and more favorable
regulatory treatment than domestic utilities. For example, Tele Danmark, the
Fund's largest international holding, offers solid earnings and dividend growth.
Finally, Real Estate Investment Trusts (REITs) currently comprise about 10%
of the Fund's total net assets. We believe these investments offer above-average
dividend growth with superior yield potential. In keeping with our strategy of
remaining well-diversified, we have invested in storage, health care,
industrial-office and manufactured-housing REITs.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- --------------------------- ---------------------------
[A photo of A. Keith Brodkin, [A photo of Maura Shaughnessy,
Chairman and President.] Portfolio Manager.]
- --------------------------- ---------------------------
/s/ A. Keith Brodkin /s/ Maura Shaughnessy
Chairman and President Portfolio Manager
November 10, 1995
<PAGE>
PORTFOLIO MANAGER PROFILE
Maura Shaughnessy joined MFS in 1991 as an equity analyst. A graduate of Colby
College and the Amos Tuck School of Business at Dartmouth College, she was
promoted to Assistant Vice President in 1992, Vice President in 1993 and has
managed MFS Utilities Fund since March of 1992. Ms. Shaughnessy is a Chartered
Financial Analyst (C.F.A.).
OBJECTIVE AND POLICIES
Under normal market conditions, the Fund seeks capital growth and current income
(income above that available from a portfolio invested entirely in equity
securities).
The Fund invests at least 65% of its assets in equity and debt securities of
both domestic and foreign companies in the utilities industry. These securities
include common stocks, preferred stocks, securities convertible into common
stocks or preferred stocks, and warrants. The Fund may also invest up to 35% of
its assets in debt and equity securities of issuers in other industries, or in
cash.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
For the year ended October 31, 1995, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
66.72%.
PERFORMANCE
The information on the following page illustrates the historical performance of
MFS Utilities Fund Class A shares in comparison to various market indicators.
Fund results in the graph reflect the deduction of the 4.75% maximum sales
charge. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. You cannot invest in an index. All results reflect the reinvestment of
all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B
share performance appears on the next page.
Please note that effective January 3, 1994, Class C shares were offered.
Information on Class C share performance appears on the next page.
Growth of a Hypothetical $10,000 Investment
(For the Period from March 1, 1992 to October 31, 1995)
Line graph representing the growth of a $10,000 investment for the four-year
period ended October 31, 1995. The graph is scaled from $8,000 to $18,000 in
$2,000 segments. The years are marked in 12-month segments from 1992 to 1995.
There are four lines drawn to scale. One is a solid line representing MFS
Utilities Fund (Class A), a second line of very-short dashes represents the S&P
500, a third line of short dashes represents the Lehman Brothers Corporate Bond
Utility Index, and a fourth line of medium-short dashes represents the Consumer
Price Index.
MFS Utilities Fund (Class A) $14,955
S&P 500 $16,148
Lehman Brothers Corporate Bond Utility Index $13,633
Consumer Price Index $11,089
AVERAGE ANNUAL TOTAL RETURNS
Life of
Class
through
1 Year 3 Years 10/31/95
- ------------------------------------------------------------------------------
MFS Utilities Fund (Class A) including
4.75% sales charge +16.65% +11.73% +11.63%*
- ------------------------------------------------------------------------------
MFS Utilities Fund (Class A) at net asset
value +22.48% +13.53% +13.08%*
- ------------------------------------------------------------------------------
MFS Utilities Fund (Class B) with
CDSC+ +17.43% -- + 5.97%++
- ------------------------------------------------------------------------------
MFS Utilities Fund (Class B) without CDSC +21.43% -- + 7.26%++
- ------------------------------------------------------------------------------
MFS Utilities Fund (Class C) +21.19% -- + 8.73%#
- ------------------------------------------------------------------------------
Average utility fund +17.55% + 8.77% + 9.78%
- ------------------------------------------------------------------------------
Lehman Brothers Corporate Bond Utility
Index## +20.12% + 8.61% + 8.88%
- ------------------------------------------------------------------------------
Standard & Poor's Utility Index +29.28% +12.44% +13.96%
- ------------------------------------------------------------------------------
Consumer Price Index** + 2.81% + 2.72% + 2.86%
- ------------------------------------------------------------------------------
*For the period from the commencement of offering of Class A shares, February
14, 1992 to October 31, 1995. Benchmark comparisons begin on March 1, 1992.
+These returns reflect the current Class B contingent deferred sales charge
(CDSC) of 4% for the 1-year period and 3% for the period commencing September
7, 1993.
++For the period from the commencement of offering of Class B shares, September
7, 1993 to October 31, 1995.
#For the period from the commencement of offering of Class C shares, January
3, 1994 to October 31, 1995. Class C shares have no initial sales charge or
CDSC but, along with Class B shares, have higher annual fees and expenses
than Class A shares.
##The Lehman Brothers Corporate Bond Utility Index includes all publicly
issued, fixed-rate, nonconvertible investment-grade domestic utility debt.
**The Consumer Price Index is a popular measure of change in prices.
In the table on the previous page, we have included the average annual total
returns of all utility funds (including the Fund) tracked by Lipper Analytical
Services, Inc. (an independent firm which reports mutual fund performance) for
the applicable time periods. Because these returns do not reflect any
applicable sales charges, we have also included the Fund's results at net
asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a
mutual fund will vary with changes in market conditions, and shares, when
redeemed, may be worth more or less than their original cost. All Fund results
reflect the applicable expense subsidy which is explained in the Notes to
Financial Statements. Had the subsidy not been in effect, the results would
have been less favorable.
<PAGE>
PORTFOLIO OF INVESTMENTS - October 31, 1995
Non-Convertible Bonds - 19.1%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Bonds - 18.9%
Telecommunications - 0.2%
Rogers Cablesystems, Inc., 10.125s, 2012 $ 200 $ 208,000
- -----------------------------------------------------------------------------
U.S. Government Guaranteed - 10.5%
Government National Mortgage Association - 0.3%
GNMA, 9s, 2018 $ 291 $ 305,775
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 10.2%
U.S. Treasury Notes, 6.875s, 1999 $3,000 $ 3,108,270
U.S. Treasury Notes, 9.125s, 1999 3,000 3,317,340
U.S. Treasury Notes, 6.125s, 2000 2,000 2,024,680
U.S. Treasury Notes, 7.25s, 2004 530 573,889
U.S. Treasury Bonds, 7.625s, 2025 200 232,188
-----------
$ 9,256,367
- -----------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 9,562,142
- -----------------------------------------------------------------------------
Utilities - Electric - 5.3%
BVPS II Funding Corp., 8.33s, 2007 $ 167 $ 165,051
Commonwealth Edison, 8.375s, 2023 500 528,665
First PV Funding Corp., 10.15s, 2016 500 506,250
Gulf States Utilities Co., 8.25s, 2004 250 267,733
Gulf States Utilities Co., 8.7s, 2024 250 261,650
Louisiana Land & Exploration, 7.65s, 2023 500 496,765
Midland Cogeneration Venture Corp.,
10.33s, 2002 523 546,179
Niagara Mohawk Power, 7.75s, 2006 150 137,203
Ohio Edison, 7.375s, 2002 500 514,230
System Energy Resources, 7.38s, 2000 500 494,375
Texas & New Mexico Power Co., 12.5s, 1999 300 337,500
Utilicorp United, Inc., 8.45s, 1999 500 534,985
-----------
$ 4,790,586
- -----------------------------------------------------------------------------
Utilities - Gas - 2.6%
ANR Pipeline Co., 7s, 2025 $ 500 $ 525,045
Coastal Corp., 10.375s, 2000 500 571,920
Coastal Corp., 7.75s, 2035 500 491,875
Oryx Energy Co., 9.3s, 1996 250 252,643
Southern Union Co., 7.6s, 2024 500 504,230
-----------
$ 2,345,713
- -----------------------------------------------------------------------------
Utilities - Telephone - 0.3%
Northwestern Bell Telephone Co., 9.125s, 2030 $ 250 $ 259,883
- -----------------------------------------------------------------------------
Total U.S. Bonds $17,166,324
- -----------------------------------------------------------------------------
Foreign Bonds - 0.2%
Argentina
Hidroelectrica Alicura, 8.375s, 1999
(Utilities - Electric)## $ 150 $ 132,000
- -----------------------------------------------------------------------------
Total Non-Convertible Bonds (Identified Cost, $17,179,523) $17,298,324
- -----------------------------------------------------------------------------
CONVERTIBLE BONDS - 3.0%
- -----------------------------------------------------------------------------
U.S. Bonds - 1.8%
ADT Operations, Inc., 0s, 2010 (Financial
Institutions) $1,870 $ 825,138
Assisted Living Concepts, 7s, 2005 (Real
Estate Investment Trusts) 710 798,750
- -----------------------------------------------------------------------------
Total U.S. Bonds $ 1,623,888
- -----------------------------------------------------------------------------
Foreign Bonds - 1.2%
Canada
Rogers Communications, Inc., 2s, 2005
(Utilities - Telecommunications) CAD 2,074 $ 1,078,480
- -----------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $2,769,124) $ 2,702,368
- -----------------------------------------------------------------------------
COMMON STOCKS - 73.0%
- -----------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------
U.S. Stocks - 62.8%
Financial Institutions - 1.6%
Philip Morris Cos., Inc. 17,100 $ 1,444,950
- -----------------------------------------------------------------------------
Real Estate Investment Trusts - 9.7%
Beacon Properties Corp. 30,000 $ 652,500
Factory Stores America, Inc. 14,900 286,825
Hospitality Properties Trust 30,500 800,625
LTC Properties, Inc. 54,400 788,800
National Health Investors, Inc. 39,200 1,176,000
Reckson Associates Realty Corp. 49,500 1,330,313
Sovran Self Storage, Inc. 29,400 727,650
Storage Equities, Inc. 73,000 1,341,375
Sun Communities, Inc. 20,000 497,500
TriNet Corporate Realty Trust, Inc. 45,000 1,203,750
-----------
$ 8,805,338
- -----------------------------------------------------------------------------
Utilities - Electric - 27.2%
Baltimore Gas & Electric Co. 30,000 $ 802,500
CMS Energy Corp. 63,000 1,740,375
Cinergy Corp. 25,549 724,953
Eastern Utilities Assn. 20,000 470,000
Entergy Corp. 34,000 969,000
FPL Group, Inc. 35,000 1,465,625
General Public Utilities Corp. 69,800 2,181,250
Houston Industries, Inc. 40,700 1,887,463
Illinova Corp. 65,900 1,869,912
NIPSCO Industries, Inc. 17,500 638,750
New England Electric System 10,000 390,000
PECO Energy Co. 65,700 1,921,725
PP&L Resources, Inc. 45,000 1,012,500
Pacific Gas & Electric Co. 55,200 1,621,500
Pinnacle West Capital Corp. 69,500 1,911,250
Portland General Corp. 80,600 2,186,275
Public Service Company of New Mexico* 50,000 837,500
Sithe Energies, Inc.* 11,200 79,800
Unicom Corp. 58,200 1,906,050
-----------
$24,616,428
- -----------------------------------------------------------------------------
Utilities - Gas - 11.9%
Coastal Corp. 63,500 $ 2,055,813
Enron Corp. 44,200 1,519,375
Pacific Enterprises 49,000 1,212,750
Panhandle Eastern Corp. 46,000 1,161,500
Transcanada Pipe Ltd. 35,000 468,125
Westcoast Energy, Inc. 112,000 1,652,000
Williams Cos., Inc. 71,500 2,761,687
-----------
$10,831,250
- -----------------------------------------------------------------------------
Utilities - Telephone- 12.4%
AT&T Corp. 9,600 $ 614,400
Ameritech Corp. 24,200 1,306,800
Frontier Corp. 97,600 2,635,200
GTE Corp. 35,650 1,470,562
MCI Communications Corp. 76,800 1,915,200
SBC Communications, Inc. 22,000 1,229,250
Sprint Corp. 20,500 789,250
US West Communications Group 27,600 1,314,450
-----------
$11,275,112
- -----------------------------------------------------------------------------
Total U.S. Stocks $56,973,078
- -----------------------------------------------------------------------------
Foreign Stocks - 10.2%
Argentina - 1.3%
Central Costenera, ADR (Utilities - Electric)## 44,200 $ 1,204,450
- -----------------------------------------------------------------------------
Denmark - 2.0%
Tele Danmark, ADR (Utilities - Telephone) 67,900 $ 1,773,887
- -----------------------------------------------------------------------------
Italy - 2.1%
Telecom Italia S.p.A. (Utilities -
Telecommunications) 68,000 $ 114,402
Telecom Italia S.p.A. Di Risp (Utilities
- Telecommunications) 1,309,400 1,457,634
Telecom Italia S.p.A. - RNC (Utilities -
Telecommunications) 300,000 354,717
-----------
$ 1,926,753
- -----------------------------------------------------------------------------
Spain - 1.9%
Empresa Nacional de Electricidad, ADR
(Utilities - Electric) 16,300 $ 819,075
Iberdrola (Utilities - Electric) 121,000 912,833
-----------
$ 1,731,908
- -----------------------------------------------------------------------------
United Kingdom - 2.9%
East Midlands Electricity (Utilities -
Electric) 80 $ 1,098
London Electricity (Utilities - Electric) 54,300 774,352
National Power (Utilities - Electric)* 100,000 319,362
PowerGen (Utilities - Electric) 108,050 970,298
PowerGen - 195 (Utilities - Electric) 127,500 516,038
-----------
$ 2,581,148
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 9,218,146
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $58,107,188) $66,191,224
- -----------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK - 0.9%
- -----------------------------------------------------------------------------
Argentina - 0.9%
Compania Inversiones Telephone, 7% (Utilities -
Telephone)## (Identified Cost, $994,600) 18,400 $ 800,400
- -----------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.9%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 11/16/95 $ 900 $ 897,889
General Electric Co., due 11/01/95 1,780 1,780,000
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 2,677,889
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $81,728,324) $89,670,205
OTHER ASSETS, LESS LIABILITIES - 1.1% 985,960
=============================================================================
Net Assets - 100.0% $90,656,165
- -----------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown
below.
CAD = Canadian Dollars GBP = British Pounds
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
October 31, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $81,728,324) $89,670,205
Cash 1,098
Net receivable for forward foreign currency exchange
contracts purchased 319
Receivable for Fund shares sold 381,689
Receivable for investments sold 2,647,806
Interest and dividends receivable 690,683
Deferred organization expenses 14,198
-----------
Total assets $93,405,998
-----------
Liabilities:
Distributions payable $ 37,538
Payable for Fund shares reacquired 150,941
Payable for investments purchased 2,448,547
Payable to affiliates -
Management fee 2,757
Shareholder servicing agent fee 1,216
Distribution fee 15,673
Accrued expenses and other liabilities 93,161
-----------
Total liabilities $ 2,749,833
-----------
Net assets $90,656,165
===========
Net assets consist of:
Paid-in capital $80,808,160
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 7,941,660
Accumulated undistributed net realized gain on investments
and foreign currency transactions 2,044,315
Accumulated distributions in excess of net investment income (137,970)
-----------
Total $90,656,165
===========
Shares of beneficial interest outstanding 11,071,408
===========
Class A shares:
Net asset value and redemption price per share
(net assets of $52,474,150 / 6,402,600 shares of
beneficial interest outstanding) $8.20
=====
Offering price per share (100/95.25 of net value per share) $8.61
=====
Class B shares:
Net asset value and offering price per share
(net assets of $33,238,550 / 4,064,762 shares of
beneficial interest outstanding) $8.18
=====
Class C shares:
Net asset value, offering price and redemption price per share
(net assets of $4,943,465 / 604,046 shares of beneficial
interest outstanding) $8.18
=====
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended October 31, 1995
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 2,630,729
Interest 1,126,691
Foreign taxes withheld (62,693)
-----------
Total investment income $ 3,694,727
-----------
Expenses -
Management fee $ 505,241
Trustees' compensation 35,886
Shareholder servicing agent fee (Class A) 65,882
Shareholder servicing agent fee (Class B) 55,762
Shareholder servicing agent fee (Class C) 5,418
Distribution and service fee (Class A) 12,209
Distribution and service fee (Class B) 221,808
Distribution and service fee (Class C) 35,932
Custodian fee 39,928
Printing 39,208
Auditing fees 32,800
Postage 16,156
Legal fees 3,868
Amortization of organization expenses 3,804
Miscellaneous 79,384
-----------
Total expenses $ 1,153,286
Fees paid indirectly (3,514)
Reduction of expenses by investment adviser (285,841)
-----------
Net expenses $ 863,931
-----------
Net investment income $ 2,830,796
===========
Realized and unrealized gain on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 3,134,194
Foreign currency transactions (44,998)
-----------
Net realized gain on investments and foreign currency
transactions $ 3,089,196
-----------
Change in unrealized appreciation -
Investments $ 8,994,045
Translation of assets and liabilities in foreign currencies 37,884
-----------
Net unrealized gain on investments $ 9,031,929
-----------
Net realized and unrealized gain on investments and
foreign currency $12,121,125
-----------
Net increase in net assets from operations $14,951,921
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended October 31, 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 2,830,796 $ 2,541,280
Net realized gain (loss) on investments and foreign
currency transactions 3,089,196 (1,048,132)
Net unrealized gain (loss) on investments and foreign
currency translation 9,031,929 (3,868,794)
----------- -----------
Increase (decrease) in net assets from operations $14,951,921 $(2,375,646)
----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $(1,950,814) $(2,081,568)
From net investment income (Class B) (894,547) (524,361)
From net investment income (Class C) (123,779) (42,372)
From net realized gain on investments and foreign
currency transactions (Class A) -- (1,205,090)
From net realized gain on investments and foreign
currency transactions (Class B) -- (217,435)
----------- -----------
Total distributions declared to shareholders $(2,969,140) $(4,070,826)
----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $54,589,877 $45,045,270
Net asset value of shares issued to shareholders in
reinvestment of distributions 2,417,592 3,351,049
Cost of shares reacquired (42,534,317) (26,584,135)
----------- -----------
Increase in net assets from Fund share transactions $14,473,152 $21,812,184
----------- -----------
Total increase in net assets $26,455,933 $15,365,712
Net assets:
At beginning of period 64,200,232 48,834,520
----------- -----------
At end of period (including accumulated undistributed
net investment income [accumulated distributions in
excess of net investment income] of $(137,970) and
$62,055, respectively) $90,656,165 $64,200,232
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1995 1994 1993 1992<F1>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 7.00 $ 7.86 $ 6.68 $ 6.33
------ ------ ------ ------
Income from investment operations<F3> -
Net investment income<F6> $ 0.31 $ 0.33 $ 0.40 $ 0.17
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.22 (0.63) 1.19 0.30
------ ------ ------ ------
Total from investment operations $ 1.53 $(0.30) $ 1.59 $ 0.47
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.33) $(0.35) $(0.38) $(0.12)
From net realized gain on investments and foreign currency
transactions -- (0.21) (0.03) --
------ ------ ------ ------
Total distributions declared to shareholders $(0.33) $(0.56) $(0.41) $(0.12)
------ ------ ------ ------
Net asset value - end of period $ 8.20 $ 7.00 $ 7.86 $ 6.68
====== ====== ====== ======
Total return<F5> 22.48% (3.89)% 24.39% 11.02%<F2>
Ratios (to average net assets)/Supplemental data<F6>:
Expenses<F4> 0.83% 0.65% 0.65% 0.65%<F2>
Net investment income 4.30% 4.58% 4.57% 5.44%<F2>
Portfolio turnover 152% 115% 119% 63%
Net assets at end of period (000 omitted) $52,474 $42,027 $43,423 $12,859
<FN>
<F1>For the period from the commencement of investment operations, February 14, 1992 to October 31, 1992.
<F2>Annualized.
<F3>Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
<F4>For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
<F5>Total returns for Class A shares do not include the applicable sales charge. If the sales charge had been included, the results
would have been lower.
<F6>The investment adviser did not impose a portion of its management fee and agreed to reduce expenses of the Fund. If these
expenses had been incurred by the Fund, the net investment income per share and the ratios would have been:
</FN>
Net investment income $ 0.28 $ 0.28 $ 0.31 $ 0.13
Ratios (to average net assets):
Expenses 1.23% 1.41% 1.68% 2.63%+
Net investment income 3.90% 3.82% 4.20% 3.46%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS - continued
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1995 1994 1993<F1> 1995 1994<F2>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Class C
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -beginning of period $ 6.98 $ 7.84 $ 7.83 $ 6.99 $ 7.48
------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment income<F7> $ 0.24 $ 0.25 $ 0.05 $ 0.24 $ 0.25
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 1.22 (0.63) 0.01 1.21 (0.54)
------ ------ ------ ------ ------
Total from investment operations $ 1.46 $(0.38) $ 0.06 $ 1.45 $(0.29)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.26) $(0.27) $(0.05) $(0.26) $(0.20)
From net realized gain on investments and
foreign currency transactions -- (0.21) -- -- --
Total distributions declared to
shareholders $(0.26) $(0.48) $(0.05) $(0.26) $(0.20)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.18 $ 6.98 $ 7.84 $ 8.18 $ 6.99
====== ====== ====== ====== ======
Total return 21.43% (4.92)% 0.69%<F4> 21.19% (3.87)%<F4>
Ratios (to average net assets)/Supplemental data<F7>:
Expenses<F6> 1.74% 1.72% 1.50%<F3> 1.81% 1.65%<F3>
Net investment income 3.33% 3.51% 1.80%<F3> 3.23% 3.56%<F3>
Portfolio turnover 152% 115% 119% 152% 115%
Net assets at end of period (000 omitted) $33,239 $19,774 $5,412 $4,943 $2,399
<FN>
<F1>For the period from the commencement of offering of Class B shares, September 7, 1993 to October 31, 1993.
<F2>For the period from the commencement of offering of Class C shares, January 3, 1994 to October 31, 1994.
<F3>Annualized.
<F4>Not annualized.
<F5>Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
<F6>For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
<F7>The investment adviser did not impose a portion of its management fee and agreed to reduce expenses of the Fund. If these
expenses had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.21 $ 0.20 $ (0.07) $ 0.21 $ 0.20
Ratios (to average net assets):
Expenses 2.14% 2.48% 3.27%<F3> 2.21% 2.41%<F3>
Net investment income 2.93% 2.74% 1.53%<F3> 2.83% 2.80%<F3>
See notes to financial statements
</TABLE>
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Utilities Fund (the Fund) is a non-diversified series of MFS Series Trust VI
(the Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency and
translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the- counter options are
valued by brokers through the use of a pricing model which takes into account
closing bond valuations, implied volatility and short-term repurchase rates.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of
operations of the Fund.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. It may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes. The forward foreign currency exchange contracts are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividend and interest payments received in additional securities are recorded on
the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee offset
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required under
provisions of the Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Foreign taxes have been provided for on interest
and dividend income earned on foreign investments in accordance with the
applicable country's tax rates and to the extent unrecoverable are recorded as a
reduction of investment income. Distributions to shareholders are recorded on
the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended October 31, 1995, accumulated distributions in
excess of net investment income was increased by $61,681, accumulated
undistributed net realized gain on investments and foreign currency transactions
was increased by $47,449 and paid-in capital was increased by $14,232 due to
differences between book and tax accounting for mortgage-backed securities,
currency transactions and non-taxable dividends. This change had no effect on
the net assets or net asset value per share. At October 31, 1995, accumulated
distributions in excess of net investment income and realized gain on
investments and foreign currency transactions under book accounting were
different from tax accounting due to temporary differences in accounting for
non-deductible pension expense and wash sales.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.375% of average daily net assets and 6.25% of investment income. The
investment adviser did not impose a portion of its fee, which is reflected as a
reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $4,511 for the year ended
October 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$135,056 for the year ended October 31, 1995, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted separate
distribution plans for Class A, Class B and Class C shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD retains the service fee for accounts
not attributable to a securities dealer, which amounted to $0 for the year ended
October 31, 1995. MFD is not imposing the 0.10% distribution fee for an
indefinite period. Fees incurred under the distribution plan during the year
ended October 31, 1995 were 0.03% of average daily net assets attributable to
Class A shares on an annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per annum,
of the Fund's average daily net assets attributable to Class B and Class C
shares. The service fee is currently suspended for Class B shares held over one
year. MFD will pay to securities dealers that enter into a sales agreement with
MFD, all or a portion of the service fee attributable to Class B and Class C
shares, and will pay to such securities dealers all of the distribution fee
attributable to Class C shares. The service fee is intended to be additional
consideration for services rendered by the dealer with respect to Class B and
Class C shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $0 and $83 for Class B and Class C shares,
respectively, for the year ended October 31, 1995. Fees incurred under the
distribution plans during the year ended October 31, 1995 were 0.88% and 1.00%
of average daily net assets attributable to Class B and Class C shares,
respectively, on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended October 31, 1995 were $41 and $76,193 for
Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, were as
follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. Government securities $21,436,670 $16,469,325
=========== ===========
Investments (non-U.S. Government securities) $95,486,562 $89,076,821
=========== ===========
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $82,013,201
===========
Gross unrealized appreciation $ 8,499,534
Gross unrealized depreciation (842,530)
-----------
Net unrealized appreciation $ 7,657,004
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares
1995 1994
Year Ended October ------------------------- ------------------------
31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,699,306 $ 20,628,776 2,190,865 $ 16,077,771
Shares issued to
shareholders in
reinvestment of
distributions 214,458 1,568,560 370,127 2,689,482
Shares reacquired (2,514,510) (18,778,516) (2,083,365) (15,124,516)
--------- ------------ --------- -----------
Net increase 399,254 $ 3,418,820 477,627 $ 3,642,737
========= ============ ========= ============
Class B Shares
1995 1994
Year Ended ------------------------ ------------------------
October 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,097,196 $ 30,083,089 3,158,234 $ 22,915,060
Shares issued to
shareholders in
reinvestment of
distributions 101,411 742,636 86,550 623,513
Shares reacquired (2,964,865) (21,644,727) (1,103,660) (7,857,710)
--------- ------------ --------- -----------
Net increase 1,233,742 $ 9,180,998 2,141,124 $ 15,680,863
========= ============ ========= ============
Class C Shares
1995 1994
Year Ended ------------------------ ------------------------
October 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 533,340 $ 3,878,012 841,006 $ 6,052,439
Shares issued to
shareholders in
reinvestment of
distributions 14,452 106,396 5,376 38,054
Shares reacquired (286,745) (2,111,074) (503,383) (3,601,909)
------- --------- ------- ----------
Net increase 261,047 $ 1,873,334 342,999 $ 2,488,584
======= ============ ======= ============
+For the period from the commencement of offering of Class C shares, January 3,
1994 to October 31, 1994.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended October 31,
1995 was $325.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange contracts. The notional or
contractual amounts of these instruments represent the investment the Fund has
in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
Contracts to Contracts Net Unrealized
Settlement Date Deliver/Receive In Exchange for at Value Appreciation
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases 11/01/95 - 11/07/95 GBP 364,876 $576,550 $576,869 $319
======== ======== ====
</TABLE>
At October 31, 1995, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) Restricted Securities
The Fund may invest not more than 10% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At October 31, 1995, the
Fund owned the following restricted securities (constituting 2.36% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees. All of these securities may
be offered and sold to "qualified institutional buyers" under Rule 144A of the
1933 Act.
<TABLE>
<CAPTION>
Share/
Description Date of Acquisition Par Amount Cost Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Central Costenera, ADR 12/17/93 - 1/31/95 44,200 $1,047,088 $1,204,450
Compania Inversiones Telephone, 7% 2/24/94 18,400 994,600 800,400
Hidroelectrica Alicura, 8.375s, 1999 4/08/94 150,000 143,526 132,000
----------
$2,136,850
==========
</TABLE>
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Trustees of MFS Series Trust VI and Shareholders of MFS Utilities Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Utilities Fund, including the schedule of portfolio investments, as of October
31, 1995 and the related statement of operations for the year then ended and the
statement of changes in net assets and financial highlights for each of the two
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended October 31,
1993, and for the period February 14, 1992 (commencement of investment
operations) to October 31, 1992 for Class A shares, and for the period September
7, 1993 (commencement of investment operations) to October 31, 1993 for Class B
shares, were audited by other auditors whose report dated December 14, 1993
expressed an unqualified opinion on those statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Utilities Fund at October 31, 1995, the results of its operations for the year
then ended, and the changes in its net assets and financial highlights for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 8, 1995
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) Utilities Fund NUMBER ----------------------
1 Bulk Rate
500 Boylston Street DALBAR U.S. Postage
Boston, MA 02116 P A I D
TOP-RATED SERVICE Permit #55638
Boston, MA
----------------------
[LOGO]
MFS
THE FIRST NAME IN MUTUAL FUNDS
MUF-2 12/95 11M 35/235/335
<PAGE>
PROSPECTUS
March 1, 1996
MFS(R) WORLD Class A Shares of Beneficial Interest
EQUITY FUND Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- --------------------------------------------------------------------------------
Page
----
1. Expense Summary .................................................. 2
2. The Fund ......................................................... 3
3. Condensed Financial Information .................................. 4
4. Investment Objective and Policies ................................ 7
5. Investment Techniques ............................................ 7
6. Additional Risk Factors .......................................... 12
7. Management of the Fund ........................................... 14
8. Information Concerning Shares of the Fund ........................ 15
Purchases ..................................................... 15
Exchanges ..................................................... 19
Redemptions and Repurchases ................................... 20
Distribution Plans ............................................ 22
Distributions ................................................. 23
Tax Status .................................................... 24
Net Asset Value ............................................... 24
Description of Shares, Voting Rights and Liabilities .......... 24
Performance Information ....................................... 25
9. Shareholder Services ............................................. 25
Appendix A .......................................................... A-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS WORLD EQUITY FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
This Prospectus pertains to MFS World Equity Fund (the "Fund") a diversified
series of MFS Series Trust VI (the "Trust"), an open-end management investment
company presently consisting of three series. The investment objective of the
Fund is to provide capital appreciation primarily through investments in
stocks of U.S. and non-U.S. issuers. THE FUND IS DESIGNED FOR INVESTORS WHO
WISH TO SPREAD THEIR INVESTMENTS BEYOND THE UNITED STATES AND WHO ARE PREPARED
TO ACCEPT THE RISKS ENTAILED IN SUCH INVESTMENTS, WHICH MAY BE HIGHER THAN
THOSE ASSOCIATED WITH CERTAIN U.S. INVESTMENTS (see "Investment Objective and
Policies"). The minimum initial investment generally is $1,000 per account
(see "Purchases"). The Fund's investment adviser and distributor are
Massachusetts Financial Services Company ("MFS" or the "Adviser") and MFS Fund
Distributors, Inc. ("MFD"), respectively, both of which are located at 500
Boylston Street, Boston, Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY
FINANCIAL INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE
IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR
SHARES.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The
Trust, on behalf of the Fund, has filed with the Securities and Exchange
Commission (the "SEC") a Statement of Additional Information, dated March 1,
1996, as amended or supplemented from time to time (the "SAI"), which contains
more detailed information about the Trust and the Fund and is incorporated
into this Prospectus by reference. See page 27 for a further description of
the information set forth in the SAI. A copy of the SAI may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover
for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES:
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares
(as a percentage of offering price) ................................ 5.75% 0% 0%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) .............. See Below(1) 4.00% 0%
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ...................................................... 1.00% 1.00% 1.00%
Rule 12b-1 Fees (after applicable fee reduction) ..................... 0.25%(2) 1.00%(3) 1.00%(3)
Other Expenses ....................................................... 0.49% 0.55% 0.49%
---- ---- ----
Total Operating Expenses (after applicable fee reduction) ............ 1.74%(2) 2.55% 2.49%
- ----------
(1) Purchases of $1 million or more are not subject to an initial sales
charge; however, a contingent deferred sales charge ("CDSC") of 1% will be
imposed on such purchases in the event of certain redemption transactions
within 12 months following such purchases (see "Information Concerning
Shares of the Fund -- Purchases" below).
(2) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per
annum of the average daily net assets attributable to the Class A shares
(see "Information Concerning Shares of the Fund -- Distribution Plans"
below). The 0.10% per annum distribution fee attributable to Class A
shares is not currently being imposed and will be implemented only upon
approval by the Trust's Board of Trustees. Distribution expenses paid
under this Plan, together with the initial sales charge, may cause long-
term shareholders to pay more than the maximum sales charge that would
have been permissible if imposed entirely as an initial sales charge.
(3) The Fund has adopted separate Distribution Plans for its Class B and its
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which
provide that it will pay distribution/service fees aggregating up to (but
not necessarily all of) 1.00% per annum of the average daily net assets
attributable to Class B shares under the Class B Distribution Plan and the
Class C shares under the Class C Distribution Plan (see "Information
Concerning Shares of the Fund -- Distribution Plans" below). Distribution
expenses paid under these Plans, together with any CDSC payable upon
redemption of Class B shares, may cause long-term shareholders to pay more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
</TABLE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
----- ------- --------------------- -------
(1)
1 year .................. $ 74 $ 66 $ 26 $ 25
3 years ................. 109 109 79 78
5 years ................. 146 156 136 133
10 years ................. 251 266(2) 266(2) 283
- ----------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear
directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections of the Prospectus: (i)
varying sales charges on share purchases -- "Purchases"; (ii) varying CDSCs --
"Purchases"; (iii) management fees -- "Investment Adviser"; and (iv) Rule 12b-
1 (i.e., distribution plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUND
The Fund is a diversified series of the Trust, an open-end management
investment company which was organized as a business trust under the laws of
The Commonwealth of Massachusetts on April 30, 1990. The Trust presently
consists of three series, each of which represents a portfolio with separate
investment objectives and policies. Shares of the Fund are continuously sold
to the public and the Fund then uses the proceeds to buy securities for its
portfolio. Three classes of shares of the Fund currently are offered to the
general public. Class A shares are offered at net asset value plus an initial
sales charge (or a CDSC in the case of certain purchases of $1 million or
more) and subject to a Distribution Plan providing for an annual distribution
fee and service fee. Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC and a Distribution Plan providing
for an annual distribution fee and service fee which are greater than the
Class A annual distribution fee and service fee. Class B shares will convert
to Class A shares approximately eight years after purchase. Class C shares are
offered at net asset value without an initial sales charge or a CDSC but
subject to a Distribution Plan providing for an annual distribution fee and
service fee which are equal to the Class B annual distribution fee and service
fee. Class C shares do not convert to any other class of shares of the Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of
the Fund. A majority of the Trustees are not affiliated with the Adviser. The
Adviser is responsible for the management of the Fund's assets and the
officers of the Trust are responsible for the Fund's operations. The Adviser
manages the portfolio from day to day in accordance with the Fund's investment
objective and policies. The selection of investments and the way they are
managed depend on the conditions and trends in the economies of the various
countries of the world, their financial markets and the relationship of their
currencies to the U.S. dollar. The Fund also offers to buy back (redeem) its
shares from its shareholders at any time at net asset value, less any
applicable CDSC.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with the Fund's financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the SAI in reliance upon the report of the
Fund's independent auditors, given upon their authority as experts in
accounting and auditing. The Fund's current independent auditors are Deloitte
& Touche LLP.
FINANCIAL HIGHLIGHTS
CLASS A, CLASS B AND CLASS C SHARES
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
---------------------------------------------------------
1995 1994 1993* 1995 1994
---------------------------------------------------------
CLASS A CLASS B
---------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value --
beginning of
period ........... $16.95 $16.56 $15.71 $16.78 $16.53
------ ------ ------ ------ ------
Income from
investment
operations# --
Net investment
income (loss) ... $ 0.09 $ 0.03 $ 0.01 $(0.05) $(0.17)
Net realized and
unrealized gain
(loss) on
investments .... 1.37 1.13 0.84 1.37 1.13
------ ------ ------ ------ ------
Total from
investment
operations .... $ 1.46 $ 1.16 $ 0.85 $ 1.32 $ 0.96
------ ------ ------ ------ ------
Less distributions
declared to
shareholders --
In excess of net
investment
income ......... $ -- $(0.07) $ -- $ -- $(0.01)
From net realized
gain on
investments .... (1.73) (0.70) -- (1.55) (0.70)
------ ------ ------ ------ ------
Total
distributions
declared to
shareholders . $(1.73) $(0.77) $ -- $(1.55) $(0.71)
------ ------ ------ ------ ------
Net asset value --
end of period ..... $16.68 $16.95 $16.56 $16.55 $16.78
====== ====== ====== ====== ======
TOTAL RETURN++ 10.16% 7.03% 5.41%++ 9.07% 5.91%
RATIOS (TO AVERAGE
NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses##(S) .... 1.61% 1.54% 1.68%+ 2.55% 2.58%
Net investment
income (loss)(S). 0.58% 0.15% 0.94%+ (0.35)% (1.01)%
PORTFOLIO TURNOVER . 73% 99% 70% 73% 99%
NET ASSETS AT END OF
PERIOD (000
OMITTED) ......... $52,164 $16,968 $2,076 $156,286 $175,438
- ----------
*For the period from the commencement of offering of Class A shares,
September 7, 1993 to October 31, 1993.
+Annualized.
++Not annualized.
++Total returns for Class A shares do not include the applicable sales charge.
If the charge had been included, the results would have been lower.
#Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
(S)The distributor did not impose a portion of its fee for Class A shares
amounting to $0.0072 per share for the year ended October 31, 1995. If this
fee had been incurred by the Fund, the ratio of expenses and net investment
income to average net assets would have been 1.66% and 0.53%, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
PERIOD ENDED YEAR ENDED NOVEMBER 30,
OCTOBER 31, ------------------------------------------
1993* 1992 1991 1990 1989
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value --
beginning of
period ........... $13.50 $12.40 $12.94 $12.96 $11.21
------ ------ ------ ------ ------
Income from
investment
operations# --
Net investment
income (loss) ... $(0.10) $(0.04) $ 0.17 $ 0.13 $ 0.09
Net realized and
unrealized gain
(loss) on
investments .... 3.28 1.17 (0.37) 1.14 2.03
------ ------ ------ ------ ------
Total from
investment
operations ... $ 3.18 $ 1.13 $(0.20) $ 0.27 $ 2.12
------ ------ ------ ------ ------
Less distributions
declared to
shareholders --
From net
investment
income ......... $ -- $ -- $ -- $ -- $(0.21)
From net realized
gain on
investments .... (0.15) (0.03) (0.15) (0.29) (0.12)
From paid-in
capital ........ -- -- (0.19) -- (0.04)
------ ------ ------ ------ ------
Total
distributions
declared to
shareholders . $(0.15) $(0.03) $(0.34) $(0.29) $(0.37)
------ ------ ------ ------ ------
Net asset value --
end of period ...... $16.53 $13.50 $12.40 $12.94 $12.96
====== ====== ====== ====== ======
TOTAL RETURN ....... 23.80%++ 9.13% (1.57)% 2.02% 19.58%
RATIOS (TO AVERAGE
NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses ......... 2.66%+ 2.91% 2.88% 2.93% 3.05%
Net investment
income (loss) ... (0.71)%+ (0.31)% 1.35% 1.07% 0.77%
PORTFOLIO TURNOVER . 70% 110% 160% 173% 190%
NET ASSETS AT END OF
PERIOD (000
OMITTED) ......... $145,575 $101,550 $82,980 $81,505 $50,827
- ----------
*For the eleven months ended October 31, 1993.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
YEAR ENDED YEAR ENDED PERIOD ENDED
NOVEMBER 30, OCTOBER 31, OCTOBER 31,
------------------------------------------------------
1988 1987** 1995 1994***
- --------------------------------------------------------------------------------
CLASS B CLASS C
- --------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value --
beginning of period $10.12 $ 8.47 $16.80 $16.75
------ ------ ------ ------
Income from
investment
operations# --
Net investment
income (loss) .... $ 0.14 $(0.02) $(0.05) $(0.09)
Net realized and
unrealized gain
(loss) on
investments ..... 0.95 1.67 1.37 0.14
------ ------ ------ ------
Total from
investment
operations $ 1.09 $ 1.65 $ 1.32 $ 0.05
------ ------ ------ ------
Less distributions
declared to
shareholders from
net realized gain
on investments .... $ -- $ -- $ (1.59) $ --
------ ------ ------ ------
Total
distributions
declared to
shareholders .. $ -- $ -- $(1.59) $ --
------ ------ ------ ------
Net asset value --
end of period ..... $11.21 $10.12 $16.53 $16.80
====== ====== ====== ======
TOTAL RETURN ........ 10.77% 19.48%++ 9.20% 0.30%+
RATIOS (TO AVERAGE
NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses## ...... 2.48% 2.50%+ 2.49% 2.55%+
Net investment
income (loss) .. 1.29% (0.29)%+ (0.31)% (0.72)%+
PORTFOLIO TURNOVER .. 276% 272% 73% 99%
NET ASSETS AT END OF
PERIOD (000
OMITTED) ......... $42,806 $37,248 $2,908 $1,440
- ----------
**For the period from the commencement of investment operations, December 29,
1986 to November 30, 1987.
***For the period from the commencement of offering of Class C shares,
January 3, 1994 to October 31, 1994.
Annualized.
++Not annualized.
#Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
<PAGE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund seeks to provide capital appreciation,
primarily through investments in stocks of U.S. and non-U.S. issuers.
INVESTMENT POLICIES -- The Fund may invest in all types of common stocks and
equivalents (such as convertible debt securities and warrants) and preferred
stocks, sometimes in the form of American Depositary Receipts ("ADRs"). See
"Investment Techniques -- American Depositary Receipts" below. While the Fund
intends to maintain a portfolio consisting largely of equity securities of
non-U.S. issuers, the Fund may, under normal circumstances, invest up to 50%
of its assets in securities of U.S. and/or Canadian issuers. If extraordinary
market conditions abroad so warrant, the Fund may temporarily invest up to
100% of its assets in securities of U.S. and/or Canadian issuers. In addition,
for temporary defensive purposes, the Fund may invest up to 20% of its assets
in Government Securities. See "Investment Techniques -- Government Securities"
below.
Consistent with its investment objective and policies described above, the
Fund may invest up to 100% (and expects generally to invest between 10% and
100%) of its net assets in foreign securities which may be traded on foreign
exchanges.
While it is not the Fund's policy generally to invest or trade for short-term
profits, portfolio securities may be disposed of without regard to the length
of time held whenever the Adviser is of the opinion that a security no longer
has an appropriate appreciation potential or has reached its anticipated level
of performance, or when another security appears to offer greater appreciation
potential or a relatively greater anticipated level of performance. The Fund's
relative equity and cash positions may also be increased or decreased when, in
the judgment of the Adviser, a period of substantial rise or decline in
securities prices is anticipated. Subject to tax requirements, portfolio
changes may be made without regard to the length of time a security has been
held, or whether a sale would result in a profit or loss.
Although changes in the value of securities subsequent to their acquisition
are reflected in the net asset value of shares of the Fund, such changes will
not affect the income received by the Fund from such securities. However, the
dividends paid by the Fund, if any, will increase or decrease in relation to
the income received by the Fund from its investments, which would in any case
be reduced by the Fund's expenses before it is distributed to shareholders.
5. INVESTMENT TECHNIQUES
Consistent with the Fund's investment objective and policies, the Fund may
engage in the following investment techniques, many of which are described
more fully in the SAI. See "Investment Techniques" in the SAI.
GOVERNMENT SECURITIES: The Fund may invest in fixed income obligations issued
by national governments, their agencies, authorities and instrumentalities,
including (1) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance -- U.S. Treasury bills (maturities of
one year or less), U.S. Treasury notes (maturities of one to 10 years) and
U.S. Treasury bonds (generally maturities of greater than 10 years), all of
which are backed by the full faith and credit of the U.S. Government; and (2)
obligations issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities, some of which are backed by the full faith and credit of
the U.S. Treasury, e.g., direct pass-through certificates of the Government
National Mortgage Association ("GNMA"), some of which are supported by the
right of the issuer to borrow from the U.S. Government but are not guaranteed
by the U.S. Government, e.g., obligations of Federal Home Loan Banks, and some
of which are backed only by the credit of the issuer itself, e.g., obligations
of the Student Loan Marketing Association. Government Securities also include
interests in trusts or other entities representing interests in obligations
that are backed by the full faith and credit of the U.S. Government or are
issued or guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities.
FOREIGN SECURITIES: The Fund may invest in dollar denominated and non-dollar
denominated foreign securities. Investing in securities of foreign issuers
generally involves risks not ordinarily associated with investing in
securities of domestic issuers. These include changes in currency rates,
exchange control regulations, securities settlement practices, 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. Each Fund may
hold foreign currency received in connection with investments in foreign
securities when, in the judgment of the Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate. The Fund may also hold foreign currency
in anticipation of purchasing foreign securities.
EMERGING MARKET SECURITIES: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser to have an emerging market economy, taking
into account a number of factors, including whether the country has a low- to
middle-income economy according to the International Bank for Reconstruction
and Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets.
The Adviser determines whether an issuer's principal activities are located in
an emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source
of its revenues and assets. The issuer's principal activities generally are
deemed to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws
of, and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; (d) the issuer derives
50% or more of its total revenues from goods sold or services performed in
that country; or (e) the issuer has 50% or more of its assets in that country.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in 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. Because ADRs trade on United States securities
exchanges, the Adviser does not treat them as foreign securities. However,
they are subject to many of the risks of foreign securities, such as changes
in exchange rates and more limited information about foreign issuers.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan
debt restructurings have been implemented to date in Argentina, Brazil,
Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria,
Panama, the Philippines, Poland, Uruguay and Venezuela. Brady Bonds have been
issued only recently, and for that reason do not have a long payment history.
Brady Bonds may be collateralized or uncollateralized, are issued in various
currencies (but primarily the U.S. dollar) and are actively traded in over-
the-counter secondary markets. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds
having the same maturity as the bonds. Brady Bonds are often viewed as having
three or four valuation components: the collateralized repayment of principal
at final maturity; the collateralized interest payments; the uncollateralized
interest payments; and any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constituting the "residual risk"). In light of
the residual risk of Brady Bonds and the history of defaults of countries
issuing Brady Bonds with respect to commercial bank loans by public and
private entities, investments in Brady Bonds may be viewed as speculative.
LENDING OF SECURITIES: The Fund may make loans of its portfolio securities.
Such loans will usually be made only to member banks of the Federal Reserve
System and member firms (and subsidiaries thereof) of the New York Stock
Exchange (the "Exchange") and would be required to be secured continuously by
collateral in cash, U.S. Government Securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Fund would continue to collect the
equivalent of the interest on the securities loaned and would also receive
either interest (through investment of cash collateral) or a fee (if the
collateral is U S. Government Securities). As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. However, the loans would be made only to
firms deemed by the Adviser to be of good standing, and when, in the judgment
of the Adviser, the consideration which could be earned currently from
securities loans of this type justifies the attendant risk.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures which are
intended to minimize risk.
MORTGAGE DOLLAR ROLL TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which
the Fund sells mortgage-backed securities for delivery in the future
(generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. The Fund will only enter into covered rolls. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before the
forward settlement date of the dollar roll transaction.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a
continuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to the Fund's limitation
on investing not more than 15% of its net assets in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily
function of determining and monitoring the liquidity of Rule 144A securities.
The Board, however, will retain sufficient oversight and be ultimately
responsible for the determinations. The Board will carefully monitor the
Fund's investments in Rule 144A securities, focusing on such important
factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of decreasing the
level of liquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities held
in the Fund's portfolio. Subject to the Fund's 15% limitation on investments
in illiquid investments, the Fund may also invest in restricted securities
that may not be sold under Rule 144A, which presents certain risks. As a
result, the Fund might not be able to sell these securities when the Adviser
wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment
may at times play a greater role in valuing these securities than in the case
of unrestricted securities.
WHEN-ISSUED SECURITIES: In order to help ensure the availability of suitable
securities for its portfolio, the Fund may purchase securities on a "when-
issued" or on a "forward delivery" basis, which means that the obligations
will be delivered to the Fund at a future date usually beyond customary
settlement time. It is expected that, under normal circumstances, the Fund
will take delivery of such securities. In general, the Fund does not pay for
the securities until received and does not start earning interest on the
obligations until the contractual settlement date. While awaiting delivery of
the obligations purchased on such bases, the Fund will establish a segregated
account consisting of cash, short-term money market instruments or high
quality debt securities equal to the amount of the commitments to purchase
"when-issued" securities. Although the Fund does not intend to make such
purchases for speculative purposes and intends to adhere to the provisions of
SEC policies, purchases of securities on such bases may involve more risk than
other types of purchases. For example, the Fund may have to sell assets which
have been set aside in order to meet redemptions. Also, if the Fund determines
it is necessary to sell the "when-issued" or "forward delivery" securities
before delivery, it may incur a loss because of market fluctuations since the
time the commitment to purchase such securities was made and any gain would
not be tax-exempt. When the time comes to pay for "when-issued" or "forward
delivery" securities, the Fund will meet its obligations from the then-
available cash flow on the sale of securities, or, although it would not
normally expect to do so, from the sale of the "when-issued" or "forward
delivery" securities themselves (which may have a value greater or less than
the Fund's payment obligation).
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or
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. See the
SAI for further information on these securities.
LOANS AND OTHER DIRECT INDEBTEDNESS: The Fund may invest a portion of its
assets in loans. By purchasing a loan, the Fund acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate,
government or other borrower. Many such loans are secured, and most impose
restrictive covenants which must be met by the borrower. These loans are made
generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities. Such loans may
be in default at the time of purchase. The Fund 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 loans
acquired by the Fund may involve revolving credit facilities or other standby
financing commitments which obligate the Fund 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. Loans 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 Fund may be unable to sell such investments at an opportune time
or may have to resell them at less than fair market value.
OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options
and purchase call and put options on securities. The Fund will write options
on securities for the purpose of increasing its return on such securities and/
or protect the values of its portfolio. In particular, where the Fund writes
an option which expires unexercised or is closed out by the Fund at a profit,
it will retain the premium paid for the option which will increase its gross
income and will offset in part the reduced value of the portfolio security
underlying the option, or the increased cost of portfolio securities to be
acquired. In contrast, however, if the price of the underlying security moves
adversely to the Fund's position, the option may be exercised and the Fund
will be required to purchase or sell the underlying security at a
disadvantageous price, which may only be partially offset by the amount of the
premium. The Fund may also write combinations of put and call options on the
same security, known as "straddles." Such transactions can generate additional
premium income but also present increased risk.
By writing a call option on a security, the Fund limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Fund
retains the risk of depreciation in value of securities on which it has
written call options.
The Fund may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. In the
event that the expected market fluctuations occur, the Fund may be able to
offset the resulting adverse effect on its portfolio, in whole or in part,
through the options purchased. The premium paid for a put or call option plus
any transaction costs will reduce the benefit, if any, realized by the Fund
upon exercise or liquidation of the option, and, unless the price of the
underlying security changes sufficiently, the option may expire without value
to the Fund.
In certain instances, the Fund may enter into options on U.S. Treasury
securities which may be referred to as "reset" options or "adjustable strike"
options. These options provide for periodic adjustment of the strike price and
may also provide for the periodic adjustment of the premium during the term of
the option.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. The Fund may write
options on stock indices for the purpose of increasing its gross income and to
protect its portfolio against declines in the value of securities it owns or
increases in the value of securities to be acquired. When the Fund writes an
option on a stock index, and the value of the index moves adversely to the
holder's position, the option will not be exercised, and the Fund will either
close out the option at a profit or allow it to expire unexercised. The Fund
will thereby retain the amount of the premium, less related transaction costs,
which will increase its gross income and offset part of the reduced value of
portfolio securities or the increased cost of securities to be acquired. Such
transactions, however, will constitute only partial hedges against adverse
price fluctuations, since any such fluctuations will be offset only to the
extent of the premium received by the Fund for the writing of the option, less
related transaction costs. In addition, if the value of an underlying index
moves adversely to the Fund's option position, the option may be exercised,
and the Fund will experience a loss which may only be partially offset by the
amount of the premium received.
The Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to
attempt to reduce the risk of missing a market or industry segment advance.
The Fund's possible loss in either case will be limited to the premium paid
for the option, plus related transaction costs.
FUTURES CONTRACTS: The Fund may enter into stock index and foreign currency
futures contracts. (Unless otherwise specified, futures contracts on indices
and foreign currency futures contracts are collectively referred to as
"Futures Contracts.") The Fund will utilize Futures Contracts for hedging and
non-hedging purposes, subject to applicable law. Purchases or sales of stock
index futures contracts for hedging purposes are used to attempt to protect
the Fund's current or intended stock investments from broad fluctuations in
stock prices, and foreign currency futures contracts are purchased or sold to
attempt to hedge against the effects of exchange rate charges on the Fund's
current or intended investments in fixed income or foreign securities. In the
event that an anticipated decrease in the value of portfolio securities occurs
as a result of a general stock market decline, a general increase in interest
rates or a decline in the dollar value of foreign currencies in which
portfolio securities are denominated, the adverse effects of such changes may
be offset, in whole or part, by gains on the sale of Futures Contracts.
Conversely, the increased cost of portfolio securities to be acquired, caused
by a general rise in the stock market, a general decline in interest rates or
a rise in the dollar value of foreign currencies, may be offset, in whole or
part, by gains on Futures Contracts purchased by the Fund. The Fund will incur
brokerage fees when it purchases and sells Futures Contracts, and it will be
required to make and maintain margin deposits.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on stock
index and foreign currency futures contracts. (Unless otherwise specified,
options on stock index futures contracts and options on foreign currency
futures contracts are collectively referred to as "Options on Futures
Contracts.") Such investment strategies will be used for hedging and non-
hedging purposes, subject to applicable law. Put and call Options on Futures
Contracts may be traded by the Fund in order to protect against declines in
the values of portfolio securities or against increases in the cost of
securities to be acquired. Purchases of Options on Futures Contracts may
present less risk in hedging the portfolios of the Fund than the purchase or
sale of the underlying Futures Contracts since the potential loss is limited
to the amount of the premium plus related transaction costs. The writing of
such options, however, does not present less risk than the trading of Futures
Contracts and will constitute only a partial hedge, up to the amount of the
premium received. In addition, if an option is exercised, the Fund may suffer
a loss on the transaction.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency
at a future date at a price set at the time of the contract ("Forward
Contracts"). The Fund may enter into Forward Contracts for hedging purposes
and for non-hedging purposes of increasing the Fund's current income. By
entering into transactions in Forward Contracts for hedging purposes, the Fund
may be required to forego the benefits of advantageous changes in exchange
rates and, in the case of Forward Contracts entered into for non-hedging
purposes, the Fund may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative. Forward Contracts
are traded over-the-counter and not on organized commodities or securities
exchanges. As a result, Forward Contracts operate in a manner distinct from
exchange-traded instruments, and their use involves certain risks beyond those
associated with transactions in Futures Contracts or options traded on
exchanges. The Fund may choose to, or be required to, receive delivery of the
foreign currencies underlying Forward Contracts it has entered into. Under
certain circumstances, such as where the Adviser believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the
Adviser anticipates, for any other reason, that the exchange rate will
improve, the Fund may hold such currencies for an indefinite period of time.
The Fund may also enter into a Forward Contract on one currency 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 Adviser,
a reasonable degree of correlation can be expected between movements in the
values of the two currencies. The Fund has established procedures consistent
with statements of the SEC and its staff regarding the use of Forward
Contracts by registered investment companies, which requires use of segregated
assets or "cover" in connection with the purchase and sale of such contracts.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines
in the dollar value of portfolio securities, and against increases in the
dollar cost of securities to be acquired. As in the case of other types of
options, however, the writing of an option on foreign currency will constitute
only a partial hedge, up to the amount of the premium received, and the Fund
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the Fund's position,
it may forfeit the entire amount of the premium plus related transaction
costs. The Fund may also choose to, or be required to, receive delivery of the
foreign currencies underlying options on foreign currency it was entered into.
As in the case of Forward Contracts, certain options on foreign currencies are
traded over-the-counter and involve risks which may not be present in the case
of exchange-traded instruments.
SHORT-TERM INVESTMENTS FOR TEMPORARY DEFENSIVE PURPOSES -- During periods of
unusual market conditions when the Adviser believes that investing for
temporary defensive purposes is appropriate, or in order to meet anticipated
redemption requests, a large portion or all of the assets of the Fund may be
invested in cash or cash equivalents including, but not limited to,
obligations of banks (including certificates of deposit, bankers' acceptances
and repurchase agreements) with assets of $1 billion or more, commercial
paper, short-term notes, obligations issued or guaranteed by the U.S.
Government or any of its agencies, authorities or instrumentalities and
related repurchase agreements.
PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions is execution at the most favorable prices. Consistent with the
foregoing primary consideration, the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD") and such other policies
as the Trustees may determine, the Adviser may consider sales of shares of the
Fund and of other investment company clients of MFD, the Fund's distributor,
as a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. From time to time, the Adviser may direct certain portfolio
transactions to broker-dealer firms, which, in turn, have agreed to pay a
portion of the Fund's operating expenses (e.g., fees charged by the custodian
of the Fund's assets). For a further discussion of portfolio trading, see the
SAI.
The Fund intends to manage its portfolio by buying and selling securities to
help attain its investment objective. This may result in increases or
decreases in the Fund's current income available for distribution to the
Fund's shareholders and in the holding by the Fund of debt securities which
sell at moderate to substantial premiums or discounts from face value. The
Fund will engage in portfolio trading if it believes a transaction, net of
costs (including custodian charges), will help in attaining its investment
objective. See "Portfolio Transactions and Brokerage Commissions" in the SAI.
6. ADDITIONAL RISK FACTORS
The following discussion of additional risk factors supplements the risk
factors described above. Additional information concerning risk factors can be
found under the caption "Investment Techniques" in the SAI.
EMERGING MARKET SECURITIES: The risks of investing in foreign securities may
be intensified in the case of investments in emerging markets. Securities of
many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. Emerging markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to the Fund due to subsequent declines in value of the
portfolio security, a decrease in the level of liquidity in the Fund
portfolio, or if the Fund has entered into a contract to sell the security, in
possible liability to the purchaser. Certain markets may require payment for
securities before delivery and in such markets the Fund bears the risk that
the securities will not be delivered and that the Fund's payments will not be
returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions against repatriation of assets, and may
have less protection of property rights than more developed countries. The
economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of the Fund.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the Fund will enter
into certain transactions in Futures Contracts, Options on Futures Contracts,
Forward Contracts and options for hedging purposes, such transactions do
involve certain risks. For example, a lack of correlation between the index or
instrument underlying an option, Futures Contract of Forward Contract and the
assets being hedged, or unexpected adverse price movements, could render the
Fund's hedging strategy unsuccessful and could result in losses. "Cross
hedging" transactions may involve greater correlation risks. In addition,
there can be no assurance that a liquid secondary market will exist for any
contract purchased or sold, and the Fund may be required to maintain a
position until exercise or expiration, which could result in losses. The Fund
may also enter into transactions in such instruments (except for options on
foreign currencies) for other than hedging purposes (subject to applicable
law), including speculative transactions, which involve greater risk. In
particular, in entering into such transactions, the Fund may experience losses
which are not offset by gains on other portfolio positions, thereby reducing
its gross income. In addition, the markets for such instruments may be
extremely volatile from time to time, as discussed in the SAI, which could
increase the risks incurred by the Fund in entering into such transactions.
Transactions in options may be entered into on U.S. exchanges regulated by the
SEC, in the over-the-counter market and on foreign exchanges, while Forward
Contracts may be entered into only in the over-the-counter market. Futures
Contracts and Options on Futures Contracts may be entered into on U.S.
exchanges regulated by the Commodity Futures Trading Commission (the "CFTC")
and on foreign exchanges. The securities underlying options and Futures
Contracts traded by the Fund may include domestic as well as foreign
securities. Investors should recognize that transactions involving foreign
securities or foreign currencies, and transactions entered into in foreign
countries, may involve considerations and risks not typically associated with
investing in U.S. markets.
Transactions in options, Futures Contracts, Options on Futures Contracts and
Forward Contracts entered into for non-hedging purposes involve greater risk
and could result in losses which are not offset by gains on other portfolio
assets. For example, the Fund may sell Futures Contracts on an index of
securities in order to profit from any anticipated decline in the value of the
securities comprising the underlying index. In such instances, any losses on
the Futures transaction will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction. The risks related to transactions in options, Futures Contracts,
Options on Futures Contracts and Forward Contracts entered into by the Fund
are set forth in greater detail in the SAI, which should be reviewed in
conjunction with the foregoing discussion.
FIXED INCOME SECURITIES: The net asset value of the shares of an open-end
investment company which may invest to a limited extent in fixed income
securities changes as the general levels of interest rates fluctuate. When
interest rates decline, the value of a fixed income portfolio can be expected
to rise. Conversely, when interest rates rise, the value of a fixed income
portfolio can be expected to decline.
LOWER RATED FIXED INCOME SECURITIES -- The Fund may invest to a limited extent
in lower rated fixed income securities or comparable unrated securities. In
particular, securities rated lower than Baa by Moody's Investors Service, Inc.
("Moody's"), BBB by Standard & Poor's Ratings Group ("S&P") or by Fitch
Investors Service, Inc. ("Fitch") or comparable unrated securities (commonly
known as "junk bonds") 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. However, since
yields vary over time, no specific level of income can ever be assured. These
lower rated high yielding fixed income securities generally tend to reflect
economic changes and short-term corporate and industry developments to a
greater extent than higher rated securities which react primarily to
fluctuations in the general level of interest rates (although these lower
rated fixed income securities are also affected by changes in interest rates,
the market's perception of their credit quality, and the outlook for economic
growth). In the past, economic downturns or an increase in interest rates
have, under certain circumstances, caused a higher incidence of default by the
issuers of these securities and may do so in the future, especially in the
case of highly leveraged issuers. During certain periods, the higher yields on
a Fund's lower rated high yielding fixed income securities are paid primarily
because of the increased risk of loss of principal and income, arising from
such factors as the heightened possibility of default or bankruptcy of the
issuers of such securities. Due to the fixed income payments of these
securities, the Fund may continue to earn the same level of interest income
while its net asset value declines due to portfolio losses, which could result
in an increase in the Fund's yield despite the actual loss of principal. The
market for these lower rated fixed income securities may be less liquid than
the market for investment grade fixed income securities, and judgment may at
times play a greater role in valuing these securities than in the case of
investment grade fixed income securities. Changes in the value of securities
subsequent to their acquisition will not affect cash income or yield to
maturity to the Fund but will be reflected in the net asset value of shares of
the Fund.
The Fund may also 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, may have speculative
characteristics and changes in economic conditions and other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade fixed income securities.
--------------------
The investment objective and policies described above are not fundamental and
may be changed without shareholder approval. A change in the Fund's investment
objective may result in the Fund having an investment objective different from
the objective which the shareholder considered appropriate at the time of
investment in the Fund.
The SAI includes a discussion of other investment policies and a listing of
specific investment restrictions which govern the Fund's investment policies.
The specific investment restrictions listed in the SAI may be changed without
shareholder approval unless indicated otherwise (see "Investment Restrictions"
in the SAI). The Fund's investment limitations, policies and rating standards
are adhered to at the time of purchase or utilization of assets; a subsequent
change in circumstances will not be considered to result in a violation of
policy.
7. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement dated September 1, 1993 (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. David R. Mannheim, a Vice
President of the Adviser, has been the Fund's portfolio manager since 1992.
Mr. Mannheim has been employed as a portfolio manager by the Adviser since
1988. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. For its services and facilities, the
Adviser receives a management fee, computed daily and paid monthly, in an
amount equal to 1.00% of the Fund's average daily net assets for its then-
current fiscal year. This management fee is greater than the fee paid by most
funds, but is comparable to funds having similar investment objectives and
policies.
For the Fund's fiscal year ended October 31, 1995, the investment advisory
fees received under the Advisory Agreement were $1,981,096.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust,
MFS Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance
Trust, MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and
seven variable accounts, each of which is a registered investment company
established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of
Canada (U.S.)") in connection with the sale of various fixed/variable annuity
contracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc.,
provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $43.2 billion on behalf of approximately 1.8 million investor
accounts as of January 31, 1996. As of such date, the MFS organization managed
approximately $18.7 billion of assets invested in equity securities and
approximately $20.6 billion of assets invested in fixed income securities.
Approximately $3.8 billion of the assets managed by MFS are invested in
securities of foreign issuers and non-U.S. dollar denominated securities of
U.S. issuers. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.),
which in turn is a wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L.
Shames, Arnold D. Scott, John D. McNeil and John R. Gardner. Mr. Brodkin is
the Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and a
Senior Executive Vice President of MFS. Messrs. McNeil and Gardner are the
Chairman and President, respectively, of Sun Life. Sun Life, a mutual life
insurance company, is one of the largest international life insurance
companies and has been operating in the United States since 1895, establishing
a headquarters office here in 1973. The executive officers of MFS report to
the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman and
President of the Trust. W. Thomas London, Stephen E. Cavan, James O. Yost and
James R. Bordewick, Jr., all of whom are officers of MFS, are officers of the
Trust.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG),
the oldest publicly listed bank in Germany, founded in 1835. As part of this
alliance, the portfolio managers and investment analysts of MFS and Foreign &
Colonial will share their views on a variety of investment related issues,
such as the economy, securities markets, portfolio securities and their
issuers, investment recommendations, strategies and techniques, risk analysis,
trading strategies and other portfolio management matters. MFS will have
access to the extensive international equity investment expertise of Foreign &
Colonial, and Foreign & Colonial will have access to the extensive U.S. equity
investment expertise of MFS. One or more MFS investment analysts are expected
to work for an extended period with Foreign & Colonial's portfolio managers
and investment analysts at their offices in London. In return, one or more
Foreign & Colonial employees are expected to work in a similar manner at MFS'
Boston offices.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial,
particularly when the same security is suitable for more than one client.
While in some cases this arrangement could have a detrimental effect on the
price or availability of the security as far as the Fund is concerned, in
other cases, however, it may produce increased investment opportunities for
the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
8. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
dealer and other financial institutions ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to
investments in the Fund.
The Fund offers three classes of shares (Class A, B and C shares) which bear
sales charges and distribution fees in different forms and amounts, as
described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus
an initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
SALES CHARGE* AS
PERCENTAGE OF:
----------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
Less than $50,000 ................ 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ... 4.75 4.99 4.00
$100,000 but less than $250,000 .. 4.00 4.17 3.20
$250,000 but less than $500,000 .. 2.95 3.04 2.25
$500,000 but less than $1,000,000 . 2.20 2.25 1.70
$1,000,000 or more ................ None* * None** See Below**
- ----------
*Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
**A CDSC will apply to such purchases, as discussed below.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 5% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the
sales charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge).
In the following two circumstances, Class A shares are also offered at net
asset value without an initial sales charge but subject to a CDSC, equal to 1%
of the lesser of the value of the shares redeemed (exclusive of reinvested
dividend and capital gain distributions) or the total cost of such shares, in
the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject
to the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that
either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirement plan of Class A shares of the MFS Funds will
be in an amount of at least $250,000 within a reasonable period of time,
as determined by MFD in its sole discretion.
In the case of such purchases, MFD will pay a commission to dealers as
follows: 1% on sales up to $5 million, plus 0.25% on the amount in excess of
$5 million. Purchases of $1 million or more for each shareholder account will
be aggregated over a 12-month period (commencing from the date of the first
such purchase) for purposes of determining the level of commissions to be paid
during the period with respect to such account. In addition, with respect to
sales to retirement plans under the second circumstance described above, MFD
may pay a commission, on sales in excess of $5 million to certain retirement
plans, of 1% to certain dealers which, at MFD's invitation, enter into an
agreement with MFD in which the dealer agrees to return any commission paid to
it on the sale (or on a pro rata portion thereof) if the shareholder redeems
his or her shares within a period of time after purchase as specified by MFD.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ....................................... 4%
Second ...................................... 4%
Third ....................................... 3%
Fourth ...................................... 3%
Fifth ....................................... 2%
Sixth ....................................... 1%
Seventh and following ....................... 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B
shares purchased through dealers. MFD will also advance to dealers the first
year service fee payable under the Fund's Class B Distribution Plan (see
"Distribution Plans" below) at a rate equal to 0.25% of the purchase price of
such shares. Therefore, the total amount paid to a dealer upon the sale of
Class B shares is 4% of the purchase price of the shares (commission rate of
3.75% plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Distribution Plan
applicable to Class B shares. See "Distribution Plans" below. However, for
purposes of conversion to Class A shares, all shares in a shareholder's
account that were purchased through the reinvestment of dividends and
distributions paid in respect of Class B shares (and which have not converted
to Class A shares as provided in the following sentence) will be held in a
separate sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A shares, a
portion of the Class B shares then in the sub-account will also convert to
Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares not acquired through reinvestment of dividends
and distributions that are converting to Class A shares bear to the
shareholder's total Class B shares not acquired through reinvestment. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will not constitute a taxable event for federal
tax purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not
occur if such ruling or opinion is not available. In such event, Class B
shares would continue to be subject to higher expenses than Class A shares for
an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an
initial sales charge or a CDSC. Class C shares do not convert to any other
class of shares of the Fund. The maximum investment in Class C shares that may
be made is $5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of
1986, as amended (the "Code"), if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other
than IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and
the minimum additional investment is $50 per account. Accounts being
established for participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. There are also
other limited exceptions to these minimums for certain tax-deferred retirement
programs. Any minimums may be changed at any time at the discretion of MFD.
The Fund reserves the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserve the
right to reject any specific purchase order or to restrict purchases by a
particular purchaser (or group of related purchasers). The Fund or MFD may
reject or restrict any purchases by a particular purchaser or group, for
example, when such purchase is contrary to the best interests of the Fund's
other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of shares of certain MFS Funds (as determined by MFD)
which follow a timing pattern, and with individuals or entities acting on such
shareholders' behalf (collectively, "market timers"), setting forth the terms,
procedures and restrictions with respect to such exchanges. In the absence of
such an agreement, it is the policy of the Fund and MFD to reject or restrict
purchases by market timers if (i) more than two exchange purchases are
effected in a timed account in the same calendar quarter or (ii) a purchase
would result in shares being held in timed accounts by market timers
representing more than (x) one percent of the Fund's net assets or (y)
specified dollar amounts in the case of certain MFS Funds which may include
the Fund and which may change from time to time. The Fund and MFD each reserve
the right to request market timers to redeem their shares at net asset value,
less any applicable CDSC, if either of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with
respect to sales of Class A, Class B and Class C shares. In addition, from
time to time, MFD may pay dealers 100% of the applicable sales charge on sales
of Class A shares of certain specified MFS Funds sold by such dealer during a
specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset
value of all of the Class B shares of certain specified MFS Funds sold by such
dealer during a specified sales period. In addition, from time to time, MFD,
at its expense, may provide additional commissions, compensation or
promotional incentives ("concessions") to dealers which sell shares of the
Fund. Such concessions provided by MFD may include financial assistance to
dealers in connection with preapproved conferences or seminars, sales or
training programs for invited registered representatives, payment for travel
expenses, including lodging, incurred by registered representatives for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding one or more MFS Funds, and/or other dealer-sponsored
events. From time to time, MFD may make expense reimbursements for special
training of a dealer's registered representatives in group meetings or to help
pay the expenses of sales contests. Other concessions may be offered to the
extent not prohibited by state laws or any self-regulatory agency, such as the
NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal
charitable contribution on their behalf.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting,
selling or distributing securities. Although the scope of the prohibition has
not been clearly defined, MFD believes that such Act should not preclude banks
from entering into agency agreements with MFD. If, however, a bank were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services in respect of Shareholders who invested in the Fund through a
national bank. It is not expected that shareholders would suffer any adverse
financial consequence as a result of these occurrences. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required to
register as broker-dealers pursuant to state law.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services)
that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds at net asset value (if available for sale). In
addition, Class C shares may be exchanged for shares of the MFS Money Market
Fund at net asset value. Shares of one class may not be exchanged for shares
of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of
an MFS Fund to shares of any other MFS Fund, except with respect to exchanges
from an MFS money market fund to another MFS Fund which is not an MFS money
market fund (discussed below). With respect to an exchange involving shares
subject to a CDSC, the CDSC will be unaffected by the exchange and the holding
period for purposes of calculating the CDSC will carry over to the acquired
shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to
the imposition of an initial sales charge or a CDSC for exchanges from an MFS
money market fund to another MFS Fund which is not an MFS money market fund.
These rules are described under the caption "Exchanges" in the Prospectuses of
those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and Units may be exchanged for Class A shares of any MFS Fund. With
respect to exchanges between Class A shares subject to a CDSC and Units, the
CDSC will carry over to the acquired shares or Units and will be deducted from
the redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units
and then exchanges into Class A shares subject to an initial sales charge of
an MFS Fund, the initial sales charge shall be due upon such exchange, but
will not be imposed with respect to any subsequent exchanges between such
Class A shares and Units with respect to shares on which the initial sales
charge has already been paid. In the event that a shareholder initially
purchases Units and then exchanges into Class A shares subject to a CDSC of an
MFS Fund, the CDSC period will commence upon such exchange, and the
applicability of the CDSC with respect to subsequent exchanges shall be
governed by the rules set forth above in this paragraph.
GENERAL: Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed
by the record owner(s) exactly as the shares are registered; if by telephone
- -- proper account identification is given by the dealer or shareholder of
record) and each exchange must involve either shares having an aggregate value
of at least $1,000 ($50 in the case of retirement plan participants whose
sponsoring organizations subscribe to the MFS FUNDamental 401(k) Plan or
another similar 401(k) recordkeeping system made available by the Shareholder
Servicing Agent) or all the shares in the account. If an Exchange Request is
received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the New York Stock Exchange (generally, 4:00 p.m.,
Eastern time) (the "Exchange"), the exchange will occur on that day if all the
requirements set forth above have been complied with at that time and subject
to the Fund's right to reject purchase orders. No more than five exchanges may
be made in any one Exchange Request by telephone. Additional information
concerning this exchange privilege and prospectuses for any of the other MFS
Funds may be obtained from dealers or the Shareholder Servicing Agent. A
shareholder should read the prospectus of the other MFS Fund and consider the
differences in objectives, policies and restrictions before making any
exchange. For federal and (generally) state income tax purposes, an exchange
is treated as a sale of the shares exchanged and, therefore, an exchange could
result in a gain or loss to the shareholder making the exchange. Exchanges by
telephone are automatically available to most non-retirement plan accounts and
certain retirement plan accounts. For further information regarding exchanges
by telephone, see "Redemptions by Telephone." The exchange privilege (or any
aspect of it) may be changed or discontinued and is subject to certain
limitations, including certain restrictions on purchases by market timers.
Special procedures, privileges and restrictions with respect to exchanges may
apply to market timers who enter into an agreement with MFD, as set forth in
such agreement. See "Purchases -- General -- Right to Reject Purchase Orders/
Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the
shares in his account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or letter of instruction, together with his share certificates (if
any were issued), all in "good order" for transfer. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or certificate must be endorsed by the record owner(s) exactly as
the shares are registered and the signature(s) must be guaranteed in the
manner set forth below under the caption "Signature Guarantee." In addition,
in some cases "good order" will require the furnishing of additional
documents. The Shareholder Servicing Agent may make certain de minimis
exceptions to the above requirements for redemption. Within seven days after
receipt of a redemption request in "good order" by the Shareholder Servicing
Agent, the Fund will make payment in cash of the net asset value of the shares
next determined after such redemption request was received, reduced by the
amount of any applicable CDSC described above and the amount of any income tax
required to be withheld, except during any period in which the right of
redemption is suspended or date of payment is postponed because the Exchange
is closed or trading on such Exchange is restricted or to the extent otherwise
permitted by the 1940 Act if an emergency exists. See "Tax Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his
account by telephoning the Shareholder Servicing Agent toll-free at (800) 225-
2606. Shareholders wishing to avail themselves of this telephone redemption
privilege must so elect on their Account Application, designate thereon a bank
and account number to receive the proceeds of such redemption, and sign the
Account Application Form with the signature(s) guaranteed in the manner set
forth below under the caption "Signature Guarantee." The proceeds of such a
redemption, reduced by the amount of any applicable CDSC and the amount of any
income tax required to be withheld, are mailed by check to the designated
account, without charge, if the redemption proceeds do not exceed $1,000, and
are wired in federal funds to the designated account if the redemption
proceeds exceed $1,000. If a telephone redemption request is received by the
Shareholder Servicing Agent by the close of regular trading on the Exchange on
any business day, shares will be redeemed at the closing net asset value of
the Fund on that day. Subject to the conditions described in this section,
proceeds of a redemption are normally mailed or wired on the next business day
following the date of receipt of the order for redemption. The Shareholder
Servicing Agent will not be responsible for any losses resulting from
unauthorized telephone transactions if it follows reasonable procedures
designed to verify the identity of the caller. The Shareholder Servicing Agent
will request personal or other information from the caller, and will normally
also record calls. Shareholders should verify the accuracy of confirmation
statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares
through his dealer (a repurchase), the shareholder can place a repurchase
order with his dealer, who may charge the shareholder a fee. IF THE DEALER
RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME
DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY,
REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in
the case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month.
Class B shares purchased on or after January 1, 1993 will be aggregated on a
calendar month basis -- all transactions made during a calendar month,
regardless of when during the month they have occurred, will age one year at
the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior
to January 1, 1993, transactions will be aggregated on a calendar year basis
- -- all transactions made during a calendar year, regardless of when during the
year they have occurred, will age one year at the close of business on
December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases
exceeds the sum of the six calendar year aggregations (12 months in the case
of purchases of $1 million or more of Class A shares or purchases by certain
retirement plans of Class A shares) of Direct Purchases may be redeemed
without charge ("Free Amount"). Moreover, no CDSC is ever assessed on
additional shares acquired through the automatic reinvestment of dividends or
capital gain distributions ("Reinvested Shares"). Therefore, at the time of
redemption of a particular class, (i) any Free Amount is not subject to the
CDSC and (ii) the amount of the redemption equal to the then-current value of
Reinvested Shares is not subject to the CDSC, but (iii) any amount of the
redemption in excess of the aggregate of the then-current value of Reinvested
Shares and the Free Amount is subject to a CDSC. The CDSC will first be
applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days
of the redemption pursuant to the Reinstatement Privilege. If the shares
credited for any CDSC paid are then redeemed within six years of the initial
purchase in the case of Class B shares or within 12 months of the initial
purchase for certain Class A share purchases, a CDSC will be imposed upon
redemption. Such purchases under the Reinstatement Privilege are subject to
all limitations in the SAI regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations,
the Fund has reserved the right to pay the redemption or repurchase price of
shares of the Fund, either totally or partially, by a distribution in-kind of
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in
any account for their then-current value if at any time the total investment
in such account drops below $500 because of redemptions, except in the case of
accounts being established for monthly automatic investments and certain
payroll savings programs, Automatic Exchange Plan accounts and tax-deferred
retirement plans, for which there is a lower minimum investment requirement.
See "Purchases -- General -- Minimum Investment." Shareholders will be
notified that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and
its shareholders.
In certain circumstances, the fees described below have not yet been imposed
or are being waived. These circumstances are described below under the
heading "Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom
such dealer is the dealer or holder of record. MFD may from time to time
reduce the amount of the service fees paid for shares sold prior to a certain
date. Service fees may be reduced for a dealer that is the holder or dealer of
record for an investor who owns shares of the Fund having an aggregate net
asset value at or above a certain dollar level. Dealers may from time to time
be required to meet certain criteria in order to receive service fees. MFD or
its affiliates are entitled to retain all service fees payable under each
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay
MFD a distribution fee based on the average daily net assets attributable to
the Designated Class as partial consideration for distribution services
performed and expenses incurred in the performance of MFD's obligations under
its distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the
use by MFD of such distribution fees. Such amounts and uses are described
below in the discussion of the separate Distribution Plans. While the amount
of compensation received by MFD in the form of distribution fees during any
year may be more or less than the expense incurred by MFD under its
distribution agreement with the Fund, the Fund is not liable to MFD for any
losses MFD may incur in performing services under its distribution agreement
with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are
charged to, and therefore reduce, income allocated to shares of the Designated
Class. The Distribution Plans have substantially identical provisions with
respect to their operating policies and their initial approval, renewal,
amendment and termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered with an
initial sales charge, a substantial portion of which is paid to or retained by
the dealer making the sale (and the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In addition to the initial sales charge,
the dealer also generally receives the ongoing 0.25% per annum service fee, as
discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal,
on an annual basis, to 0.10% of the Fund's average daily net assets
attributable to Class A shares. As noted above, MFD may use the distribution
fee to cover distribution-related expenses incurred by it under its
distribution agreement with the Fund, including commissions to dealers and
payments to wholesalers employed by MFD (e.g., MFD pays commission to dealers
with respect to purchases of $1 million or more of Class A shares which are
sold at net asset value but which are subject to a 1% CDSC for one year after
purchase). See "Purchases -- Class A Shares" above. In addition, to the
extent that the aggregate service and distribution fees paid under the Class A
Distribution Plan do not exceed 0.35% per annum of the average daily net
assets of the Fund attributable to Class A shares, the Fund is permitted to
pay such distribution-related expenses or other distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases --
Class B Shares" above. MFD will advance to dealers the first year service fee
described above at a rate equal to 0.25% of the purchase price of such shares
and, as compensation therefor, MFD may retain the service fee paid by the Fund
with respect to such shares for the first year after purchase. Dealers will
become eligible to receive the ongoing 0.25% per annum service fee with
respect to such shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee
equal, on an annual basis, to 0.75% of the Fund's average daily net assets
attributable to Class B shares. As noted above, this distribution fee may be
used by MFD to cover its distribution-related expenses under its distribution
agreement with the Fund (including the 3.75% commission it pays to dealers
upon purchase of Class B shares, as described under "Purchases -- Class B
Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value
without a sales charge or a CDSC. See "Purchases -- Class C shares" above.
Unlike the case with respect to the sale of Class A and Class B shares, where
the dealer retains a portion of the initial sales charge (Class A shares) or
receives an up-front payment from MFD (Class B shares), a dealer who sells
Class C shares does not receive any initial payment, but instead receives
distribution and service fees equal, on an annual basis, to 1% of the Fund's
average daily net assets attributable to Class C shares owned by investors for
whom the dealer is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to
MFD under the Class C Distribution Plan (which MFD in turn pays to dealers),
as discussed above, and a distribution fee paid to MFD (which MFD also in turn
pays to dealers) under the Class C Distribution Plan equal, on an annual
basis, to 0.75% of the Fund's average daily net assets attributable to Class C
shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B
and Class C distribution and service fees for its current fiscal year are
0.25%, 1.00% and 1.00% per annum, respectively. Payment of the 0.10% per annum
distribution fee under the Class A Distribution Plan will commence on such
date as the Trustees may determine.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on an annual basis. In determining the net
investment income available for distributions, the Fund may rely on
projections of its anticipated net investment income over a longer term,
rather than its actual net investment income for the period. The Fund may make
one or more distributions during the calendar year to its shareholders from
any long-term capital gains, and may also make one or more distributions
during the calendar year to its shareholders from short-term capital gains.
Shareholders may elect to receive dividends and capital gain distributions in
either cash or additional shares of the same class with respect to which a
distribution is made (see "Tax Status" and "Shareholder Services --
Distribution Options" below). Distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class
B and Class C shares because expenses attributable to Class B and Class C
shares will generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust
for federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, and to make
distributions to its shareholders in accordance with the timing requirements
imposed by the Code. It is expected that the Fund will not be required to pay
entity level federal income or excise taxes, although foreign-source income
received by the Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes (and
any state or local taxes) on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or additional shares. A portion of
the dividends received from the Fund (but none of the Fund's capital gain
distributions) may qualify for the dividends-received deduction for
corporations. Shortly after the end of each calendar year, each shareholder
will be sent a statement setting forth the federal income tax status of all
dividends and distributions for that year, including the portion taxable as
ordinary income, the portion taxable as long-term capital gain, the portion,
if any, representing a return of capital (which is free of current taxes but
results in a basis reduction), and the amount, if any, of federal income tax
withheld. In certain circumstances, the Fund may also elect to "pass through"
to shareholders foreign income taxes paid by the Fund. Under those
circumstances, the Fund will notify shareholders of their pro rata portion of
the foreign income taxes paid by the Fund; shareholders may be eligible for
foreign tax credits or deductions with respect to those taxes, but will be
required to treat the amount of the taxes as an amount distributed to them and
thus includable in their gross income for federal income tax purposes.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution of
net capital gains or net short-term capital gains may thus pay the full price
for the shares and then effectively receive a portion of the purchase price
back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at a rate of 30% on
dividends and certain other payments that are subject to such withholding and
that are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable
treaty. The Fund is also required in certain circumstances to apply backup
withholding at a rate of 31% on taxable dividends and redemption proceeds paid
to any shareholder (including a shareholder who is neither a citizen nor a
resident of the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments that have been subject to
30% withholding. Prospective investors should read the Account Application for
information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences of an investment in
the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
each day as of the close of regular trading on the Exchange by deducting the
amount of the liabilities attributable to the class from the value of the
Fund's assets attributable to the class and dividing the difference by the
number of outstanding shares of the class. Assets in the Fund's portfolio are
valued on the basis of their current values or otherwise at their fair values,
as described in the SAI. All investments and assets are expressed in U.S.
dollars based upon current currency exchange rates. The net asset value per
share of each class of shares is effective for orders received by the dealer
prior to its calculation and received by MFD prior to the close of that
business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of three series of the Trust, has three classes of shares,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without
par value). The Trust has reserved the right to create and issue additional
classes and series of shares, in which case each class of shares of a series
would participate equally in the earnings, dividends and assets attributable
to that class of that particular series. Shareholders are entitled to one vote
for each share held and shares of each series would be entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election of
Trustees or selection of accountants. Additionally, each class of shares of a
series will vote separately on any material increases in the fees under its
Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of
the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the SAI).
Each share of a class of the Fund represents an equal proportionate interest
in the Fund with each other class share, subject to the liabilities of that
particular class. Shares have no pre-emptive or conversion rights (except as
set forth above in "Purchases -- Conversion of Class B Shares"). Shares are
fully paid and non-assessable. Should the Fund be liquidated, shareholders of
each class are entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders. Shares will remain on
deposit with the Shareholder Servicing Agent and certificates will not be
issued except in connection with pledges and assignments and in certain other
limited circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance (e.g., fidelity bonding and omissions insurance) existed
and the Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide total rate of return quotations for
each class of shares and may also quote fund rankings in the relevant fund
category from various sources, such as the Lipper Analytical Services, Inc.
and Wiesenberger Investment Companies Service. Total rate of return quotations
will reflect the average annual percentage change over stated periods in the
value of an investment in each class of shares of the Fund made at the maximum
public offering price of shares of that class and with all distributions
reinvested and which, if quoted for periods of six years or less, will give
effect to the imposition of the CDSC assessed upon redemptions of the Fund's
Class B shares. Such total rate of return quotations may be accompanied by
quotations which do not reflect the reduction in value of the initial
investment due to the sales charge or the deduction of a CDSC, and which will
thus be higher. The Fund's total rate of return quotations are based on
historical performance and are not intended to indicate future performance.
Total rate of return reflects all components of investment return over a
stated period of time. The Fund's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.
For a discussion of the manner in which the Fund will calculate its total rate
of return, see the SAI. For further information about the Fund's performance
for the fiscal year ended October 31, 1995, please see the Fund's Annual
Report. A copy of the Annual Report may be obtained without charge by
contacting the Shareholders Servicing Agent (see back cover for address and
phone number.) In addition to information provided in shareholder reports, the
Fund may, in its discretion, from time to time, make a list of all or a
portion of its holdings available to investors upon request.
9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of the Fund should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At
the end of each calendar year, each shareholder will receive income tax
information regarding reportable dividends and capital gain distributions for
that year (see "Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Checks for dividends and capital
gain distributions in amounts less than $10 will automatically be reinvested
in additional shares of the Fund. If a shareholder has elected to receive
dividends and/or capital gain distributions in cash and the postal or other
delivery service is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically be converted
to having all dividends and other distributions reinvested in additional
shares. Any request to change a distribution option must be received by the
Shareholder Servicing Agent by the record date for a dividend or distribution
in order to be effective for that dividend or distribution. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $50,000 or more of Class A shares
of the Fund alone or in combination with shares of any class of other MFS
Funds or MFS Fixed Fund (a bank collective investment fund) within a 13-month
period (or 36-month period for purchases of $1 million or more), the
shareholder may obtain such shares at the same reduced sales charge as though
the total quantity were invested in one lump sum, subject to escrow agreements
and the appointment of an attorney for redemptions from the escrow amount if
the intended purchases are not completed, by completing the Letter of Intent
section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, Class B and
Class C shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank
collective investment fund) reaches a discount level.
Distribution Investment Program: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the
same class of other MFS Funds. Furthermore, distributions made by the Fund may
be automatically invested at net asset value (and without any applicable CDSC)
in shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
Systematic Withdrawal Plan:A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100 except in certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP will not be subject to a CDSC and are limited to 10% of the
value of the account at the time of the establishment of the SWP. The CDSC
will not be waived in the case of SWP redemptions of Class A shares which are
subject to a CDSC.
Dollar Cost Averaging Programs --
Automatic Investment Plan:Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or
investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of the other MFS Funds under the Automatic Exchange Plan. The Automatic
Exchange Plan provides for automatic monthly or quarterly exchanges of funds
from the shareholder's account in such Fund for investment in the same class
of shares of other MFS Funds selected by the shareholder. Under the Automatic
Exchange Plan, exchanges of at least $50 each may be made to up to four
different funds. A shareholder should consider the objectives and policies of
a fund and review its prospectus before electing to exchange money into such
fund through the Automatic Exchange Plan. No transaction fee is imposed in
connection with exchange transactions under the Automatic Exchange Plan.
However, exchanges of shares of MFS Money Market Fund, MFS Government Money
Market Fund or Class A shares of MFS Cash Reserve Fund will be subject to any
applicable sales charge. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, could result in a capital gain or loss to the shareholder making
the exchange. See the SAI for further information concerning the Automatic
Exchange Plan. Investors should consult their tax advisers for information
regarding the potential capital gain and loss consequences of transactions
under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C
Shares," shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans
and other corporate pension and profit-sharing plans. Investors should consult
with their tax adviser before establishing any of the tax-deferred retirement
plans described above.
--------------------
The Fund's SAI, dated March 1, 1996, contains more detailed information about
the Trust and the Fund, including, but not limited to, information related to
(i) investment techniques and restrictions, including the purchase and sale of
options, Futures Contracts, Options on Futures Contracts, Forward Contracts
and Options on Foreign Currencies, (ii) the Trustees, officers and investment
adviser, (iii) portfolio trading, (iv) the Fund's shares, including rights
and liabilities of shareholders, (v) tax status of dividends and
distributions, (vi) the Distribution Plans, (vii) the method used to calculate
total rate of return quotations and (viii) various services and privileges
provided by the Fund for the benefit of its shareholders, including additional
information with respect to the exchange privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable
sales charges are waived (Section I), the initial sales charge and the CDSC
for Class A shares is waived (Section II), and the CDSC for Class B shares is
waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares, as applicable, is
waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any MFS Fund pursuant to the
Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of assets
of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees)
and agents of MFS, Sun Life or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which
MFD serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
* Employees or registered representatives of dealers and other
financial institution ("dealers") which have a sales agreement with
MFD;
* Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or
other retirement plans for the sole benefit of such persons,
provided the shares are not resold except to the MFS Fund which
issued the shares; and
* Institutional Clients of MFS or MFS Asset Management, Inc.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new
sales for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS
FUNDamental 401(k) Plan or another similar recordkeeping system made
available by the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or
more of the MFS Funds for more than 10 years from the later to occur
of: (i) January 1, 1993 or (ii) the date such Plan first invests
its assets in one or more of the MFS Funds. The sales charges will
be waived in the case of a redemption of all of the Plan's shares in
all MFS Funds (i.e., all the assets of the Plan invested in the MFS
Funds are withdrawn), unless immediately prior to the redemption,
the aggregate amount invested by the Plan in shares of the MFS Funds
(excluding the reinvestment of distributions) during the prior four
years equals 50% or more of the total value of the Plan's assets in
the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
* To an IRA rollover account where any sales charges with respect to
the shares being reregistered would have been waived had they been
redeemed; and
* From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf of
individual participants of such Plan, provided that the Plan sponsor
subscribes to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the contingent deferred sales charge imposed on certain
redemptions of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not
agreed with such company or its affiliates, formally or informally, to
waive sales charges on Class A shares or provide any other incentive
with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in a
"wrap" account or a similar program under which such clients pay a fee
to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party
administrators, or dealers have entered into an administrative
services agreement with MFD or one of its affiliates to perform
certain administrative services, subject to certain operational and
minimum size requirements specified from time to time by MFD or one
or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made under
the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant,
as applicable, has attained the age of 70 1/2 years old, but only with
respect to the minimum distribution under applicable Internal Revenue
Code ("Code") rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA02116
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) UTILITIES FUND
500 Boylston Street
Boston, MA 02116
MWE-1 3/96/162M 04/204/304
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) WORLD EQUITY FUND
Prospectus
March 1, 1996
<PAGE>
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) WORLD STATEMENT OF
EQUITY FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) March 1, 1996
- --------------------------------------------------------------------------------
Page
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1. Definitions ................................................... 2
2. Investment Techniques ......................................... 2
3. Investment Restrictions ....................................... 11
4. Management of the Fund ........................................ 13
Trustees ................................................... 13
Officers ................................................... 13
Investment Adviser ......................................... 14
Custodian .................................................. 14
Shareholder Servicing Agent ................................ 14
Distributor ................................................ 15
5. Portfolio Transactions and Brokerage Commissions .............. 15
6. Shareholder Services .......................................... 16
Investment and Withdrawal Programs ......................... 16
Exchange Privilege ......................................... 18
Tax-Deferred Retirement Plans .............................. 19
7. Tax Status .................................................... 19
8. Determination of Net Asset Value; Performance Information ..... 20
9. Distribution Plans ............................................ 22
10. Description of Shares, Voting Rights and Liabilities........... 23
11. Independent Auditors and Financial Statements ................. 23
Appendix A .................................................... A-1
MFS WORLD EQUITY FUND
A Series of MFS Series Trust VI
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information (the "SAI") sets forth information
which may be of interest to investors but which is not necessarily included in
the Fund's Prospectus, dated March 1, 1996. This SAI should be read in
conjunction with the Prospectus, a copy of which may be obtained without charge
by contacting the Shareholder Servicing Agent (see back cover for address and
phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS(R) World Equity Fund, a
series of MFS Series Trust
VI, a Massachusetts business
trust (the "Trust"), formerly
known as MFS Lifetime
Worldwide Equity Fund until
its name was changed on June
29, 1993. Prior to August 3,
1992, the Fund was known as
Lifetime Global Equity Trust.
The Fund became a series of
the Trust on September 7,
1993.
"MFS" or the "Adviser" -- Massachusetts Financial
Services Company, a Delaware
corporation.
"MFD" -- MFS Fund Distributors, Inc.,
a Delaware corporation.
"Prospectus" -- The Prospectus of the Fund,
dated March 1, 1996, as
amended or suppleemented from
time to time.
2. INVESTMENT TECHNIQUES
The investment objective, policies and techniques are described in the
Prospectus. In addition, certain of the Fund's investment techniques are
described in greater detail below.
LENDING OF SECURITIES
The Fund may seek to increase its income by lending portfolio securities. Such
loans will usually be made only to member banks of the Federal Reserve System
and to member firms (and subsidiaries thereof) of the New York Stock Exchange
(the "Exchange") and would be required to be secured continuously by
collateral in cash, U.S. Government securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Fund would have the right to call a loan
and obtain the securities loaned at any time on customary industry settlement
notice (which will usually not exceed five days). During the existence of a
loan, the Fund would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and would also receive
compensation based on investment of cash collateral. The Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower fail financially.
However, the loans would be made only to firms deemed by the Adviser to be of
good standing, and when, in the judgment of the Adviser, the consideration
which could be earned currently from securities loans of this type justifies
the attendant risk. If the Adviser determines to make securities loans, it is
not intended that the value of the securities loaned would exceed 20% of the
value of the Fund's total assets.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward delivery"
basis. It is expected that, under normal circumstances, the Fund will take
delivery of such securities. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it will set up procedures
consistent with the General Statement of Policy of the Securities and Exchange
Commission (the "SEC") concerning such purchases. Since that policy currently
recommends that an amount of the Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, the
Fund will always have cash, short-term money market instruments or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. However, although the Fund does not intend to make such
purchases for speculative purposes and intends to adhere to the provisions of
SEC policies, purchases of securities on such bases may involve more risk than
other types of purchases. For example, the Fund may have to sell assets which
have been set aside in order to meet redemptions. Also, if the Fund determines
it is necessary to sell the "when-issued" or "forward delivery" securities
before delivery, it may incur a loss because of market fluctuations since the
time the commitment to purchase such securities was made and any gain would
not be tax-exempt. When the time comes to pay for "when-issued" or "forward
delivery" securities, the Fund will meet its obligations from the then-
available cash flow on the sale of securities, or, although it would not
normally expect to do so, from the sale of the "when-issued" or "forward
delivery" securities themselves (which may have a value greater or less than
the Fund's payment obligation).
CORPORATE ASSET-BACKED SECURITIES
As described in the Prospectus, the Fund may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and
automobile loan receivables, representing the obligations of a number of
different parties.
Corporate asset-backed securities present certain risks. 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 a risk that the purchaser
would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws,
the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
The underlying assets (e.g., loans) are also subject to prepayments which
shorten the securities weighted average life and may lower their return.
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 on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) 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 Fund 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 respecting 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.
REPURCHASE AGREEMENTS
As described in the Prospectus, the Fund may enter into repurchase agreements
with sellers who are member firms (or subsidiaries thereof) of the Exchange,
members of the Federal Reserve System, recognized primary U.S. Government
securities dealers or institutions which the Adviser has determined to be of
comparable creditworthiness. The securities that the Fund purchases and holds
through its agent are U.S. Government securities, the values, including
accrued interest, 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 Fund, or the purchase and
repurchase prices may be the same, with interest at a standard rate due to the
Fund together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the U.S. Government
securities.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the Fund will have the right to liquidate the securities. If at
the time the Fund 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 Fund's exercise
of its right to liquidate the securities may be delayed and result in certain
losses and costs to the Fund. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For
example, the Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the Adviser monitors the
seller's creditworthiness on an ongoing basis. Moreover, under such
agreements, the value, including accrued interest, of the securities (which
are marked to market every business day) is required to be greater than the
repurchase price, and the Fund has the right to make margin calls at any time
if the value of the securities falls below the agreed upon margin.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
As described in the Prospectus, the Fund may enter into mortgage "dollar roll"
transactions pursuant to which it sells mortgage-backed securities for
delivery in the future and simultaneously contracts to repurchase
substantially similar securities on a specified future date. During the roll
period, the Fund foregoes principal and interest paid on the mortgage-backed
securities. The Fund is compensated for the lost principal and 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 Fund may also be compensated by
receipt of a commitment fee.
AMERICAN DEPOSITARY RECEIPTS
The Fund 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. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under
no obligation to distribute shareholder communications received from the
issuer of the deposited securities or to pass through voting rights to ADR
holders in respect of the deposited securities. The Fund 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 Fund may purchase securities in
local markets and direct delivery of these ordinary shares to the local
depository of an ADR agent bank in the foreign country. Simultaneously, the
ADR agents create a certificate which settles at the Fund's custodian in five
days. The Fund may also execute trades on the U.S. markets using existing
ADRs. A foreign issuer of the security underlying an ADR is generally not
subject to the same reporting requirements in the United States as a domestic
issuer. Accordingly, the information available to a U.S. investor will be
limited to the information the foreign issuer is required to disclose in its
own country and the market value of an ADR may not reflect undisclosed
material information concerning the issuer of the underlying security. ADRs
may also be subject to exchange rate risks if the underlying foreign
securities are denominated in foreign currency.
LOANS AND OTHER DIRECT INDEBTEDNESS
As described in the Prospectus, the Fund may purchase loans and other direct
indebtedness. In purchasing a loan participation, the Fund acquires some or
all of the interest of a bank or other lending institution in a loan to a
corporate, governmental or other borrower. Many such loans are secured,
although some may be unsecured. Such loans may be in default at the time of
purchase. Loans that are fully secured offer a Fund more protection than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a
secured loan would satisfy the corporate borrower's obligation, or that the
collateral can be liquidated.
These loans and other direct indebtedness are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs
and other corporate activities. Such loans are typically made by a syndicate
of lending institutions, represented by an agent lending institution which has
negotiated and structured the loan and is responsible for collecting interest,
principal and other amounts due on its own behalf and on behalf of the others
in the syndicate, and for enforcing its and their other rights against the
borrower. Alternately, such loans may be structured as a novation, pursuant to
which the Fund would assume all of the rights of the lending institution in a
loan or as an assignment, pursuant to which the Fund would purchase an
assignment of a portion of a lender's interest in a loan either directly from
the lender or through an intermediary. The Fund may also purchase trade or
other claims against companies, which generally represent money owed by the
company to a supplier of goods or services. These claims may also be purchased
at a time when the company is in default.
Certain of the loans acquired by the Fund may involve revolving credit
facilities or other standby financing commitments which obligate the Fund to
pay additional cash on a certain date or on demand. These commitments may have
the effect of requiring the Fund to increase its investment in a company at a
time when the Fund might not otherwise decide to do so (including at a time
when the company's financial condition makes it unlikely that such amounts
will be repaid). To the extent that the Fund is committed to advance
additional funds, it will at all times hold and maintain in a segregated
account cash or other high grade debt obligations in an amount sufficient to
meet such commitments.
The Fund's ability to receive payment 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 loans which the Fund
will purchase, the Adviser will rely upon its own (and not the original
lending institution's) credit analysis of the borrower. As the Fund may be
required to rely upon another lending institution to collect and pass onto the
Fund amounts payable with respect to the loan and to enforce the Fund's rights
under the loan, an insolvency, bankruptcy or reorganization of the lending
institution may delay or prevent the Fund from receiving such amounts. In such
cases, the Fund 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 for purposes of certain investment restrictions
pertaining to the diversification of the Fund'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 and other direct indebtedness may involve additional risk to the
Fund.
FOREIGN SECURITIES
The Fund may invest up to 100% (and expects generally to invest between 10% to
100%) of its total assets in foreign securities. As discussed in the
Prospectus, investing in foreign securities generally presents a greater
degree of risk than investing in domestic securities due to possible exchange
rate fluctuations, less publicly available information, more volatile markets,
less securities regulation, less favorable tax provisions, war or
expropriation. As a result of its investments in foreign securities, the Fund
may receive interest or dividend payments, or the proceeds of the sale or
redemption of such securities, in the foreign currencies in which such
securities are denominated. Under certain circumstances, such as where the
Adviser believes that the applicable exchange rate is unfavorable at the time
the currencies are received or the Adviser anticipates, for any other reason,
that the exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. The Fund may also hold foreign currency in
anticipation of purchasing foreign securities. While the holding of currencies
will permit the Fund to take advantage of favorable movements in the
applicable exchange rate, such strategy also exposes the Fund to risk of loss
if exchange rates move in a direction adverse to the Fund's position. Such
losses could reduce any profits or increase any losses sustained by the Fund
from the sale or redemption of securities and could reduce the dollar value of
interest or dividend payments received.
OPTIONS
OPTIONS ON SECURITIES -- As noted in the Prospectus, the Fund may write
covered call and put options and purchase call and put options on securities.
Call and put options written by the Fund may be covered in the manner set
forth below.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if the Fund 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
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. A put
option written by the Fund is "covered" if the Fund maintains cash, short-term
money market instruments or high quality debt securities with a value equal to
the exercise price in a segregated account with its custodian, or else holds a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held is 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 Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. Put and
call options written by the Fund may also be covered in such other manner as
may be in accordance with the requirements of the exchange on which, or the
counter party with which, the option is traded, and applicable laws and
regulations. If the writer's obligation is not so covered, it is subject to
the risk of the full change in value of the underlying security from the time
the option is written until exercise.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case
of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash,
short-term money market instruments or high quality debt securities. Such
transactions permit the Fund to generate additional premium income, which will
partially offset declines in the value of portfolio securities or increases in
the cost of securities to be acquired. 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 investments of the Fund, provided
that another option on such security is not written. If the Fund desires to
sell a particular security from its portfolio on which it has written a call
option, it will effect a closing transaction in connection with the option
prior to or concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option written by the Fund is less than
the premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than
the premium paid for the original purchase. Conversely, the Fund will suffer a
loss if the premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid in
establishing the option position. Because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option
previously written by the Fund is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call the Fund 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 decline moderately during the option period. Buy-
and-write transactions using out-of-the-money call options may be used when it
is expected that the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such transactions, the
Fund's maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Fund's purchase
price of the security and the exercise price, less related transaction costs.
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 Fund's gain will be limited to the
premium received, less related transaction costs. If the market price of the
underlying security declines or otherwise is below the exercise price, the
Fund may elect to close the position or retain the option until it is
exercised, at which time the Fund will be required to take delivery of the
security at the exercise price; the Fund's return will be the premium received
from the put option minus the amount by which the market price of the security
is below the exercise price, which could result in a loss. Out-of-the-money,
at-the-money and in-the-money put options may be used by the Fund in the same
market environments that call options are used in equivalent buy-and-write
transactions.
The Fund may also write combinations of put and call options on the same
security, known as "straddles," with the same exercise price and expiration
date. By writing a straddle, the Fund undertakes a simultaneous obligation to
sell and purchase the same security in the event that one of the options is
exercised. If the price of the security subsequently rises sufficiently above
the exercise price to cover the amount of the premium and transaction costs,
the call will likely be exercised and the Fund will be required to sell the
underlying security at a below market price. This loss may be offset, however,
in whole or part, by the premiums received on the writing of the two options.
Conversely, if the price of the security declines by a sufficient amount, the
put will likely be exercised. The writing of straddles will likely be
effective, therefore, only where the price of the security remains stable and
neither the call nor the put is exercised. In those instances where one of the
options is exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, the Fund assumes the risk that
it may be required to purchase the underlying security for an exercise price
above its then current market value, resulting in a capital loss unless the
security subsequently appreciates in value. The writing of options on
securities will not be undertaken by the Fund solely for hedging purposes, and
could involve certain risks which are not present in the case of hedging
transactions. Moreover, even where options are written for hedging purposes,
such transactions constitute only a partial hedge against declines in the
value of portfolio securities or against increases in the value of securities
to be acquired, up to the amount of the premium.
The Fund may purchase options for hedging purposes or to increase its return.
Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit the
Fund to sell the securities at the exercise price, or to close out the options
at a profit. By using put options in this way, the Fund 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 Fund may purchase call options to hedge against an increase in the price
of securities that the Fund anticipates purchasing in the future. If such
increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
In certain instances, the Fund may enter into options on Treasury securities
which provide for periodic adjustment of the strike price and may also provide
for the periodic adjustment of the premium during the term of each such
option. Like other types of options, these transactions, which may be referred
to as "reset" options or "adjustable strike" options, grant the purchaser the
right to purchase (in the case of a "call") or sell (in the case of a "put"),
a specified type and series of U.S. Treasury security at any time up to a
stated expiration date (or, in certain instances, on such date). In contrast
to other types of options, however, the price at which the underlying security
may be purchased or sold under a "reset" option is determined at various
intervals during the term of the option, and such price fluctuates from
interval to interval based on changes in the market value of the underlying
security. As a result, the strike price of a "reset" option, at the time of
exercise, may be less advantageous to the Fund than if the strike price had
been fixed at the initiation of the option. In addition, the premium paid for
the purchase of the option may be determined at the termination, rather than
the initiation, of the option. If the premium is paid at termination, the Fund
assumes the risk that (i) the premium may be less than the premium which would
otherwise have been received at the initiation of the option because of such
factors as the volatility in yield of the underlying Treasury security over
the term of the option and adjustments made to the strike price of the option,
and (ii) the option purchaser may default on its obligation to pay the premium
at the termination of the option.
OPTIONS ON STOCK INDICES -- As noted in the Prospectus, the Fund may write
(sell) covered call and put options and purchase call and put options on stock
indices. In contrast to an option on a security, an option on a stock index
provides the holder with the right but not the obligation to make or receive a
cash settlement upon exercise of the option, rather than the right to purchase
or sell a security. The amount of this settlement is equal to (i) the amount,
if any, by which the fixed exercise price of the option exceeds (in the case
of a call) or is below (in the case of a put) the closing value of the
underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier."
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the underlying index, or by having an absolute and immediate right to
acquire such securities without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities in its portfolio. Where the
Fund covers a call option on a stock index through ownership of securities,
such securities may not match the composition of the index and, in that event,
the Fund will not be fully covered and could be subject to risk of loss in the
event of adverse changes in the value of the index. The Fund may also cover
call options on stock indices by holding a call on the same index and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference
is maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. The Fund
may cover put options on stock indices by maintaining cash, short-term money
market instruments or high quality debt securities with a value equal to the
exercise price in a segregated account with its custodian, or by holding 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 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 Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. Put and call options on
stock indices may also be covered in such other manner as may be in accordance
with the rules of the exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the
Fund assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by the Fund correlate with changes in the value of
the index, writing covered put options on indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
The Fund may also purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, the Fund will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option
does not increase, the Fund's loss will be limited to the premium paid for the
option plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by the Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call
options for this purpose, the Fund will also bear the risk of losing all or a
portion of the premium paid if the value of the index does not rise. The
purchase of call options on stock indices when the Fund is substantially fully
invested is a form of leverage, up to the amount of the premium and related
transaction costs, and involves risks of loss and of increased volatility
similar to those involved in purchasing calls on securities the Fund owns.
The index underlying a stock index option may be a "broad-based" index, such
as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
Index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based on narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market
values of the stocks so included. The composition of the index is changed
periodically.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS -- As noted in the Prospectus, the Fund may enter into stock
index futures contracts and/or foreign currency futures contracts. (Unless
otherwise specified, futures contracts on indexes and foreign currency futures
contracts are collectively referred to as "Futures Contracts.") Such
investment strategies will be used for hedging purposes and for non-hedging
purposes, subject to applicable law.
A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a Futures Contract
provides for a specified settlement date on which, in the case of the majority
of foreign currency futures contracts, the currency is delivered by the seller
and paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain foreign currency futures contracts, the difference
between the price at which the contract was entered into and the contract's
closing value is settled between the purchaser and seller in cash. Futures
Contracts differ from options in that they are bilateral agreements, with both
the purchaser and the seller equally obligated to complete the transaction.
Futures Contracts call for settlement only on the expiration date and cannot
be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale
of a security or the purchase of an option in that no purchase price is paid
or received. Instead, an amount of cash or cash equivalents, which varies but
may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the
broker, referred to as "variation margin," are made on a daily basis as the
value of the index or instrument underlying the Futures Contract fluctuates,
making positions in the Futures Contract more or less valuable -- a process
known as "marking to the market."
Purchases or sales of stock index futures contracts are used to attempt to
protect the Fund's current or intended stock investments from broad
fluctuations in stock prices. For example, the Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When the Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock index futures
contracts will be closed out. In a substantial majority of these transactions,
the Fund will purchase such securities upon termination of the futures
position, but under unusual market conditions, a long futures position may be
terminated without a related purchase of securities.
As noted in the Prospectus, the Fund may purchase and sell foreign currency
futures contracts for hedging purposes, to attempt to protect its current or
intended investments from fluctuations in currency exchange rates. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities
to be acquired, even if the value of such securities in the currencies in
which they are denominated remains constant. The Fund may sell futures
contracts on a foreign currency, for example, where it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the
resulting adverse effect on the value of foreign-denominated securities may be
offset, in whole or in part, by gains on the futures contracts.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. Where the Fund purchases futures contracts under
such circumstances, however, and the prices of securities to be acquired
instead decline, the Fund will sustain losses on its futures position which
could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
OPTIONS ON FUTURES CONTRACTS -- As noted in the Prospectus, the Fund may
purchase and write options to buy or sell futures contracts in which it may
invest ("Options on Futures Contracts"). Such investment strategies will be
used for hedging purposes and for non-hedging purposes, subject to applicable
law.
An Option on a Futures Contract provides the holder with the right to enter
into a "long" position in the underlying Futures Contract, in the case of a
call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or
a corresponding long position in the case of a put option. In the event that
an option is exercised, the parties will be subject to all the risks
associated with the trading of Futures Contracts, such as payment of initial
and variation margin deposits. In addition, the writer of an Option on a
Futures Contract, unlike the holder, is subject to initial and variation
margin requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
Options on Futures Contracts that are written or purchased by the Fund on U.S.
exchanges are traded on the same contract market as the underlying Futures
Contract, and, like Futures Contracts, are subject to regulation by the CFTC
and the performance guarantee of the exchange clearinghouse. In addition,
Options on Futures Contracts may be traded on foreign exchanges.
The Fund 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 Fund in cash or securities in a segregated
account with its custodian. The Fund may cover the writing of put Options on
Futures Contracts (a) through sales of the underlying Futures Contract, (b)
through segregation of cash, short-term money market instruments or high
quality debt securities in an amount equal to the value of the security or
index underlying the Futures Contract, 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 Fund in cash, short-term money market instruments or high
quality debt securities 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 the option is
traded and applicable laws and regulations. Upon the exercise of a call Option
on a Futures Contract written by the Fund, the Fund will be required to sell
the underlying Futures Contract which, if the Fund has covered its obligation
through the purchase of such Contract, will serve to liquidate its futures
position. Similarly, where a put Option on a Futures Contract written by the
Fund is exercised, the Fund will be required to purchase the underlying
Futures Contract which, if the Fund has covered its obligation through the
sale of such Contract, will close out its futures position.
The writing of a call option on a Futures Contract for hedging purposes
constitutes a partial hedge against declining prices of the securities or
other instruments required to be delivered under the terms of the Futures
Contract. If the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium,
less related transaction costs, which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing
of a put option on a Futures Contract constitutes a partial hedge against
increasing prices of the securities or other instruments required to be
delivered under the terms of the Futures Contract. If the futures price at
expiration of the option is higher than the exercise price, the Fund will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is exercised, the Fund
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 the changes in the value of its futures
positions, the Fund's losses from existing Options on Futures Contracts may to
some extent be reduced or increased by changes in the value of portfolio
securities.
The Fund may purchase Options on Futures Contracts for hedging purposes
instead of purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, the Fund could, in lieu of selling Futures Contracts, purchase
put options thereon. In the event that such decrease occurs, it may be offset,
in whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call Options on Futures Contracts, rather than
purchasing the underlying Futures Contracts.
FORWARD CONTRACTS ON FOREIGN CURRENCY
As noted in the Prospectus, the Fund may enter into forward foreign currency
exchange contracts ("Forward Contracts") for hedging and non-hedging purposes.
Forward Contracts may be used for hedging to attempt to minimize the risk to
the Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies. The Fund intends to enter into Forward Contracts for
hedging purposes similar to those described above in connection with foreign
currency futures contracts. In particular, a Forward Contract to sell a
currency may be entered into in lieu of the sale of a foreign currency futures
contract where the Fund seeks to protect against an anticipated increase in
the exchange rate for a specific currency which could reduce the dollar value
of portfolio securities denominated in such currency. Conversely, the Fund may
enter into a Forward Contract to purchase a given currency to protect against
a projected increase in the dollar value of securities denominated in such
currency which the Fund intends to acquire. The Fund also may enter into a
Forward Contract in order to assure itself of a predetermined exchange rate in
connection with a security denominated in a foreign currency. In addition, the
Fund may enter into Forward Contracts for "cross hedging" purposes; e.g., the
purchase or sale of a Forward Contract on one type of currency as a hedge
against adverse fluctuations in the value of a second type of currency.
If a hedging transaction in Forward Contracts is successful, the decline in
the value of portfolio securities or other assets or the increase in the cost
of securities or other assets to be acquired may be offset, at least in part,
by profits on the Forward Contract. Nevertheless, by entering into such
Forward Contracts, the Fund may be required to forego all or a portion of the
benefits which otherwise could have been obtained from favorable movements in
exchange rates or natural resources prices. The Fund does not intend, in most
instances, to hold Forward Contracts entered into until maturity, at which
time it would be required to deliver or accept delivery of the underlying
currency, but will usually seek to close out positions in such contracts by
entering into offsetting transactions, which will serve to fix the Fund's
profit or loss based upon the value of the contracts at the time the
offsetting transaction is executed.
The Fund will also enter into transactions in Forward Contracts for other than
hedging purposes, which present greater profit potential but also involve
increased risk. For example, the Fund may purchase a given foreign currency
through a Forward Contract if, in the judgment of the Adviser, the value of
such currency is expected to rise relative to the U.S. dollar. Conversely, the
Fund may sell the currency through a Forward Contract if the Adviser believes
that its value will decline relative to the dollar.
The Fund will profit if the anticipated movements in foreign currency exchange
rates occurs, which will increase its gross income. Where exchange rates do
not move in the direction or to the extent anticipated, however, the Fund may
sustain losses which will reduce its gross income. Such transactions,
therefore, could be considered speculative and could involve significant risk
of loss.
The Fund 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
Fund satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash equivalents or high quality debt
securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts. While these
contracts are not presently regulated by the CFTC, the CFTC may in the future
assert authority to regulate Forward Contracts. In such event, the Fund's
ability to utilize Forward Contracts in the manner set forth above may be
restricted.
OPTIONS ON FOREIGN CURRENCIES
As noted in the Prospectus, the Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or Forward Contracts, will be utilized. For
example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, the Fund will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, the Fund 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 Fund 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 Fund 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 Fund may write options on foreign currencies for the same types of hedging
purposes. For example, where the Fund 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 Fund could write
a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. Foreign currency options written by the
Fund will generally be covered in a manner similar to the covering of other
types of options. 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 Fund
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 Fund 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.
RISK FACTORS IN OPTIONS, FUTURES AND FORWARD
TRANSACTIONS
RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO. The Fund's abilities effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, Options on
Futures Contracts, Forward Contracts and options on foreign currencies depend
on the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant portion of the Fund's
portfolio. In the case of futures and options based on an index, the portfolio
will not duplicate the components of the index, and in the case of futures and
options on fixed income securities, the portfolio securities which are being
hedged may not be the same type of obligation underlying such contract. The
use of Forward Contracts for "cross hedging" purposes may involve greater
correlation risks. As a result, the correlation probably will not be exact.
Consequently, the Fund bears the risk that the price of the portfolio
securities being hedged will not move in the same amount or direction as the
underlying index or obligation.
For example, if the Fund purchases a put option on an index and the index
decreases less than the value of the hedged securities, the Fund would
experience a loss which is not completely offset by the put option. It is also
possible that there may be a negative correlation between the index or
obligation underlying an option or Futures Contract in which the Fund has a
position and the portfolio securities the Fund is attempting to hedge, which
could result in a loss on both the portfolio and the hedging instrument. In
addition, the Fund may enter into transactions in Forward Contracts or options
on foreign currencies in order to hedge against exposure arising from the
currencies underlying such forwards. In such instances, the Fund will be
subject to the additional risk of imperfect correlation between changes in the
value of the currencies underlying such forwards or options and changes in the
value of the currencies being hedged.
It should be noted that stock index futures contracts or options based upon a
narrower index of securities, such as those of a particular industry group,
may present greater risk than options or futures based on a broad market
index. This is due to the fact that a narrower index is more susceptible to
rapid and extreme fluctuations as a result of changes in the value of a small
number of securities. Nevertheless, where the Fund enters into transactions in
options or futures on narrow-based indexes for hedging purposes, movements in
the value of the index should, if the hedge is successful, correlate closely
with the portion of the Fund's portfolio or the intended acquisitions being
hedged.
The trading of Futures Contracts, options and Forward Contracts for hedging
purposes entails the additional risk of imperfect correlation between
movements in the futures or option price and the price of the underlying index
or obligation. The anticipated spread between the prices may be distorted due
to the differences in the nature of the markets, such as differences in margin
requirements, the liquidity of such markets and the participation of
speculators in the options, futures and forward markets. In this regard,
trading by speculators in options, futures and Forward Contracts has in the
past occasionally resulted in market distortions, which may be difficult or
impossible to predict, particularly near the expiration of such contracts.
The trading of Options on Futures Contracts 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. The risk of imperfect correlation, however, generally
tends to diminish as the maturity date of the Futures Contract or expiration
date of the option approaches.
Further, with respect to options on securities, options on stock indexes,
options on currencies and Options on Futures Contracts, the Fund is subject to
the risk of market movements between the time that the option is exercised and
the time of performance thereunder. This could increase the extent of any loss
suffered by the Fund in connection with such transactions.
In writing a covered call option on a security, index or futures contract, the
Fund also incurs the risk that changes in the value of the instruments used to
cover the position will not correlate closely with changes in the value of the
option or underlying index or instrument. For example, where the Fund covers a
call option written on a stock index through segregation of securities, such
securities may not match the composition of the index, and the Fund may not be
fully covered. As a result, the Fund could be subject to risk of loss in the
event of adverse market movements.
The writing of options on securities, options on stock indexes or Options on
Futures Contracts constitutes only a partial hedge against fluctuations in the
value of the Fund's portfolio. When the Fund writes an option, it will receive
premium income in return for the holder's purchase of the right to acquire or
dispose of the underlying obligation. In the event that the price of such
obligation does not rise sufficiently above the exercise price of the option,
in the case of a call, or fall below the exercise price, in the case of a put,
the option will not be exercised and the Fund will retain the amount of the
premium, less related transaction costs, which will constitute a partial hedge
against any decline that may have occurred in the Fund's portfolio holdings or
any increase in the cost of the instruments to be acquired.
Where the price of the underlying obligation moves sufficiently in favor of
the holder to warrant exercise of the option, however, and the option is
exercised, the Fund will incur a loss which may only be partially offset by
the amount of the premium it received. Moreover, by writing an option, the
Fund may be required to forego the benefits which might otherwise have been
obtained from an increase in the value of portfolio securities or other assets
or a decline in the value of securities or assets to be acquired.
In the event of the occurrence of any of the foregoing adverse market events,
the Fund's overall return may be lower than if it had not engaged in the
hedging transactions.
It should also be noted that the Fund may enter transactions in options
(except for options on foreign currencies), Futures Contracts, Options on
Futures Contracts and Forward Contracts not only for hedging purposes, but
also for non-hedging purposes intended to increase portfolio returns. Non-
hedging transactions in such investments involve greater risks and may result
in losses which may not be offset by increases in the value of portfolio
securities or declines in the cost of securities to be acquired. The Fund will
only write covered options, such that cash or securities necessary to satisfy
an option exercise will be segregated at all times, unless the option is
covered in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations.
Nevertheless, the method of covering an option employed by the Fund may not
fully protect it against risk of loss and, in any event, the Fund could suffer
losses on the option position which might not be offset by corresponding
portfolio gains.
The Fund also may enter into transactions in Futures Contracts, Options on
Futures Contracts and Forward Contracts for other than hedging purposes, which
could expose the Fund to significant risk of loss if foreign currency exchange
rates do not move in the direction or to the extent anticipated. In this
regard, the foreign currency may be extremely volatile from time to time, as
discussed in the Prospectus and in this SAI, and the use of such transactions
for non-hedging purposes could therefore involve significant risk of loss.
With respect to the writing of straddles on securities, the Fund incurs the
risk that the price of the underlying security will not remain stable, that
one of the options written will be exercised and that the resulting loss will
not be offset by the amount of the premiums received. Such transactions,
therefore, create an opportunity for increased return by providing the Fund
with two simultaneous premiums on the same security, but involve additional
risk, since the Fund may have an option exercised against it regardless of
whether the price of the security increases or decreases.
RISK OF A POTENTIAL LACK OF A LIQUID SECONDARY MARKET. Prior to exercise
or expiration, a futures or option position can only be terminated by entering
into a closing purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial transaction was
entered into. While the Fund will enter into options or futures positions only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular contracts at any
specific time. In that event, it may not be possible to close out a position
held by the Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. Under such circumstances, if the Fund
has insufficient cash available to meet margin requirements, it will be
necessary to liquidate portfolio securities or other assets at a time when it
is disadvantageous to do so. The inability to close out options and futures
positions, therefore, could have an adverse impact on the Fund's ability
effectively to hedge its portfolio, and could result in trading losses.
The liquidity of a secondary market in a Futures Contract or option thereon
may be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures or option positions and requiring
traders to make additional margin deposits. Prices have in the past moved the
daily limit on a number of consecutive trading days.
The trading of Futures Contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse equipment failures,
government intervention, insolvency of a brokerage firm or clearinghouse or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
MARGIN. Because of low initial margin deposits made upon the opening of a
futures or forward position and the writing of an option, such transactions
involve substantial leverage. As a result, relatively small movements in the
price of the contract can result in substantial unrealized gains or losses.
Where the Fund enters into such transactions for hedging purposes, any losses
incurred in connection therewith should, if the hedging strategy is
successful, be offset, in whole or in part, by increases in the value of
securities or other assets held by the Fund or decreases in the prices of
securities or other assets the Fund intends to acquire. Where the Fund enters
into such transactions for other than hedging purposes, the margin
requirements associated with such transactions could expose the Fund to
greater risk.
TRADING AND POSITION LIMITS. The exchanges on which futures and options
are traded may impose limitations governing the maximum number of positions on
the same side of the market and involving the same underlying instrument which
may be held by a single investor, whether acting alone or in concert with
others (regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). Further, the CFTC and the various contract markets have established
limits referred to as "speculative position limits" on the maximum net long or
net short position which any person may hold or control in a particular
futures or option contract. An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. The Adviser does not believe that these trading and position
limits will have any adverse impact on the strategies for hedging the
portfolio of the Fund.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The amount of risk the Fund assumes
when it purchases an Option on a Futures Contract is the premium paid for the
option, plus related transaction costs. In order to profit from an option
purchased, however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks of the
availability of a liquid offset market described herein. 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,
as well as the additional risk that movements in the price of the option may
not correlate with movements in the price of the underlying security, index,
currency or Futures Contract.
RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND TRANSACTIONS NOT
CONDUCTED ON U.S. EXCHANGES. Transactions in Forward Contracts on foreign
currencies, as well as futures and options on foreign currencies and
transactions executed on foreign exchanges, are subject to all of the
correlation, liquidity and other risks outlined above. In addition, however,
such transactions are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on
the value of positions held by the Fund. Further, the value of such positions
could be adversely affected by a number of other complex political and
economic factors applicable to the countries issuing the underlying
currencies.
Further, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying contracts thereon. As a result, the available
information on which trading systems will be based may not be as complete as
the comparable data on which the Fund makes investment and trading decisions
in connection with other transactions. Moreover, because the foreign currency
market is a global, 24-hour market, events could occur in that market which
will not be reflected in the forward, futures or options markets until the
following day, thereby making it more difficult for the Fund to respond to
such events in a timely manner.
Settlements of exercises of over-the-counter Forward Contracts or foreign
currency options generally must occur within the country issuing the
underlying currency, which in turn requires traders to accept or make delivery
of such currencies in conformity with any U.S. or foreign restrictions and
regulations regarding the maintenance of foreign banking relationships, fees,
taxes or other charges.
Unlike transactions entered into by the Fund in Futures Contracts and
exchange-traded options, options on foreign currencies, Forward Contracts and
over-the-counter options on securities are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. 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 and a trader of Forward Contracts could lose
amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund.
Where no such counterparty is available, it will not be possible to enter into
a desired transaction. There also may be no liquid secondary market in the
trading of over-the-counter contracts, and the Fund could be required to
retain options purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit the Fund's ability
to profit from open positions or to reduce losses experienced, and could
result in greater losses.
Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearinghouse, and the Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby
restricting the Fund's ability to enter into desired hedging transactions. The
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.
Options on securities, options on stock indexes, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the
same manner as those entered into on U.S. exchanges, and may be subject to
different margin, exercise, settlement or expiration procedures. As a result,
many of the risks of over-the-counter trading may be present in connection
with such transactions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation (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 Fund to liquidate open positions at a profit prior
to exercise or expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions 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.
POLICIES ON THE USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS. In order
to assure that the Fund will not be deemed to be a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the CFTC require that
the Fund 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 Fund's assets. In addition, the Fund must
comply with the requirements of various state securities laws in connection
with such transactions.
The Fund has adopted the additional restriction that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets. Moreover, the Fund will not purchase put and
call options if as a result more than 5% of its total assets would be invested
in such options.
When the Fund purchases a Futures Contract, an amount of cash or securities
will be deposited in a segregated account with the Fund's custodian so that
the amount so segregated will at all times equal the value of the Futures
Contract, thereby insuring that the leveraging effect of such futures is
minimized.
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
and, therefore, together with other illiquid securities held by a Fund, cannot
exceed 15% of the Fund's assets (the "SEC illiquidity ceiling"). Although the
Adviser disagrees with this position, the Adviser intends to limit the Fund's
writing of over-the-counter options in accordance with the following
procedure. Except as provided below, the Fund intends to write over-the-
counter options only with primary U.S. Government securities dealers
recognized as such by the Federal Reserve Bank of New York. Also, the
contracts the Fund has in place with such primary dealers provide that the
Fund has the absolute right to repurchase an option it writes at any time at a
price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
generally is based on a multiple of the premium received by the Fund 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 Fund will treat all or a portion of the formula as illiquid for
purposes of the SEC illiquidity ceiling test imposed by the SEC staff. The
Fund may also write over-the-counter options with non-primary dealers,
including foreign dealers (where applicable), and will treat the assets used
to cover these options as illiquid for purposes of such SEC illiquidity
ceiling test.
3. INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which cannot be changed
without the approval of the holders of a majority of the Fund's shares (which,
as used in this SAI, means the lesser of (i) more than 50% of the outstanding
shares of the Trust (or a class or series, as applicable) or (ii) 67% or more
of the outstanding shares of the Trust (or a class or series, as applicable)
present at a meeting if holders of more than 50% of the outstanding shares of
the Trust (or a class or series, as applicable) are represented in person or
by proxy). Except for Investment Restriction (1), these investment
restrictions and policies are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
The Fund may not:
(1) Borrow money in an amount in excess of 33 1/3% of its total assets,
and then only as a temporary measure for extraordinary or emergency
purposes, or pledge, mortgage or hypothecate an amount of its assets (taken
at market value) in excess of 15% of its total assets, in each case taken at
the lower of cost or market value. For the purpose of this restriction,
collateral arrangements with respect to options, Futures Contracts, Options
on Futures Contracts, Forward Contracts and options on foreign currencies,
and payments of initial and variation margin in connection therewith, are
not considered a pledge of assets.
(2) Underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security.
(3) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objective, the Fund
may invest up to 25% of its assets (taken at market value at the time of
each investment) in securities of issuers in any one industry.
(4) Purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein and securities
secured by real estate), or mineral leases, commodities or commodity
contracts (except contracts for the future or forward delivery of securities
or foreign currencies and related options, and except Futures Contracts and
Options on Futures Contracts) in the ordinary course of its business. The
Fund reserves the freedom of action to hold and to sell real estate or
mineral leases, commodities or commodity contracts acquired as a result of
the ownership of securities.
(5) Make loans to other persons except by the purchase of obligations in
which the Fund is authorized to invest and by entering into repurchase
agreements; provided that the Fund may lend its portfolio securities
representing not in excess of 30% of its total assets (taken at market
value). Not more than 10% of the Fund's total assets (taken at market value)
may be invested in repurchase agreements maturing in more than seven days.
The Fund may purchase all or a portion of an issue of debt securities
distributed privately to financial institutions. For these purposes the
purchase of short-term commercial paper or a portion or all of an issue of
debt securities which are part of an issue to the public shall not be
considered the making of a loan.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than U.S.
Government securities.
(7) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause more than 10% of any class of
securities of such issuer to be held by the Fund. For this purpose all
indebtedness of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class.
(8) Invest for the purpose of exercising control or management.
(9) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is a member, partner, officer or Director of the
Adviser, if after the purchase of the securities of such issuer by the Fund
one or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or
both, all taken at market value.
(10) Purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of securities and the Fund may make
margin deposits in connection with options, Futures Contracts, Options on
Futures Contracts, Forward Contracts and options on foreign currencies.
(11) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to obtain
securities without payment of further consideration equivalent in kind and
amount to the securities sold and provided that if such right is conditional
the sale is made upon equivalent conditions.
(12) Purchase securities issued by any other registered investment company
or investment trust except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or consolidation;
provided, however, that the Fund will not purchase such securities if such
purchase at the time thereof would cause more than 10% of its total assets
(taken at market value) to be invested in the securities of such issuers;
and, provided further, that the Fund will not purchase securities issued by
an open-end investment company.
(13) Write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent the Fund from writing,
purchasing and selling puts, calls or combinations thereof with respect to
securities, indexes of securities or foreign currencies, and with respect to
Futures Contracts.
(14) Issue any senior security (as that term is defined in the 1940 Act),
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder. For the purposes of this restriction,
collateral arrangements with respect to options, Futures Contracts and
Options on Futures Contracts and collateral arrangements with respect to
initial and variation margins are not deemed to be the issuance of a senior
security.
As a non-fundamental policy, the Fund will not knowingly invest in securities
which are subject to legal or contractual restrictions on resale (other than
repurchase agreements), unless the Board of Trustees has determined that such
securities are liquid based upon trading markets for the specific security,
if, as a result thereof, more than 15% of the Fund's net assets (taken at
market value) would be so invested.
OTHER OPERATING POLICIES
The Fund will not invest more than 5% of its total assets in companies which,
including their respective predecessors, have a record of less than three
years' continuous operation.
In order to comply with certain state statutes, the Fund will not, as a matter
of operating policy, pledge, mortgage or hypothecate its portfolio securities
if the percentage of securities so pledged, mortgaged or hypothecated would
exceed 33 1/3%. Also, the Fund may not exceed 5.0% of the value of the Fund's
net assets in investments in warrants, valued at the lower of cost or market.
Included within that amount, but not to exceed 2.0% of the value of the Fund's
net assets, may be warrants which are not listed on the New York or American
Stock Exchange. Warrants acquired by the Fund in units or attached to
securities may be deemed to be without value.
These operating policies are not fundamental and may be changed without
shareholder approval.
4. MANAGEMENT OF THE FUND
The Board of Trustees of the Trust provides broad supervision over the affairs
of the Fund. The Adviser is responsible for the investment management of the
Fund's assets, and the officers of the Trust are responsible for its
operations. The Trustees and officers of the Trust are listed below, together
with their principal occupations during the past five years. (Their titles may
have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
MARSHALL N. COHAN
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D.
Brigham and Women's Hospital, Chief of Cardiac Surgery; Harvard Medical
School, Professor of Surgery
Address: 75 Francis Street, Boston, Massachusetts
THE HON. SIR J. DAVID GIBBONS, KBE
Edmund Gibbons Limited, Chief Executive Officer; The Bank of N.T. Butterfield
& Son Ltd., Chairman
Address: 21 Reid Street, Hamilton, Bermuda
ABBY M. O'NEILL
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: 30 Rockefeller Plaza, Room 5600, New York, New York
WALTER E. ROBB, III
Benchmark Advisors, Inc. (corporate financial consultants), President and
Treasurer; Benchmark Consulting Group, Inc. (office services), President;
Landmark Funds (mutual funds), Trustee
Address: 110 Broad Street, Boston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
J. DALE SHERRATT
Insight Resources, Inc. (acquisition planning specialists), President
Address: One Liberty Square, 10th Fl., Boston, Massachusetts
WARD SMITH
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)
Address: 5875 Landerbrook Drive, Mayfield Heights, Ohio
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
- ----------
*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose
address is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary is the
investment adviser or distributor. Mr. Brodkin, the Chairman of MFD, Messrs.
Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of MFD, hold
similar positions with certain other MFS affiliates. Mr. Bailey is a Director
of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"),
the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey who
currently receive a fee of $1,250 per year plus $225 per meeting and $225 per
committee meeting attended, together with such Trustee's out-of-pocket
expenses. The Trust has adopted a retirement plan for non-interested Trustees
and Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 72
and if the Trustee has completed at least five 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 72
and receive reduced payments if he has completed at least five 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 Fund for
Messrs. Brodkin, Scott and Shames. The Fund will accrue its allocable share of
compensation expenses each year to cover current year's service and amortize
past service cost.
Set forth in Appendix A hereto is certain information concerning the cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of January 31, 1996, the Trustees and officers, as a group, of the Fund
owned less than 1% of the outstanding shares of the Fund.
As of January 31, 1996, Merrill Lynch, Pierce Fenner & Smith Inc., P.O. Box
45286, Jacksonville, Florida, was the owner of approximately 11.78% of the
outstanding Class C shares of the Fund.
The Declaration of Trust provides that the Trust 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
Trust, unless, as to liabilities to the Trust 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 Trust. In the case of settlement, such indemnification will
not be provided unless it has been determined pursuant to the Declaration of
Trust, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS, together with its predecessor organizations, has a history of money
management dating from 1924. MFS is a wholly owned subsidiary of Sun Life of
Canada (U.S.) which in turn is a wholly owned subsidiary of Sun Life Assurance
Company of Canada ("SunLife").
The Adviser manages the assets of the Fund pursuant to an Investment Advisory
Agreement with the Fund dated as of September 1, 1993. The Adviser provides
the Fund with overall investment advisory and administrative services, as well
as general office facilities. Subject to such policies as the Trustees may
determine, the Adviser makes investment decisions for the Fund. For its
services and facilities, the Adviser is entitled to receive a management fee,
computed and paid monthly, in an amount equal to 1.00% of the Fund's average
daily net assets for its then current fiscal year.
For the Fund's fiscal years ended October 31, 1993, 1994 and 1995, the
investment advisory fees paid by the Fund were $1,038,647, $1,778,464 and
$1,981,096, respectively. Lifetime Advisers, Inc. ("LAI") the Fund's Adviser
prior to September 1, 1993, had no employees and relied on the Adviser to
furnish it with overall administrative services and general office facilities.
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by the Fund in any fiscal year to the extent such
expenses exceed the most restrictive of such state expense limitations. The
Adviser will make appropriate adjustments to such reductions and
reimbursements in response to any amendment or rescission of the various state
requirements.
The Fund pays all of the Fund's expenses (other than those assumed by MFS or
MFD), including: governmental fees; interest charges; taxes; membership dues
in the Investment Company Institute allocable to that Fund; fees and expenses
of independent auditors, of legal counsel, and of any transfer agent,
registrar or dividend disbursing agent of the Fund; expenses of repurchasing
and redeeming shares and servicing shareholder accounts; expenses of
preparing, printing and mailing share certificates, periodic reports, notices
and proxy statements to shareholders and to governmental officers and
commissions; brokerage and other expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance
premiums; fees and expenses of State Street Bank and Trust Company, the Fund's
Custodian, for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing
of prospectuses are borne by the Fund except that the Fund's Distribution
Agreement with MFD requires MFD to pay for prospectuses that are to be used
for sales purposes. Expenses of the Trust which are not attributable to a
specific series are allocated among the series in a manner believed by
management of the Trust to be fair and equitable. For a list of the Fund's
expenses, including the compensation paid to Trustees who are not officers of
MFS, for the fiscal year ended October 31, 1995, see the "Statement of
Operations" in the Fund's Annual Report incorporated by reference into this
SAI. Payment by the Fund of brokerage commissions for brokerage and research
services of value to the Adviser in serving its clients is discussed under the
caption "Portfolio Transactions and Brokerage Commissions" below.
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The 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 Fund's investments, effecting its
portfolio transactions and, in general, administering its affairs.
The Advisory Agreement with the Fund will remain in effect until August 1,
1996, 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 Fund's shares (as defined in "Investment Restrictions") 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 Fund's shares (as defined in
"Investment Restrictions") or by either party on not more than 60 days' nor
less than 30 days' written notice. The Advisory Agreement provides that if MFS
ceases to serve as the Adviser to the Fund, the Fund will change its name so
as to delete the term "MFS" and that MFS may render services to others and may
permit other fund clients to use the term "MFS" in their names. The Advisory
Agreement also provides that neither the Adviser 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 Fund, 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.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily
net asset value and public offering price of each class of shares of the Fund.
The Custodian does not determine the investment policies of the Fund or decide
which securities the Fund will buy or sell. The Fund may, however, invest in
securities of the Custodian and may deal with the Custodian as principal in
securities transactions. The Custodian also serves as the dividend and
distribution disbursing agent of the Fund. The Custodian has contracted with
the Adviser for the Adviser to perform certain accounting functions related to
options transactions for which the Adviser receives remuneration on a cost
basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agent Agreement with the Fund, dated as of September 10,
1986 (the "Agency Agreement"). The Shareholder Servicing Agent's
responsibilities under the Agency Agreement include administering and
performing transfer agent functions and the keeping of records in connection
with the issuance, transfer and redemption of each class of shares of the
Fund. For these services, the Shareholder Servicing Agent will receive a fee
calculated as a percentage of the average daily net assets of each class of
shares at an effective annual rate of up to 0.15%, up to 0.22% and up to 0.15%
attributable to Class A, Class B and Class C shares, respectively. In
addition, the Shareholder Servicing Agent will be reimbursed by the Fund for
certain expenses incurred by the Shareholder Servicing Agent on behalf of the
Fund. State Street Bank and Trust Company, the dividend and distribution
disbursing agent for the Fund, has contracted with the Shareholder Servicing
Agent to administer and perform certain dividend and distribution disbursing
functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the
continuous offering of shares of the Fund pursuant to a Distribution Agreement
dated January 1, 1995 (the "Distribution Agreement"). Prior to January 1,
1995, MFS Financial Services, Inc. ("FSI"), another wholly owned subsidiary of
MFS, was the Fund distributor. Where this SAI refers to MFD in relation to the
receipt or payment of money with respect to a period or periods prior to
January 1, 1995, such reference shall be deemed to include FSI, as the
predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling shares of the Fund to dealers.
The public offering price of the Class A shares of the Fund is their net asset
value next computed after the sale plus a sales charge which varies based upon
the quantity purchased. The public offering price of a Class A share of the
Fund is calculated by dividing the net asset value of a Class A share by the
difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "Purchases" in
the Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS
Funds") and other funds (as noted under Right of Accumulation) by any person,
including members of a family unit (e.g., husband, wife and minor children)
and bona fide trustees, and also applies to purchases made under the Right of
Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs"
below). A group might qualify to obtain quantity sales charge discounts (see
"Investment and Withdrawal Programs" below).
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain transactions as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because
the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may
be more or less than the sales charge calculated using the sales charge
expressed as a percentage of offering price or as a percentage of the net
amount invested as listed in the Prospectus. In the case of the maximum sales
charge the dealer retains 5% and MFD retains approximately 3/4 of 1% of the
public offering price. In addition, MFD pays a commission to dealers who
initiate and are responsible for purchases of $1 million or more as described
in the Prospectus.
CLASS B AND CLASS C SHARES: MFD acts as agent in selling Class B and Class C
shares of the Fund to dealers. The public offering price of Class B and Class
C shares is their net asset value next computed after the sale (see
"Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD may obtain brokers
loans from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers
for the purchase of Funds shares.
During the Fund's fiscal year ended October 31, 1995, MFD received net
commissions of $19,998 and dealers and other financial institutions received
net commissions of $225,700 (as their concession on gross commissions of
$245,698) for selling Class A shares of the Fund; the Fund received
$17,616,922 representing the aggregated net asset value of shares. During the
Fund's fiscal year ended October 31, 1994, MFD received net commissions of
$31,650 and dealers received net commissions of $207,581 (as their concession
on gross commissions of $239,231) for selling Class A shares of the Fund; the
Fund received $9,928,946 representing the aggregated net asset value of
shares. During the period September 7, 1993 through October 31, 1993, FSI
received net commissions of $2,457 and dealers received net commissions of
$11,682 (as their concession on gross commissions of $14,139) for selling
Class A shares of the Fund; the Fund received $517,128 representing the
aggregate net asset value of such shares.
During the fiscal years ended October 31, 1993, 1994 and 1995, the CDSC
imposed for Class B shares was $294,138, $212,918 and $235,884, respectively.
The Distribution Agreement will remain in effect until August 1, 1996 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 Fund's shares (as defined in "Investment Restrictions") and in either
case, by a majority of the Trustees who are not parties to such Distribution
Agreement or interested persons of any such party. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without
penalty by either party on not more than 60 days' nor less than 30 days'
notice.
5. PORTFOLIO TRANSACTIONS AND BROKERAGE
COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by
employees of the Adviser, who are appointed and supervised by its senior
officers. Changes in the Fund's investments are reviewed by the Board of
Trustees. The Fund's portfolio manager may serve other clients of the Adviser
or any subsidiary of MFS in a similar capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting broker-
dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services, and the level of their
brokerage commissions. In the case of securities, such as government
securities, which are principally traded in the over-the-counter market (where
no stated commissions are paid but the prices include a dealer's markup or
markdown), the Adviser normally seeks to deal directly with the primary market
makers, unless in its opinion, better prices are available elsewhere. In the
case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. Securities
firms or futures commission merchants 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. From time to time, soliciting dealer fees are available to the
Adviser on the tender of the Fund's portfolio securities in so-called tender
or exchange offers. Such soliciting dealer fees are in effect recaptured for
the Fund by the Adviser. At present no other recapture arrangements are in
effect.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Fund to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction for the Fund in
excess of the amount other broker-dealers would have charged for the
transaction if the 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 Adviser's overall responsibilities to
the Fund or to its other clients. Not all of such services are useful or of
value in advising the Fund.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of purchasing or selling securities, and the
availability 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 performing functions incidental thereto such as
clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to
the availability of purchasers or sellers of securities and services in
effecting securities transactions and 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 Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Fund. The Trustees (together with the Trustees of the other MFS Funds)
have directed the Adviser to allocate a total of $23,100 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 Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality
of Research provided by brokers. Results of this effort are sometimes used by
the Adviser as a consideration in the selection of brokers to execute
portfolio transactions. However, the Adviser is unable to quantify the amount
of commissions which will be paid as a result of such Research because a
substantial number of transactions will be effected through brokers which
provide Research but which were selected principally because of their
execution capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To
the extent the Fund's portfolio transactions are used to obtain such services,
the brokerage commissions paid by the Fund 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 Adviser in serving both the Fund
and other clients and, conversely, such services obtained by the placement of
brokerage business of other clients would be useful to the Adviser in carrying
out its obligations to the Fund. While such services are not expected to
reduce the expenses of the Adviser, the 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.
For the Fund's fiscal year ended October 31, 1995, total brokerage commissions
of $646,665 were paid on transactions (other than U.S. Government securities,
purchased options transactions and short-term obligations) of $206,406,596.
For the Fund's fiscal year ended October 31, 1994, total brokerage commissions
of $844,899 were paid on transactions of $362,491,084. For the Fund's fiscal
period ended October 31, 1993, total brokerage comissions of $497,148 were
paid on total transactions of $179,157,784. Not all of the Fund's transactions
are equity security transactions which involve the payment of brokerage
commissions.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser or MFS or any subsidiary of MFS. Investment decisions for the Fund and
for such other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though 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 or sale of
the same security, the securities are allocated among clients in a manner
believed to be equitable to each. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security
as far as the Fund is concerned. In other cases, however, it is believed that
the Fund's ability to participate in volume transactions will produce better
executions for the Fund.
6. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available programs
designed to enable shareholders to add to their investment or withdraw from it
with a minimum of paper work. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain Class A share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with Class B or Class C shares of the Fund or any of
the classes of other MFS Funds or MFS Fixed Fund (a bank collective investment
fund) within a 13-month period (or 36-month period in the case of purchases of
$1 million or more), the shareholder may obtain Class A shares of the Fund at
the same reduced sales charge as though the total quantity were invested in
one lump sum by completing the Letter of Intent section of the Fund's Account
Application or filing a separate Letter of Intent application (available from
the Shareholder Servicing Agent) within 90 days of the commencement of
purchases. Subject to acceptance by MFD and the conditions mentioned below,
each purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the Letter of Intent
application. The shareholder or his dealer must inform MFD that the Letter of
Intent is in effect each time shares are purchased. The shareholder makes no
commitment to purchase additional shares, but if his purchases within 13
months (or 36 months in the case of purchases of $1 million or more) plus the
value of shares credited toward completion of the Letter of Intent do not
total the sum specified, he will pay the increased amount of the sales charge
as described below. Instructions for issuance of shares in the name of a
person other than the person signing the Letter of Intent application must be
accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends not
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund pursuant to the
Distribution Investment Program will also not apply toward completion of the
Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder
or to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month or 36-month, as applicable) period, the
shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released
by the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in
the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of all classes of shares
of that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund) reaches a discount level. For example, if a shareholder owns
shares valued at $37,500 and purchases an additional $12,500 of Class A shares
of the Fund, the sales charge for the $12,500 purchase would be at the rate of
4.75% (the rate applicable to single transactions of $50,000). A shareholder
must provide the Shareholder Servicing Agent (or his investment dealer must
provide MFD) with information to verify that the quantity sales charge
discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital
gains made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to any
CDSC. Distributions will be invested at the close of business on the payable
date for the distribution. A shareholder considering the Distribution
Investment Program should obtain and read the prospectus of the other fund and
consider the differences in objectives and policies before making any
investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP generally are limited to 10% of the value of the account at
the time of establishment of the SWP. SWP payments are drawn from the proceeds
of share redemptions (which would be a return of principal and, if reflecting
a gain, would be taxable). Redemptions of Class B shares will be made in the
following order: (i) any "Reinvested Shares"; (ii) to the extent necessary,
any "Free Amount"; and (iii) to the extent necessary, the "Direct Purchase"
subject to the lowest CDSC (as such terms are defined in "Contingent Deferred
Sales Charge" in the Prospectus). The CDSC will be waived in the case of
redemptions of Class B shares pursuant to a SWP but will not be waived in the
case of SWP redemptions of Class A shares which are subject to a CDSC. All
dividend and capital gain distributions for an account with a SWP will be
received in full and fractional shares of the Fund at the net asset value in
effect at the close of business on the record date for such distributions. To
initiate this service, shares having an aggregate value of at least $5,000
either must be held on deposit by, or certificates for such shares must be
deposited with, the Shareholder Servicing Agent. Maintaining a withdrawal plan
concurrently with an investment program would be disadvantageous because of
the sales charges included in share purchases in the case of Class A shares,
and because of the assessment of the CDSC (on certain share redemptions in the
case of Class A shares). The shareholder may deposit into the account
additional shares of the Fund, change the payee or change the amount of each
payment. The Shareholder Servicing Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but one could be instituted by the Shareholder Servicing Agent on
60 days' notice in writing to the shareholder in the event that the Fund
ceases to assume the cost of these services. The Fund may terminate any SWP
for an account if the value of the account falls below $5,000 as a result of
share redemptions (other than as a result of a SWP) or an exchange of shares
of the Fund for shares of another MFS Fund. Any SWP may be terminated at any
time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more in the Fund may be
made at any time either by mailing a check payable to the Fund directly to the
Shareholder Servicing Agent. The shareholder's account number and the name of
his investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not the Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort; (2)
has been in existence for at least six months and has a legitimate purpose
other than to purchase mutual fund shares at a discount; (3) is not a group of
individuals whose sole organizational nexus is as credit cardholders of a
company, policyholders of an insurance company, customers of a bank or broker-
dealer, clients of an investment adviser or other similar groups; and (4)
agrees to provide certification of membership of those members investing money
in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of the other MFS Funds (if available for sale) (and in the case of Class C
shares, for shares of MFS Money Market Fund) under the Automatic Exchange
Plan. The Automatic Exchange Plan provides for automatic exchanges of funds
from the shareholder's account in an MFS Fund for investment in the same class
of shares of other MFS Funds selected by the shareholder. Under the Automatic
Exchange Plan, exchanges of at least $50 each may be made to up to four
different funds effective on the seventh day of each month or of every third
month, depending on whether monthly or quarterly exchanges are elected by the
shareholder. If the seventh day of the month is not a business day, the
transaction will be processed on the next business day. Generally, the initial
exchange will occur after receipt and processing by the Shareholder Servicing
Agent of an application in good order. Exchanges will continue to be made from
a shareholder's account in any MFS Fund, as long as the balance of the account
is sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to
be made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before an
exchange is scheduled, such funds may not be available for exchange until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges from any of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions
in writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record). Each Exchange Change Request (other than termination of participation
in the program) must involve at least $50. Generally, if an Exchange Change
Request is received by telephone or in writing before the close of business on
the last business day of the month, the Exchange Change Request will be
effective for the following month's transfer.
A shareholder's right to make additional investments in any of the MFS Funds,
to make exchanges of shares from one MFS Fund to another and to withdraw from
an MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market
Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where
the shares are acquired through direct purchase or reinvested dividends) who
have redeemed their shares have a one-time right to reinvest the redemption
proceeds in shares of any of the MFS Funds (if shares of the fund are
available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of proceeds reinvested
in shares of MFS Money Market Fund, MFS Government Money Market Fund and Class
A shares of MFS Cash Reserve Fund, the shareholder has the right to exchange
the acquired shares for shares of another MFS Fund at net asset value pursuant
to the exchange privilege described below. Such a reinvestment must be made
within 90 days of the redemption and is limited to the amount of the
redemption proceeds. If the shares credited for any CDSC paid are then
redeemed within six years of the initial purchase in the case of Class B
shares or 12 months of the initial purchase in the case of certain Class A
shares, a CDSC will be imposed upon redemption. Although redemptions and
repurchases of shares are taxable events, a reinvestment within such 90-day
period of time in the same fund may be considered a "wash sale" and may result
in the inability to recognize currently all or a portion of a loss realized on
the original redemption for federal income tax purposes. Please see your tax
adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares in an account with the Fund for which payment has been received
by the Fund (i.e., an established account) may be exchanged for shares of the
same class of any other MFS Funds (if available for sale) at net asset value.
In addition, Class C shares may be exchanged for shares of MFS Money Market
Fund at net asset value. Exchanges will be made after instructions in writing
or by telephone (an "Exchange Request") are received for an established
account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record), and each exchange must involve either shares having an aggregate
value of at least $1,000 or all the shares in the account (except that the
minimum is $50 for accounts of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by the Shareholder Servicing Agent)
or all the shares in the account. Any gain or loss on the redemption of the
shares exchanged is reportable on the shareholder's federal income tax return,
unless such shares were and the shares received in the exchange are held in a
tax-deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone. If an Exchange
Request is received by the Shareholder Servicing Agent prior to the close of
regular trading on the Exchange, the exchange usually will occur on that day
if all of the requirements set forth above have been complied with at that
time. However, payment of the redemption proceeds by the Fund, and thus the
purchase of shares of another MFS Fund, may be delayed for up to seven days if
the Fund determines that such a delay would be in the best interest of all its
shareholders. Investment dealers which have satisfied criteria established by
MFD may also communicate a shareholder's Exchange Request to MFD by facsimile
subject to the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for
the CDSC is carried forward to the exchanged shares. For purposes of
calculating the CDSC upon redemption of shares acquired in an exchange, the
purchase of shares acquired in one or more exchanges is deemed to have
occurred at the time of the original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should
obtain and read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any exchange.
Shareholders of the other MFS Funds (except holders of shares of MFS Money
Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash
Reserve Fund acquired through direct purchase or dividends reinvested prior to
June 1, 1992) have the right to exchange their shares for shares of the Fund,
subject to the conditions, if any, set forth in their respective prospectuses.
In addition, unitholders of the MFS Fixed Fund (a bank collective investment
fund) have the right to exchange their units (except units acquired through
direct purchases) for shares of the Fund, subject to the conditions, if any,
imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state-
specific series of MFS Municipal Series Trust may only benefit residents of
such states. Investors should consult with their own tax advisers to be sure
this is an appropriate investment based on their residency and each state's
income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued
and is subject to certain limitations , including certain restrictions on
purchases by market timer accounts (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS
Except as noted below, shares of the Fund are available for purchase by all
types of tax-deferred retirement plans. MFD makes available through investment
dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non-
employed spouses who desire to make limited contributions to a tax-
deferred retirement program and, if eligible, to receive a federal income
tax deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Code;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain nonprofit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested
automatically. For further details with respect to any plan, including fees
charged by the trustee, custodian or MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other
than those provided by MFD may be used to establish any of the plans described
above. Third party administrative services, available for some corporate
plans, may limit or delay the processing of transactions.
An investor should consult with his tax adviser before establishing any of the
tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan
qualified under section 401(a) or 403(b) of the Code if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available
by the Shareholder Servicing Agent.
7. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition and holding period of the Fund's portfolio assets. Because the
Fund 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 Fund will be required to pay
any federal income or excise taxes, although the Fund's foreign-source income
may be subject to foreign withholding taxes. If the Fund should fail to
qualify as a "regulated investment company" in any year, the Fund would incur
a regular corporate federal income tax upon its taxable income and Fund
distributions would generally be taxable as ordinary dividend income to the
shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions
from net short-term capital gains (whether paid in cash or reinvested in
additional shares) are taxable to shareholders as ordinary income for federal
income tax purposes. A portion of the Fund's ordinary income dividends (but
none of its capital gains) is normally eligible for the dividends received
deduction for corporations if the recipient otherwise qualifies for that
deduction with respect to its holding of Fund shares. Availability of the
deduction for particular corporate shareholders is subject to certain
limitations, and deducted amounts may be subject to the alternative minimum
tax or result in certain basis adjustments. Distributions of net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses), whether paid in cash or reinvested in additional shares, are taxable
to the Fund's shareholders as long-term capital gains for federal income tax
purposes regardless of how long they have owned shares in the Fund. Fund
dividends declared in October, November, or December, payable to shareholders
of record in such a month, and paid the following January will be taxable to
shareholders as if received on December 31 of the year in which they are
declared.
Any dividend or distribution will have the effect of reducing the per share
net asset value of shares in the Fund by the amount of the dividend or
distribution. Shareholders purchasing shares shortly before the record date of
any distribution may thus pay the full price for the shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent
of any distributions of net capital gain made with respect to those shares.
Any loss realized upon a redemption of shares may also be disallowed under
rules relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within ninety days after their
purchase followed by any purchase (including purchases by exchange or by
reinvestment) without payment of an additional sales charge of Class A shares
of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Fund's transactions in options, Futures Contracts and Forward Contracts
will be subject to special tax rules that may affect the amount, timing and
character of Fund income and distributions to shareholders. For example,
certain positions held by the Fund on the last business day of each taxable
year will be marked to market (i.e., treated as if closed out) on such 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 Fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles", and may be subject to
special tax rules that would cause deferral of Fund losses, adjustments in the
holding periods of Fund securities and conversion of short-term into long-term
capital losses. Certain tax elections exist for straddles that may alter the
effects of these rules. The Fund will limit its activities in options, Forward
Contracts and Futures Contracts to the extent necessary to meet the
requirements of Subchapter M of the Code.
The Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. The
Fund's investment in certain securities purchased at a market discount will
cause it to realize income prior to the receipt of cash payments with respect
to those securities. In order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income and losses. The holding of foreign currencies for
non-hedging purposes and investment by the Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on the Fund.
Investment income received by the Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries that may
entitle the Fund to a reduced rate of tax or an exemption from tax on such
income; the Fund intends to qualify for treaty reduced rates where available.
It is impossible to determine the effective rate of foreign tax in advance
since the amount of the Fund's assets to be invested within various countries
is not known.
If the Fund holds more than 50% of its assets in foreign securities at the
close of its taxable year, the Fund may elect to "pass through" to the Fund's
shareholders foreign income taxes paid. If the Fund so elects, shareholders
will be required to treat their pro rata portion of the foreign income taxes
paid by the Fund as part of the amounts distributed to them by the Fund and
thus includable in their gross income for federal income tax purposes.
Shareholders who itemize deductions would then be able to claim a deduction or
credit (but not both) on their federal income tax returns for such amounts,
subject to certain limitations. Shareholders who do not itemize deductions
would be able (subject to such limitations) to claim a credit but not a
deduction. No deduction for such amounts will be permitted to individuals in
computing their alternative minimum tax liability. If the Fund does not
qualify or elect to "pass through" to the Fund's shareholders foreign income
taxes paid by it, shareholders will not be able to claim any deduction or
credit for any part of the foreign taxes paid by the Fund.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on taxable dividends
and other payments to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund
with the U.S. Internal Revenue Service within the time period appropriate to
such claims. The Fund is also required in certain circumstances to apply
backup withholding at a rate of 31% on taxable dividends and redemption
proceeds paid to any shareholder (including a Non-U.S. Person) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be
applied to payments that have been subject to 30% withholding. Distributions
received from the Fund by Non-U.S. Persons may also be subject to tax under
the laws of their own jurisdiction.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes in certain states. The
Fund intends to advise shareholders of the extent, if any, to which its
distributions consist of such interest. Shareholders are urged to consult
their tax advisers regarding the possible exclusion of such portion of their
dividends for state and local income tax purposes as well as regarding the tax
consequences of an investment in the Fund.
8. DETERMINATION OF NET ASSET VALUE;
PERFORMANCE INFORMATION
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. (As of the date of this SAI,
the Exchange is open for trading every weekday except for the following
holidays or the days on which they are observed: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.) This determination is made once during each such day as of
the close of regular trading on the Exchange by deducting the amount of the
liabilities attributable to the class from the value of the assets
attributable to the class and dividing the difference by the number of shares
of the class outstanding. Forward Contracts will be valued using a pricing
model taking into consideration market data from an external pricing source.
Use of the pricing services has been approved by the Board of Trustees. All
other securities, futures contracts and options in the Fund's portfolio (other
than short-term obligations) for which the principal market is one or more
securities or commodities exchanges (whether domestic or foreign) will be
valued at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities, futures contracts or options
are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available,
be valued at current bid prices, unless such securities are reported on the
NASDAQ system, in which case they are valued at the last sale price or, if no
sales occurred during the day, at the last quoted bid price. Debt securities
(other than short-term obligations) in the Fund's portfolio are valued on the
basis of valuations furnished by a pricing service which utilizes both dealer-
supplied valuations and electronic data processing techniques which take into
account appropriate factors such as institutional-sized trading in similar
groups of securities, yields, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities.
Short-term obligations, if any, in the Fund's portfolio are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Short-term securities with a remaining maturity in excess of 60 days
will be valued based upon dealer supplied valuations. Portfolio securities and
over-the-counter options and Forward Contracts, for which there are no
quotations or valuations are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees. A share's net asset value is
effective for orders received by the dealer prior to its calculation and
received by MFD, in its capacity as the Fund's distributor, prior to the close
of the business day.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for
each class of shares for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment
of $1,000 (made with all distributions reinvested and reflecting the CDSC or
the maximum public offering price) to reach the value of that investment at
the end of the periods. The Fund may also calculate (i) a total rate of
return, which is not reduced by the CDSC (4% maximum for Class B shares) and
therefore may result in a higher rate of return, (ii) a total rate of return
assuming an initial account value of $1,000, which will result in a higher
rate of return with respect to Class A shares since the value of the initial
account will not be reduced by the maximum sales charge (currently 5.75% for
Class A shares) and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance and which may or may not
reflect the effect of the maximum or other sales charge or CDSC. The Fund's
average annual total rate of return for Class B shares, reflecting the CDSC,
for the one-year and five-year periods ended October 31, 1995 and for the
period from December 29, 1986 (the Fund's commencement of investment
operations) to October 31, 1995 was 5.13%, 8.74% and 10.82%, respectively. The
average annual total rates of return for Class B shares, not giving effect to
the CDSC, for the same periods was 9.07%, 9.03% and 10.82%, respectively. The
Fund's average total rate of return for Class A shares reflecting the initial
investment at the current maximum public offering price for one-year period
ended October 31, 1995 and for the period September 7, 1993 (commencement of
offering of this class of shares) to October 31, 1995 was 3.85% and 7.64%,
respectively. The Fund's average annual total rate of return for Class A
shares not giving effect to the sales charge on the initial investment, for
the same periods was 10.16% and 10.65%, respectively.
The Fund's average annual total rate of return for Class C shares for the one-
year period ended October 31, 1995 and for the period from January 3, 1994
(commencement of offering of this class of shares) to October 31, 1995 was
9.20% and 5.11%, respectively. Total rates of return presented above for Class
A, Class B and Class C shares, may not be indicative of future performance.
PERFORMANCE RESULTS: The performance results below, based on an assumed
initial investment of $10,000 in Class B shares, cover the period from
December 29, 1986 through December 31, 1995. It has been assumed that dividend
and capital gain distributions were reinvested in additional shares. Any
performance results or total rate of return quotation provided by the Fund
should not be considered as representative of the performance of the Fund in
the future since the net asset value of shares of the Fund will vary based not
only on the type, quality and maturities of the securities held in the Fund's
portfolio, but also on changes in the current value of such securities and on
changes in the expenses of the Fund. These factors and possible differences in
the methods used to calculate total rates of return should be considered when
comparing the total rate of return of the Fund to total rates of return
published for other investment companies or other investment vehicles. Total
rate of return reflects the performance of both principal and income. Current
net asset value and account balance information may be obtained by calling 1-
800-MFS-TALK (637-8255).
MFS WORLD EQUITY FUND
- ------------------------------------------------------------------------------
DIRECT CAPITAL GAIN DIVIDEND TOTAL
INVESTMENT REINVESTMENT REINVESTMENT VALUE
---------- ------------ ------------ -----
12/31/86* $ 9,917 $ 0 $ 0 $ 9,917
12/31/87 13,128 0 0 13,128
12/31/88 12,798 0 439 13,237
12/31/89 15,974 360 548 16,882
12/31/90 14,817 706 561 16,084
12/31/91 15,867 797 601 17,265
12/31/92 15,938 991 604 17,533
12/31/93 19,728 1,998 902 22,628
12/31/94 17,166 2,871 1,750 21,787
12/31/95 19,303 3,998 2,262 25,563
- ----------
*For the period from the start of business, December 29, 1986, through
December 31, 1986.
EXPLANATORY NOTES: The results shown in the table take into account the annual
distribution fee but not the CDSC. No adjustment has been made for any income
taxes payable by shareholders.
From time to time each Fund may, as appropriate, quote Fund rankings or
reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to
the following: Money, Fortune, U.S. News and World Report, Kiplinger's
Personal Finance, The Wall Street Journal, Barron's, Investors Business Daily,
Newsweek, Financial World, Financial Planning, Investment Advisor, USA Today,
Pensions and Investments, SmartMoney, Forbes, Global Finance, Registered
Representative, Institutional Investor, the Investment Company Institute,
Johnson's Charts, Morningstar, Lipper Analytical Services, Inc., CDA
Wiesenberger, Shearson Lehman and Saloman Bros. Indices, Ibbotson, Business
Week, Lowry Associates, Media General, Investment Company Data, The New York
Times, Your Money, Strangers Investment Advisor, Financial Planning on Wall
Street, Standard and Poor's, Individual Investor, The 100 Best Mutual Funds
You Can Buy by Gordon K. Williamson, Consumer Price Index, and Sanford C.
Bernstein & Co. Fund performance may also be compared to the performance of
other mutual funds tracked by financial or business publications or
periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund; the Fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment
and evaluation of credit, interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or
television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding
and tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against a loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as
the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first
mutual fund to make full public disclosure of its
operations in shareholder reports.
-- 1932 -- One of the first internal research departments
is established to provide in-house analytical
capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first
mutual fund to register under the Securities Act of
1933.
-- 1936 -- Massachusetts Investors Trust is the first
mutual fund to allow shareholders to take capital gain
distributions either in additional shares or in cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first
municipal bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/
variable annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed/income
mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first
open-end mutual fund to seek high tax-free income from
lower-rated municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first
mutual fund to target and shift investments among
industry sectors for shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first
closed-end, high-yield municipal bond fund traded on
the New York Stock Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the
New York Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-
qualified market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global
emerging markets fund to offer the expertise of two
sub-advisers.
-- 1993 -- MFS becomes money manager of MFS Union Standard
Trust, the first trust to invest in companies deemed to
be union-friendly by an Advisory Board of senior labor
officials, senior managers of companies with
significant labor contracts, academics and other
national labor leaders or experts.
9. DISTRIBUTION PLANS
The Trustees have adopted a Distribution Plan for each of Class A, Class B and
Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that
there is a reasonable likelihood that eachDistribution Plan would benefit the
Fund and the respective class of shareholders. The Distribution Plans are
designed to promote sales, thereby increasing the net assets of the Fund. Such
an increase may reduce the expense ratio to the extent the Fund's fixed costs
are spread over a larger net asset base. Also, an increase in net assets may
lessen the adverse effects that could result were the Fund required to
liquidate portfolio securities to meet redemptions. There is, however, no
assurance that the net assets of the Fund will increase or that the other
benefits referred to above will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, no service fees
will be paid: (i) to any dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time by MFD
(MFD, however, may waive this minimum amount requirement from time to time);
or (ii) to any insurance company which has entered into an agreement with the
Fund and MFD that permits such insurance company to purchase Class A shares
from the Fund at their net asset value in connection with annuity agreements
issued in connection with the insurance company's separate accounts. Dealers
may from time to time be required to meet certain other criteria in order to
receive service fees.
With respect to the Class B Distribution Plan, except in the case of the first
year service fee, no service fees will be paid to any securities dealer who is
the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined by MFD from time to time. MFD, however, may waive this minimum
amount requirement from time to time. Dealers may from time to time be
required to meet certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable
under any Distribution Plan for which there is no dealer of record or for
which qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates for shareholder accounts.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended October 31, 1995, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------------ ------------- -------------
Class A Distribution Plan $ 52,913 $ 1,447 $ 51,466
Class B Distribution Plan $1,639,636 $1,275,567 $ 364,069
Class C Distribution Plan $ 19,762 $ 391 $ 19,371
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties to such Plan ("Distribution Plan Qualified Trustees").
Each of the Distribution Plans also requires that the Fund and MFD each shall
provide to the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under such
Plan. Each of the Distribution Plans may be terminated at any time by vote of
a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions"). All agreements relating to any of the
Distribution Plans entered into between the Fund or MFD and other
organizations must be approved by the Board of Trustees, including a majority
of the Distribution Plan Qualified Trustees. Agreements under any of the
Distribution Plans must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of
the holders of a majority of the respective class of the Fund's shares. None
of the Distribution Plans may be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the Fund's shares (as defined in "Investment
Restrictions") or may be materially amended in any case without a vote of the
Trustees an a majority of the Distribution Plan Qualified Trustees. The
selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND
LIABILITIES
The Trust's Declaration of Trust permits the Trustees of the Fund to issue an
unlimited number of full and fractional Shares of Beneficial Interest (without
par value) of one or more separate series and to divide or combine the shares
of any series into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in that series. The Trustees
have currently authorized shares of the Fund and two other series. The
Declaration of Trust further authorizes the Trustees to classify or reclassify
any series of shares into one or more classes. Pursuant thereto, the Trustees
have authorized the issuance of two classes of shares of each of the Trust's
three series, Class A, Class B and Class C shares. Each share of a class of
the Fund represents an equal proportionate interest in the assets of the Fund
allocable to that class. Upon liquidation of the Fund, shareholders of each
class are entitled to share pro rata in the net assets of the Fund allocable
to such class available for distribution to shareholders. The Trust reserves
the right to create and issue additional series or classes of shares, in which
case the shares of each class of a series would participate equally in the
earnings, dividends and assets allocable to that class of the particular
series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have under certain circumstances the right to remove one or more
Trustees in accordance with the provisions of Section 16(c) of the 1940 Act.
No material amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the Trust's shares. Shares have no pre-
emptive or conversion rights (except as described in "Purchases -- Conversion
of Class B Shares" in the Prospectus). Shares are fully paid and non-
assessable. The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the vote of the holders
of two-thirds of the Trust's outstanding shares voting as a single class, or
of the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such merger, consolidation or sale, the
approval by vote of the holders of a majority of the Trust's or the affected
series' outstanding shares (as defined in "Investment Restrictions") will be
sufficient. The Trust or any series of the Trust may also be terminated (i)
upon liquidation and distribution of its assets, if approved by the vote of
the holders of two-thirds of its outstanding shares, or (ii) by the Trustees
by written notice to the shareholders of the Trust or the affected series. If
not so terminated, the Trust will continue indefinitely.
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 Trust and provides for
indemnification and reimbursement of expenses out of Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that it shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of the Trust, its shareholders, Trustees, officers,
employees and agents covering possible tort or 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
existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action 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.
11. INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at October 31, 1995, the Statement of Assets and
Liabilities at October 31, 1995, the Statements of Operations for the year
ended October 31, 1995, the Statements of Changes in Net Assets for each of
the years in the two-year period ended October 31, 1995, the Notes to
Financial Statements and the Independent Auditors' Report, each of which is
included in the Annual Report to shareholders of the Fund, are incorporated by
reference into this SAI and have been so incorporated in reliance upon the
report of Deloitte & Touche LLP, independent auditors, given upon their
authority as experts in accounting and auditing. A copy of the Annual Report
accompanies this SAI.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND(1) FUND EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Richard B. Bailey .................................. $3,725 $ 685 10 $263,815
A. Keith Brodkin ................................... 0 0 N/A 0
Marshall N. Cohan .................................. 4,175 1,700 14 148,624
Dr. Lawrence Cohn .................................. 3,725 350 18 135,874
Sir David Gibbons .................................. 3,725 1,251 13 135,874
Abby M. O'Neill .................................... 3,500 491 10 129,499
Walter E. Robb, III ................................ 4,175 1,912 15 148,624
Arnold D. Scott .................................... 0 0 N/A 0
Jeffrey L. Shames .................................. 0 0 N/A 0
J. Dale Sherratt ................................... 4,175 395 20 148,624
Ward Smith ......................................... 4,175 609 13 148,624
(1) For fiscal year ended October 31, 1995.
(2) Based on normal retirement age of 72.
(3) For calendar year 1995. All Trustees receiving compensation served as
Trustees of 36 funds within the MFS fund complex (having aggregate net
assets at December 31, 1995, of approximately $12.5 billion) except Mr.
Bailey, who served as Trustee of 73 funds within the MFS fund complex
(having aggregate net assets at December 31, 1995, of approximately $31.7
billion).
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
YEARS OF SERVICE
-----------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
$3,150 $473 $ 788 $1,103 $1,575
3,440 516 860 1,004 1,720
3,730 560 933 1,306 1,865
4,020 603 1,005 1,407 2,010
4,310 647 1,078 1,509 2,155
4,600 690 1,150 1,610 2,300
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
</TABLE>
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
MAILING ADDRESS:
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
WORLD
EQUITY FUND
500 BOYLSTON STREET
BOSTON, MA 02116
MWE-13-3/96/500 04304
<PAGE>
<PAGE>
MFS LOGO Annual Report for
Year Ended
October 31, 1995
MFS [Registration Mark] WORLD EQUITY FUND
Front Cover
A picture of airplanes.
<PAGE>
MFS [Registration Mark] WORLD EQUITY FUND
TRUSTEES
A. Keith Brodkin* -- Chairman and President
Richard B. Bailey* -- Private Investor; Former Chairman and Director (until
1991), Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Marshall N. Cohan -- Private Investor
Lawrence H. Cohn, M.D. -- Chief of Cardiac Surgery, Brigham and Women's
Hospital; Professor of Surgery, Harvard Medical School
The Hon. Sir J. David Gibbons, KBE -- Chief Executive Officer, Edmund Gibbons
Ltd.; Chairman, Bank of N.T. Butterfield & Son Ltd.
Abby M. O'Neill -- Private Investor; Director, Rockefeller Financial Services,
Inc.(investment advisers)
Walter E. Robb, III -- President and Treasurer, Benchmark Advisers, Inc.
(corporate financial consultants); President, Benchmark Consulting Group, Inc.
(office services); Trustee, Landmark Funds (mutual funds)
Arnold D. Scott* -- Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* -- President and Director, Massachusetts Financial Services
Company
J. Dale Sherratt -- President, Insight Resources, Inc. (acquisition planning
specialists)
Ward Smith -- Former Chairman (until 1994), NACCO Industries; Director,
Sundstrand Corporation
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
David Mannheim*
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Deloitte & Touche LLP
INVESTOR INFORMATION
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m.
to 5 p.m. Eastern time (or leave a message anytime).
INVESTOR SERVICE
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576
any business day from 9 a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a touch-tone telephone.
[DALBAR LOGO]
TOP-RATED SERVICE
For the second year in a row, MFS earned a #1 ranking in DALBAR, Inc.'s
Broker/Dealer Survey, Main Office Operations Service Quality category. The firm
achieved a 3.49 overall score -- on a scale of 1 to 4 -- in the 1995 survey. A
total of 71 firms responded, offering input on the quality of service they
receive from 36 mutual fund companies nationwide. The survey contained questions
about service quality in 17 categories, including "knowledge of phone service
con-tacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the fiscal year ended October 31, 1995, the Fund generated a total return
including the reinvestment of dividends but excluding the effects of any sales
charges) for Class A shares of +10.16%, for Class B shares +9.07%, and for Class
C shares +9.20%. This was in line with the +10.03% return produced by the Morgan
Stanley Capital International World Index (the MSCI), a broad, unmanaged index
of global equities. After a fairly flat first half of the fiscal year, in which
the Fund lagged the MSCI by roughly 5%, the Fund's relative performance improved
in the second half. An important factor in this improvement was our relative
underweighting in Japan (11% of the Fund versus 25% of the MSCI), where the
market was up 7% in yen but down 14% in dollars for the past six months (-10%
and -15% for the full year). Secondly, while partial hedging of our European
exposure hurt us in the first six months with the weakness of the dollar, this
was not the case in the second half, as the dollar was broadly flat against
European currencies.
U.S. Outlook
Moderate, but sustainable, growth appears to be the hallmark of the economic
expansion's fifth year. While initial estimates showed the U.S. economy growing
at an annual rate of 4.2% in the third quarter, this surprisingly strong growth
was mainly driven by a pickup in consumer spending and an increase in business
and government outlays. Although impressive, this growth rate is not expected to
continue in coming months. Recent retail sales have been disappointing, in part
because of rising levels of consumer debt. An extended period of lower mortgage
rates seems to have relieved much of the pent-up demand for housing. Growth is
not expected to get much help from the manufacturing sector, either, as order
flows from manufacturers have moderated. Export activity, meanwhile, is also
expected to remain modest as continued weakness abroad has limited demand for
many U.S. goods. However, the Federal Reserve Board's consistent and, so far,
successful efforts to fight inflation seem to be giving consumers and businesses
enough longer term confidence to help maintain modest growth in real (adjusted
for inflation) gross domestic product into 1996.
Global Outlook
As in the United States, a pattern of slow to moderate growth and low and
controlled inflation remains a dominant theme in major industrialized countries.
While the recent recovery of the dollar against the yen and the mark has added
some strength to the economies of Europe and Japan, the outlook is for sluggish
economic growth, in the near term at least. And although central banks in Europe
and Japan have lowered interest rates in an attempt to stimulate domestic
demand, many industrial companies in these countries are still struggling to
compete in a global marketplace in which the prices of their products are less
competitively priced. On the positive side, this does mean little to no
1
<PAGE>
LETTER TO SHAREHOLDERS - continued
inflationary pressure in these countries, and we believe that this, combined
with further reductions in interest rates, could help provide a foundation for
stronger economic growth in the long run.
Stock Markets
During the past year, the performance of the world's stock markets has been
mostly positive. The U.S. market continued to lead the way, following up on a
strong first half (+10%) with an even stronger last six months (+15%). Up nearly
27% for the year, the U.S. market was clearly the best performing major stock
market in the world. According to Datastream, an independent financial database
service, the performance of the European markets (in local currencies) varied
widely, with Switzerland (+22%), Sweden (+19%) and the United Kingdom (+18%) at
the top of the tables and Germany (+2%), France (-2%) and Italy (-7%) lagging.
In general, the markets of the Pacific Rim showed improved performance during
the second half but not enough to offset weak first-half returns. Japan finished
the year down 10%, while Singapore, Malaysia, Thailand and Korea showed losses
of 8% to 14%. New Zealand (+6%), Australia (+3%) and Hong Kong (+3%) were the
best Pacific Rim performers.
When measured in U.S. dollars, currency movements had a noticeable impact
on international stock market returns during the past 12 months. The U.S. dollar
fell 7% versus the mark, 10% against the Swiss franc and 2% against the
Australian dollar, thereby aiding U.S. dollar-based returns. Conversely, the
U.S. dollar strengthened 5% against the yen, with a 22% gain against the yen in
the second half alone.
Portfolio Performance and Strategy
The Fund's overall investment philosophy continues to be that of global,
bottom-up stockpicking, as opposed to top-down country allocations. Therefore,
the Fund's country weightings are simply the byproducts of where the companies
we believe offer the most attractive returns have their headquarters. For
example, the Fund's largest holding, Astra, is a multinational pharmaceutical
company based in Sweden, a country that represents less than 9% of Astra's
sales.
The Fund remains well-diversified, with investments in 20 countries spread
as follows: 38% in Europe, 30% in the Americas and 32% in Asia and the Pacific
Rim. Over the past six months we have started to find better investment
opportunities in the Asia/Pacific region, as reflected in that region's
weighting rising from 26% as of April 28, 1995. The size of our Japanese
holdings has remained fairly constant, but we have started or added to positions
in Singapore, Malaysia, South Korea, Australia and New Zealand. In contrast, our
weighting in Europe has been reduced from 43%. Positions there have been
eliminated due in equal measure to stock prices reaching target levels and to
the anticipation of deteriorating fundamentals in several companies
(particularly economically sensitive ones).
2
<PAGE>
LETTER TO SHAREHOLDERS - continued
Globally, we continue to shift away from cyclical stocks where we see
commodity prices peaking (such as in chemicals and papers) and weakening
economic growth for 1996. The best opportunities continue to be found in
companies that can generate sustainable earnings growth regardless of the state
of the global economy. Examples of additions to the Fund over the past six
months that we believe fit this steady earner description are Lockheed-Martin, a
U.S. defense contractor; Sky City Casino, a New Zealand gaming company; Office
Depot, a U.S. retailer; and New Straits Times, a Malaysian media company. We
have also added to existing positions in DDI, a Japanese telecommunications
company; Korea Electric Power, a South Korean utility; PowerGen, an electric
utility in the United Kingdom; and, in the United States, the Federal Home Loan
Mortgage Corp.
Despite the positive performance of most of the world's equity markets over
the past year, we believe that valuation levels remain attractive. The primary
support for this view is a favorable inflation outlook and an anticipated
slowing in economic growth which we believe is likely to lead to flat or lower
interest rates over the next six to 12 months. However, with slowing economic
and corporate earnings growth, we feel that stock selection will become
increasingly important. We believe that our bottom-up style of investing is
well-suited for that environment, and that the Fund is favorably positioned in
companies that are likely to show superior earnings growth regardless of the
state of the global economy.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[A Photo of A. Keith Brodkin, [A Photo of David Mannheim,
Chairman and President.] Portfolio Manager.]
/s/ A. Keith Brodkin /s/ David Mannheim]
A. Keith Brodkin David Mannheim
Chairman and President Portfolio Manager
November 10, 1995
3
<PAGE>
PORTFOLIO MANAGER PROFILE
David Mannheim began his career at MFS in 1988 as a research specialist and was
promoted to Assistant Vice President - Investments in 1991. In 1992, he was
named Vice President - Investments and Portfolio Manager of MFS World Equity
Fund. Mr. Mannheim is a graduate of Amherst College and of Massachusetts
Institute of Technology's Sloan School of Management.
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide capital appreciation, primarily
through investment in stocks of U.S. and non-U.S. issuers.
The Fund may invest in all types of common stocks and equivalents (such as
convertible debt securities and warrants) and preferred stocks. While the Fund
intends to maintain a portfolio consisting largely of equity securities of
non-U.S. issuers, the Fund may, under normal circumstances, invest up to 50% of
its assets in securities of U.S. and/or Canadian issuers. In addition, for
defensive purposes, the Fund may invest up to 20% of its assets in fixed-income
obligations issued by national governments, their agencies, authorities and
instrumentalities.
TAX FORM SUMMARY
The Fund is estimated to have derived approximately 11% of its ordinary income
from dividends paid by foreign companies, and to have paid foreign taxes
equivalent to approximately 1.5% of its ordinary income.
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
For the year ended October 31, 1995, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to 18%.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
For the year ended October 31, 1995, distributions from long-term capital gains
are $9,768,970.
4
<PAGE>
PERFORMANCE
The information on the following page illustrates the historical performance of
MFS World Equity Fund Class B shares in comparison to various market indicators.
Fund results in the graph do not reflect the deduction of any contingent
deferred sales charge (CDSC) since the CDSC is not applicable after a six-year
period. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. You cannot invest in an index. All results reflect the reinvestment of
all dividends and capital gains.
Class A shares were offered effective September 7, 1993. Information on Class A
share performance appears on the next page.
Please note that effective January 3, 1994, Class C shares were offered.
Information on Class C share performance appears on the next page.
In the table on the next page, we have included the average annual total returns
of all global portfolio funds (including the Fund) tracked by Lipper Analytical
Services, Inc. (an independent firm which rates mutual fund performance) for the
applicable time periods. Because these returns do not reflect any applicable
sales charges, we have also included the Fund's results at net asset value (no
sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed, may
be worth more or less than their original cost. All Class A share results
reflect the applicable expense subsidy which is explained in the Notes to
Financial Statements. Had the subsidy not been in effect, the results would have
been less favorable.
5
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from January 1, 1987 to October 31, 1995)
[Line graph representing the growth of a $10,000 investment for the nine-year
period ended October 31, 1995. The graph is scaled from $0 to $50,000 in $10,000
segments. The years are marked in 12-month segments from 1990 to 1995. There are
four lines drawn to scale. One is a solid line representing MFS World Equity
Fund (Class B), a second line of short dashes represents the S&P 500, a third
line of very short dashes represents the MSCI World Index, and a fourth line of
medium-short dashes represents the Consumer Price Index.]
MFS World Equity Fund (Class B) $25,005
S&P 500 $31,646
MSCI World Index $23,775
Consumer Price Index $13,906
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
Life Of Class
Through
1 Year 3 Years 5 Years 10/31/95
====================================================================================================================================
<S> <C> <C> <C> <C>
MFS World Equity Fund (Class A)
including 5.75% sales charge +3.85% -- -- +7.64% *
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class A)
at net asset value +10.16% -- -- +10.65% *
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class B) With CDSC + +5.13% +13.23% +8.74% +10.82% ++
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class B) Without CDSC +9.07% +14.00% +9.03% +10.82% ++
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Equity Fund (Class C) +9.20% -- -- +5.11% #
- ------------------------------------------------------------------------------------------------------------------------------------
Average global fund +5.25% +13.69% +11.28% +10.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital International
(MSCI) World Index +10.03% +14.97% +11.02% +10.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index [ss] +26.41% +14.69% +17.22% +13.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index [ss] [ss] +2.81% +2.72% +2.86% +3.80%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* For the period from the commencement of offering of Class A shares, September 7, 1993 to October 31, 1995.
+ These returns reflect the applicable Class B CDSC of 4%, 3% and 2% for the 1-, 3- and 5-year periods, respectively, and 0%
for the period commencing December 29, 1986.
++ For the period from the commencement of offering of Class B shares, December 29, 1986 to October 31, 1995. Benchmark
comparisons begin on January 1, 1987.
# For the period from the commencement of offering of Class C shares, January 3, 1994 to October 31, 1995. Class C shares
have no initial sales charge or CDSC but, along with Class B shares, have higher annual fees and expenses than Class A
shares.
[ss] The Standard & Poor's 500 Composite Index is a popular, unmanaged index of common stock performance.
[ss][ss] The Consumer Price Index is a popular measure of change in prices.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - October 31, 1995
Common Stocks - 97.2%
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Common Stocks - 27.4%
Aerospace - 2.5%
Allied Signal, Inc. 44,000 $ 1,870,000
Lockheed-Martin Corp. 49,000 3,338,125
------------
$ 5,208,125
- --------------------------------------------------------------------------------
Building Materials - 1.1%
Owens Corning Fiberglass Corp.* 55,000 $ 2,330,625
- --------------------------------------------------------------------------------
Business Services - 1.8%
Ceridian Corp.* 86,000 $ 3,741,000
- --------------------------------------------------------------------------------
Cellular Telephones - 1.1%
AirTouch Communications, Inc.* 85,000 $ 2,422,500
- --------------------------------------------------------------------------------
Computer Hardware - Systems - 1.7%
Compaq Computer Corp.* 65,000 $ 3,623,750
- --------------------------------------------------------------------------------
Computer Software - Systems - 3.4%
Adobe Systems, Inc. 44,300 $ 2,525,100
BMC Software, Inc.* 73,700 2,625,563
Compuware Corp.* 90,900 2,067,975
------------
$ 7,218,638
- --------------------------------------------------------------------------------
Consumer Goods and Services - 2.0%
American Greetings Corp., "A" 69,000 $ 2,173,500
Philip Morris Cos., Inc. 25,000 2,112,500
------------
$ 4,286,000
- --------------------------------------------------------------------------------
Defense Electronics - 1.5%
Loral Corp. 107,000 $ 3,169,875
- --------------------------------------------------------------------------------
Entertainment - 0.8%
Viacom, Inc., "B"* 34,251 $ 1,712,550
- --------------------------------------------------------------------------------
Financial Institutions - 1.3%
Federal Home Loan Mortgage Corp. 38,500 $ 2,666,125
- --------------------------------------------------------------------------------
Food and Beverage Products - 1.2%
Ralston-Ralston Purina Group 42,000 $ 2,493,750
- --------------------------------------------------------------------------------
Insurance - 1.9%
CIGNA Corp. 31,000 $ 3,072,875
Equitable of Iowa Cos 25,700 899,500
------------
$ 3,972,375
- --------------------------------------------------------------------------------
Machinery - 1.1%
Ingersoll Rand Co. 67,000 $ 2,370,125
- --------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.6%
United Healthcare Corp. 65,000 $ 3,453,125
- --------------------------------------------------------------------------------
Oil - 1.1%
Amoco Corp. 37,000 $ 2,363,375
- --------------------------------------------------------------------------------
Retail - 3.3%
Federated Department Store, Inc.* 170,000 $ 4,313,750
Office Depot, Inc.* 90,800 2,599,150
------------
$ 6,912,900
- --------------------------------------------------------------------------------
Total U.S. Common Stocks (Identified Cost, $48,242,757) $ 57,944,838
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - CONTINUED
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign Common Stocks - 69.8%
Argentina - 0.1%
Mirgor Sacifia, ADR (Auto Parts)* 97,600 $ 195,200
- --------------------------------------------------------------------------------
Australia - 6.9%
Australia & New Zealand Bank Group Ltd.
(Banks and Credit Cos.) 1,115,014 $ 4,666,893
QBE Insurance Group Ltd. (Insurance) 571,400 2,522,046
Seven Network Ltd. (Broadcasting) 1,064,000 2,761,092
Sydney Harbour Casino Ltd. (Entertainment)* 1,733,100 2,136,601
Woolworths Ltd. (Retail) 1,070,736 2,550,419
------------
$ 14,637,051
- --------------------------------------------------------------------------------
Canada - 0.9%
Rogers Communications, Inc., "B"
(Telecommunications)* 191,900 $ 1,874,023
- --------------------------------------------------------------------------------
Chile - 0.5%
Administradora de Fondos de Pensiones
Provida S.A., ADR (Finance) 47,200 $ 1,156,400
- --------------------------------------------------------------------------------
Finland - 0.7%
Aamulehti Yhtymae Oy II (Publishing) 59,900 $ 1,411,804
- --------------------------------------------------------------------------------
France - 4.4%
Essilor International
(Medical and Health Products) 17,800 $ 3,299,334
Essilor International, Preferred
(Medical and Health Products) 15,400 1,983,943
Michelin, "B" (Tire and Rubber)* 45,000 1,820,277
Pinault-Printemps, S.A., (Retail) 10,000 2,171,019
------------
$ 9,274,573
- --------------------------------------------------------------------------------
Germany - 3.4%
BASF AG (Chemicals) 9,700 $ 2,128,915
Hornbach Baumarkt AG (Retail) 43,680 2,202,770
Tarkett AG (Building Materials)* 31,600 754,144
Volkswagen AG (Automotive) 6,500 2,047,553
------------
$ 7,133,382
- --------------------------------------------------------------------------------
Hong Kong - 2.6%
Consol Electric Power Asia Ltd., ADR
(Utilities - Electric) 57,000 $ 1,154,250
Giordano Holdings Ltd. (Retail) 2,049,000 1,696,280
Peregrine Investment Holdings (Finance) 769,000 979,802
Varitronix International Ltd. (Manufacturing) 923,000 1,761,040
------------
$ 5,591,372
- --------------------------------------------------------------------------------
Italy - 1.8%
Telecom Italia Mobile (Telecommunications) 1,276,500 $ 2,147,571
Telecom Italia Mobile, Saving Shares
(Telecommunications) 1,421,000 1,581,868
------------
$ 3,729,439
- --------------------------------------------------------------------------------
Japan - 11.2%
Bridgestone Corp. (Tire and Rubber) 137,000 $ 1,903,709
Canon, Inc. (Office Equipment) 44,000 753,498
DDI Corp. (Telecommunications) 649 5,264,909
Daiwa House Industrial Co. (Housing) 72,000 1,077,992
East Japan Railway Co. (Railroads) 347 1,640,092
Kinki Coca-Cola (Beverages) 80,000 962,912
Kirin Beverage Corp. (Beverages) 96,000 1,456,111
MOS Food Services (Restaurants) 49,000 1,227,517
Matsushita Electric Industrial Co.
(Electrical Equipment) 128,000 1,816,225
Murata Manufacturing (Electronics) 59,000 2,072,708
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign Common Stocks - Continued
Japan - Continued
Nissen Corp. (Retail) 54,600 $ 1,576,182
Omron Tateisi Electronic (Electronics) 113,000 2,642,822
Osaka Sanso Kogyo (Chemicals) 392,000 1,246,697
------------
$ 23,641,374
- --------------------------------------------------------------------------------
Korea - 3.2%
Hanil Cement Manufacturing Co.
(Building Materials) 21,100 $ 1,227,225
Korea Electric Power (Utilities - Electric) 61,000 2,762,580
Korea Mobile Telecom, GDR (Telecommunications)* 49,500 1,819,125
Shin Won Corp. (Textiles)* 21,670 945,708
------------
$ 6,754,638
- --------------------------------------------------------------------------------
Malaysia - 1.3%
Maruichi Malaysia Steel Tube BHD
(Metal Fabricate/Hardware) 144,000 $ 555,591
New Straits Times Press BHD (Publishing) 585,000 1,842,520
Petronas Gas Berhad (Gas/Oils)* 100,200 339,260
------------
$ 2,737,371
- --------------------------------------------------------------------------------
Netherlands - 3.8%
Getronics NV (Computer Software - Services) 65,004 $ 3,102,295
IHC Caland NV (Machinery)* 62,000 1,764,355
Koninklijke Nedlloyd NV (Transportation) 15,475 393,300
Royal Dutch Petroleum Co. (Oils) 23,000 2,855,685
------------
$ 8,115,635
- --------------------------------------------------------------------------------
New Zealand - 3.4%
Lion Nathan Ltd. (Food and Beverage) 1,882,000 $ 4,277,558
Sky City Ltd. (Entertainment)* 140,000 2,911,481
------------
$ 7,189,039
- --------------------------------------------------------------------------------
Norway - 0.7%
Tomra Systems A/S (Machinery) 241,500 $ 1,524,528
- --------------------------------------------------------------------------------
Singapore - 1.6%
Hong Leong Finance Ltd. (Finance) 700,000 $ 2,121,813
Singapore Press Holdings (Publishing) 76,000 1,189,518
------------
$ 3,311,331
- --------------------------------------------------------------------------------
Spain - 4.9%
Acerinox, S.A. (Iron and Steel) 29,500 $ 3,110,865
Acerinox, S.A. - New (Iron and Steel)* 2,950 310,845
Cubiertas Y Mzov S.A.
(Engineering - Construction) 39,000 2,280,197
Fabrica Autom Renault de Esp (Automotive) 36,000 959,410
Iberdrola (Utilities - Electric) 216,000 1,629,520
Repsol S.A. (Oils) 71,000 2,122,140
------------
$ 10,412,977
- --------------------------------------------------------------------------------
Sweden - 11.3%
Asea AB, "B" (Electrical Equipment) 48,000 $ 4,741,295
Astra AB, "B" (Pharmaceuticals) 241,000 8,722,535
Hennes & Mauritz AB, "B" (Retail) 17,000 1,112,636
Marieberg Tidings, "A" (Publishing) 80,000 1,906,169
Nordbanken AB (Banks and Credit Cos.)* 40,800 609,130
Sparbanken Svergie AB, "A"
(Banks and Credit Cos.) 320,900 3,387,522
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign Common Stocks - Continued
Sweden - Continued
TV 4 AB (Broadcasting) 156,200 $ 3,415,572
------------
$ 23,894,859
- --------------------------------------------------------------------------------
Thailand - 0.7%
Total Access Communications
(Telecommunications)* 232,200 $ 1,404,810
- --------------------------------------------------------------------------------
United Kingdom - 6.4%
Asda Group PLC (Supermarkets) 1,750,400 $ 2,836,567
Capital Radio PLC (Broadcasting) 163,000 1,167,395
MAI PLC (Broadcasting) 314,000 1,630,786
New London Capital PLC (Insurance) 670,000 910,972
PowerGen PLC (Utilities - Electric) 300,000 2,694,024
PowerGen PLC, Partly Paid Shares
(Utilities - Electric)* 517,100 2,092,890
Storehouse PLC (Retail) 451,000 2,139,093
------------
$ 13,471,727
- --------------------------------------------------------------------------------
Total Foreign Common Stocks
(Identified Cost, $127,377,914) $147,461,533
- --------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $175,620,671) $205,406,371
- --------------------------------------------------------------------------------
Short-Term Obligation - 2.3%
================================================================================
Principal Amount
(000 Omitted)
- --------------------------------------------------------------------------------
General Electric Co., due 11/01/95
at Amortized Cost $ 4,975 $ 4,975,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $180,595,671) $210,381,371
Other Assets, Less Liabilities - 0.5% 976,331
- --------------------------------------------------------------------------------
Net Assets - 100.0% $211,357,702
- --------------------------------------------------------------------------------
<FN>
* Non-income producing security.
+ SEC Rule 144A restriction.
</FN>
</TABLE>
See notes to financial statements
10
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
================================================================================
October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $180,595,671) $210,381,371
Foreign currency, at value (identified cost, $304,436) 310,452
Receivable for investments sold 8,872,109
Receivable for Fund shares sold 234,867
Dividends receivable 188,295
Other assets 57,114
------------
Total assets $220,044,208
============
Liabilities:
Cash overdraft $ 1,678,213
Payable for investments purchased 2,477,405
Payable for Fund shares reacquired 2,387,676
Net payable for forward foreign currency exchange
contracts sold 1,735,682
Net payable for forward foreign currency exchange
contracts purchased 87,147
Payable to affiliates -
Management fee 17,236
Shareholder servicing agent fee 3,749
Distribution fee 57,828
Accrued expenses and other liabilities 241,570
------------
Total liabilities $ 8,686,506
------------
Net assets $211,357,702
============
Net assets consist of:
Paid-in capital $173,636,411
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 27,965,785
Accumulated undistributed net realized gain
on investments and foreign currency transactions 9,826,961
Accumulated net investment loss (71,455)
------------
Total $211,357,702
============
Shares of beneficial interest outstanding 12,747,887
============
Class A shares:
Net asset value and redemption price per share
(net assets of $52,163,775 / 3,127,282 shares of
beneficial interest outstanding) $16.68
======
Offering price per share (100/94.25) $17.70
======
Class B shares:
Net asset value and offering price per share
(net assets of $156,286,219 / 9,444,657 shares of
beneficial interest outstanding) $16.55
======
Class C shares:
Net asset value, offering price, and redemption price per share
(net assets of $2,907,708 / 175,948 shares of
beneficial interest outstanding) $16.53
======
</TABLE>
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
and Class B shares.
See notes to financial statements
11
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Operations
================================================================================
Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Dividends $ 3,976,263
Interest 773,851
Foreign taxes withheld (419,051)
------------
Total investment income $ 4,331,063
------------
Expenses -
Management fee $ 1,981,096
Trustees' compensation 40,737
Shareholder servicing agent fee (Class A) 48,255
Shareholder servicing agent fee (Class B) 360,720
Shareholder servicing agent fee (Class C) 2,964
Distribution and service fee (Class A) 52,913
Distribution and service fee (Class B) 1,639,636
Distribution and service fee (Class C) 19,762
Custodian fee 194,666
Printing 71,850
Postage 60,712
Auditing fees 52,394
Legal fees 10,405
Miscellaneous 230,781
------------
Total expenses $ 4,766,891
Fees paid indirectly (29,188)
Reduction of expenses by distributor (14,837)
------------
Net expenses $ 4,722,866
------------
Net investment loss $ (391,803)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 12,603,757
Foreign currency transactions (2,719,875)
------------
Net realized gain on investments and
foreign currency trans $ 9,883,882
------------
Change in unrealized appreciation (depreciation) -
Investments $ 9,323,449
Translation of assets and liabilities in foreign currencies (264,952)
------------
Net unrealized gain on investments $ 9,058,497
------------
Net realized and unrealized gain
on investments and foreign currency $ 18,942,379
------------
Increase in net assets from operations $ 18,550,576
============
</TABLE>
See notes to financial statements
12
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
================================================================================
Year Ended October 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (391,803) $ (1,663,017)
Net realized gain on investments and
foreign currency transactions 9,883,882 20,711,422
Net unrealized gain (loss) on investments
and foreign currency translation 9,058,497 (10,314,501)
------------ ------------
Increase in net assets from operations $ 18,550,576 $ 8,733,904
------------ ------------
Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions (Class A) $ (2,000,929) $ (180,562)
From net realized gain on investments and
foreign currency transactions (Class B) (15,860,996) (6,235,701)
From net realized gain on investments and
foreign currency transactions (Class C) (151,274) --
In excess of net investment income (Class A) -- (16,838)
In excess of net investment income (Class B) -- (128,567)
------------ ------------
Total distributions declared
to shareholders $(18,013,199) $ (6,561,668)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $150,342,597 $151,326,611
Net asset value of shares issued to
shareholders in reinvestment
of distributions 16,618,722 5,986,233
Cost of shares reacquired (149,986,942) (113,290,222)
------------ ------------
Increase in net assets from
Fund share transactions $ 16,974,377 $ 44,022,622
------------ ------------
Total increase in net assets $ 17,511,754 $ 46,194,858
Net assets:
At beginning of period 193,845,948 147,651,090
------------ ------------
At end of period (including net investment
loss of $71,455 and $28,650, respectively) $211,357,702 $193,845,948
============ ============
</TABLE>
See notes to financial statements
13
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
===================================================================================================================================
Year Ended
Year Ended October 31, October 31,
--------------------------------- ---------------------
1995 1994 1993* 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 16.95 $ 16.56 $ 15.71 $ 16.78 $ 16.53
-------- -------- -------- -------- --------
Income from investment operations#-
Net investment income (loss) $ 0.09 $ 0.03 $ 0.01 $ (0.05) $ (0.17)
Net realized and unrealized gain (loss)
on investments 1.37 1.13 0.84 1.37 1.13
-------- -------- -------- -------- --------
Total from investment operations $ 1.46 $ 1.16 $ 0.85 $ 1.32 $ 0.96
Less distributions declared to shareholders -
In excess of net investment income $ -- $ (0.07) $ -- $ -- $ (0.01)
From net realized gain on investments (1.73) (0.70) -- (1.55) (0.70)
-------- -------- -------- -------- --------
Total distributions declared
to shareholders $ (1.73) $ (0.77) $ -- $ (1.55) $ (0.71)
-------- -------- -------- -------- --------
Net asset value - end of period $ 16.68 $ 16.95 $ 16.56 $ 16.55 $ 16.78
======== ======== ======== ======== ========
Total return+++ 10.16% 7.03% 5.41%++ 9.07% 5.91%
Ratios (to average net assets)/Supplemental data:
Expenses##= 1.61% 1.54% 1.68%+ 2.55% 2.58%
Net investment income (loss) [ss] 0.58% 0.15% 0.94%+ (0.35)% (1.01)%
Portfolio turnover 73% 99% 70% 73% 99%
Net assets at end of period (000 omitted) $ 52,164 $ 16,968 $ 2,076 $156,286 $175,438
<FN>
* For the period from the commencement of offering of Class A shares, September 7, 1993 to October 31, 1993.
+ Annualized.
++ Not annualized.
+++ Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
# Per share data for the periods subsequent to October 31, 1993 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
[ss] The distributor did not impose a portion of its fee for Class A shares amounting to $0.0072 per share for the year ended
October 31, 1995. If this fee had been incurred by the Fund, the ratio of expenses and net investment income to average net
assets would have been 1.66% and 0.53%, respectively.
</FN>
</TABLE>
See notes to financial statements
14
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
====================================================================================================================================
Period Ended Year Ended November 30,
October 31, ----------------------------------------------
1993* 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 13.50 $ 12.40 $ 12.94 $ 12.96 $ 11.21
-------- -------- -------- -------- --------
Income from investment operations#-
Net investment income (loss) $ (0.10) $ (0.04) $ 0.17 $ 0.13 $ 0.09
Net realized and unrealized gain (loss)
on investments 3.28 1.17 (0.37) 0.14 2.03
-------- -------- -------- -------- --------
Total from investment operations $ 3.18 $ 1.13 $ (0.20) $ 0.27 $ 2.12
-------- -------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $ -- $ (0.21)
From net realized gain on investments (0.15) (0.03) (0.15) (0.29) (0.12)
From paid-in capital -- -- (0.19) -- (0.04)
-------- -------- -------- -------- --------
Total distributions declared
to shareholders $ (0.15) $ (0.03) $ (0.34) $ (0.29) $ (0.37)
-------- -------- -------- -------- --------
Net asset value - end of period $ 16.53 $ 13.50 $ 12.40 $ 12.94 $ 12.96
======== ======== ======== ======== ========
Total return 23.80%++ 9.13% (1.57)% 2.02% 19.58%
Ratios (to average net assets)/Supplemental data:
Expenses## 2.66+ 2.91% 2.88% 2.93% 3.05%
Net investment income (loss) (0.71)%+ (0.31)% 1.35% 1.07% 0.77%
Portfolio turnover 70% 110% 160% 173% 190%
Net assets at end of period (000 omitted) $145,575 $101,550 $ 82,980 $ 81,505 $ 50,827
<FN>
* For the eleven months ended October 31, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the period subsequent to October 31, 1993 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</FN>
</TABLE>
See notes to financial statements
15
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
===================================================================================================================================
Year Period
Year Ended Ended Ended
November 30, October October
-------------------- 31, 31,
1988 1987** 1995 1994***
- -----------------------------------------------------------------------------------------------------------------------------------
Class B Class C
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.12 $ 8.47 $ 16.80 $ 16.75
-------- -------- -------- --------
Income from investment operations#-
Net investment income (loss) $ 0.14 $ (0.02) $ (0.05) $ (0.09)
Net realized and unrealized gain (loss)
on investments 0.95 1.67 1.37 0.14
-------- -------- -------- --------
Total from investment operations $ 1.09 $ 1.65 $ 1.32 $ 0.05
-------- -------- -------- --------
Less distributions declared to shareholders
from net realized gain on investments $ -- $ -- $ (1.59) $ --
-------- -------- -------- --------
Total distributions declared
to shareholders $ -- $ -- $ (1.59) $ --
-------- -------- -------- --------
Net asset value - end of period $ 11.21 $ 10.12 $ 16.53 $ 16.80
======== ======== ======== ========
Total return 10.77% 19.48%++ 9.20% 0.30%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.48% 2.50% 2.49% 2.55%
Net investment income (loss) 1.29% (0.29)% (0.31)% (0.72)%
Portfolio turnover 276% 272% 73% 99%
Net assets at end of period (000 omitted) $ 42,806 $ 37,248 $ 2,908 $ 1,440
<FN>
** For the period from the commencement of investment operations, December 29, 1986 to November 30, 1987.
*** For the period from the commencement of offering of Class C shares, January 3, 1994 to October 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data for the period subsequent to October 31, 1993 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</FN>
</TABLE>
See notes to financial statements
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS World Equity Fund (the Fund) is a diversified series of MFS Series Trust VI
(the Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed
issues and forward contracts, are valued on the basis of valuations furnished
by dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Non-U.S. dollar denominated
short-term obligations are valued at amortized cost as calculated in the base
currency and translated into U.S. dollars at the closing daily exchange rate.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments and income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The Fund will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes. The forward foreign currency exchange contracts are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividend and interest payments received in additional securities are recorded on
the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return and,
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend income
earned on foreign investments in accordance with the applicable country 's tax
rates and to the extent unrecoverable are recorded as a reduction of investment
income. The Fund has elected to pass through to shareholders foreign
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
income taxes paid. This election increases the taxable distributions of the
Fund by the amount of the foreign taxes paid. An individual shareholder who
itemizes deductions, or a corporate shareholder, will be able to claim an
offsetting deduction or a tax credit (but not both) on their federal income tax
returns. Individuals who do not itemize deductions may claim a foreign tax
credit but not a deduction. The foreign source income is considered passive
income for the purpose of computing foreign tax credit limitations.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended October 31, 1995, $348,998 was reclassified from
accumulated net realized gain on investments to accumulated net investment loss
due to differences between book and tax accounting for investment losses and
currency transactions. This change had no effect on the net assets or net asset
value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 1.00% of
average daily net assets.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense of
$9,333 for the year ended October 31, 1995.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$17,893 as its portion of the sales charge on sales of Class A shares of the
Fund. The Trustees have adopted separate distribution plans for Class A, Class B
and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940
as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD retains the service fee for accounts
not attributable to a securities dealer which amounted to $1,447 for the year
ended October 31, 1995. MFD is not imposing the 0.10% distribution fee for an
indefinite period. Payments commenced under the Distribution Plan on July 12,
1995, the date that the net assets of the Fund attributable to Class A shares
first exceeded $40 million.
The Class B and Class C distribution plans provide that the Fund will pay MFD a
distribution fee of 0.75% per annum and a service fee of up to 0.25% per annum,
of the Fund's average daily net assets attributable to Class B and Class C
shares. MFD will pay to securities dealers that enter into a sales agreement
with MFD all or a portion of the service fee attributable to Class B and Class C
shares, and will pay to such securities dealers all of the distribution fee
attributable to Class C shares. The service fee is intended to be additional
consideration for services rendered by the dealer with respect to Class B and
Class C shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $45,840 and $391 for Class B and C shares,
respectively, for the year ended October 31, 1995. Fees incurred under the
distribution plans during the year ended October 31, 1995 were 1.00% of average
daily net assets attributable to Class B and Class C shares on an annualized
basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended October 31, 1995, were $198 and $235,884
for Class A shares and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets of each class of share at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B and Class C shares, respectively.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$137,498,879 and $139,413,194, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $180,651,795
============
Gross unrealized appreciation $ 37,336,595
Gross unrealized depreciation (7,550,895)
------------
Net unrealized appreciation $ 29,785,700
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Year Ended October 31, 1995 Year Ended October 31, 1994
--------------------------- ---------------------------
Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 4,007,859 $ 63,217,135 1,978,367 $ 33,143,923
Shares issued to shareholders
in reinvestment of distributions 129,779 1,883,186 9,733 162,345
Shares reacquired (2,011,280) (32,143,857) (1,112,569) (18,679,384)
---------- ------------- ---------- ------------
Net increase 2,126,358 $ 32,956,464 875,531 $ 14,626,884
========== ============= ========== ============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Year Ended October 31, 1995 Year Ended October 31, 1994
--------------------------- ---------------------------
Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 5,493,342 $ 85,113,083 6,764,741 $112,853,245
Shares issued to shareholders
in reinvestment of distributions 1,006,721 14,610,342 349,342 5,823,888
Shares reacquired (7,507,506) (117,113,709) (5,466,499) (90,745,071)
---------- ------------- ---------- ------------
Net increase (decrease) (1,007,443) $(17,390,284) 1,647,584 $ 27,932,062
========== ============= ========== ============
</TABLE>
<TABLE>
<CAPTION>
Class C Shares Year Ended October 31, 1995 Year Ended October 31, 1994*
--------------------------- ---------------------------
Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Shares sold 128,767 $ 2,012,379 319,076 $ 5,329,443
Shares issued to shareholders
in reinvestment of distributions 8,646 125,194 -- --
Shares reacquired (47,177) (729,376) (233,364) (3,865,767)
---------- ------------- ---------- ------------
Net increase 90,236 $ 1,408,197 85,712 $ 1,463,676
========== ============= ========== ============
<FN>
*For the period from the commencement of offering of Class C shares, January 3, 1994 to October 31, 1994.
</FN>
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended October 31,
1995 was $2,759.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options and forward foreign currency exchange
contracts. The notional or contractual amounts of these instruments represent
the investment the Fund has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at October 31, 1995, is as
follows:
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
Contracts to Contracts Net Unrealized
Settlement Date Deliver/Receive In Exchange for at Value Depreciation
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 11/09/95 CAD 5,764,061 $ 4,282,681 $ 4,288,565 $ (5,884)
12/07/95 ESP 1,441,266,599 11,316,123 11,778,031 (461,908)
11/02/95 - 2/02/96 SEK 216,331,210 31,246,604 32,514,494 (1,267,890)
------------ ------------ -------------
$ 46,845,408 $ 48,581,090 $ (1,735,682)
============ ============ =============
Purchases 11/09/95 CAD 3,370,058 $ 2,465,980 $ 2,507,384 $ 41,404
12/07/95 ESP 193,615,450 1,600,723 1,582,225 (18,498)
11/02/95 SEK 85,561,140 13,013,101 12,903,048 (110,053)
------------ ------------ -------------
$ 17,079,804 $ 16,992,657 $ (87,147)
============ ============ =============
</TABLE>
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. Dollar. A list of abbreviations is shown below.
CAD = Canadian Dollars
ESP = Spanish Pesetas
SEK = Swedish Kronor
At October 31, 1995, the Fund had sufficient securities and/or cash to cover any
commitments under these contracts.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At October 31, 1995,
the Fund owned the following restricted securities (constituting 2.4% of net
assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Date of
Description Acquisition Shares Cost Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consol Electric Power
Asia Ltd., ADR 11/29/93 57,000 $ 923,584 $1,154,250
Korea Mobile Telecom, GDR 3/24/95-3/31/95 49,500 1,291,319 1,819,125
Mirgor Sacifia, ADR 10/20/94 97,600 878,400 195,200
New London Capital PLC 11/12/93 670,000 993,945 910,972
Petronas Gas Berhad 7/31/95 100,200 326,251 339,260
Tarkett AG 6/27/95 31,600 759,383 754,144
==========
$5,172,951
==========
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust VI and Shareholders of MFS World Equity
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS World Equity Fund (one of the series
constituting MFS Series Trust VI) as of October 31, 1995, the related statement
of operations for the year then ended, the statement of changes in net assets
for the years ended October 31, 1995 and 1994 and the financial highlights for
each of the years in the nine-year period ended October 31, 1995. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
October 31, 1995, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS World Equity
Fund at October 31, 1995, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 4, 1995
---------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
24
<PAGE>
IT'S EASY TO CONTACT US
[GRAPHIC OMITTED]
MFS AUTOMATED INFORMATION
ACCOUNT INFORMATION:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
MARKET OUTLOOK:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
[GRAPHIC OMITTED]
MFS PERSONAL SERVICE
ACCOUNT SERVICE:
Call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
PRODUCT INFORMATION:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
SERVICE FOR THE HEARING-IMPAIRED:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
[GRAPHIC OMITTED]
MFS MAILING ADDRESSES
FOR PERSONAL ACCOUNTS:
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
FOR IRA ACCOUNTS:
MFS Service Center, Inc.
J.W. McCormack Station
P.O. Box 4501
Boston, MA 02101-9817
25
<PAGE>
A WORD ABOUT MFS PRODUCTS AND SERVICES
MAKING ADDITIONAL INVESTMENTS AT YOUR CONVENIENCE
There are several easy ways to make additional single investments of at
least $50:
o send a check with the lower portion of your account statement
o contact your financial adviser to purchase shares on your behalf
o wire additional investments through your bank; call us first for
instructions.
MAKING ADDITIONAL INVESTMENTS AUTOMATICALLY
By investing a set amount at regular intervals, over time you will buy more
shares when prices are low, and fewer shares when prices are high. Because
dollar cost averaging involves periodic purchases regardless of fluctuating
share prices, you should consider your financial ability to continue investing
in periods of low prices. MFS offers two dollar-cost-averaging programs. See the
prospectus for further details. Dollar cost averaging does not assure a profit
or avoid a loss.
THE AUTOMATIC INVESTMENT PLAN offers a simple way to make regular investments of
at least $50 through automatic withdrawals from your checking account.
THE AUTOMATIC EXCHANGE PLAN automatically exchanges shares from any MFS fund
with $5,000 or more into the same class of shares in up to four other MFS funds.
You choose the amounts of the exchanges (as little as $50) and their frequency.
<TABLE>
<CAPTION>
A HYPOTHETICAL EXAMPLE OF AUTOMATIC MONTHLY INVESTING
COMPOUNDING AT 8% YEAR
Amount 5 Years 10 15 20 25
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$50 3,671 9,064 16,989 28,633 45,742
$75 5,506 13,596 25,483 42,950 68,613
$100 7,341 18,128 33,978 57,266 91,484
$200 14,683 36,257 67,956 114,532 182,968
</TABLE>
For illustration only. Not indicative of future performance of any MFS fund.
For applications or further information call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
If you are a participant in a retirement plan, check with your plan sponsor
regarding the availability of these options.
26
<PAGE>
A FINANCIAL ADVISER CAN HELP YOU BE A BETTER INVESTOR
Financial advisers can be valuable resources for their clients, providing
ongoing education and guidance about investments, as well as a wide range of
services. Here are just some of the ways your financial adviser may be able to
help you be a better investor:
# Day-to-day monitoring of your portfolio
# Tax recordkeeping
# In-depth information on fund managers, their track records and their tenure
# Risk/reward analyses of current or potential holdings
# Asset allocation advice
# Construction of a detailed personal financial profile
# Order and confirmation processing
# Information on a fund group's range of shareholder services
# Portfolio adjustments based on lifestyle changes
# Assistance with business retirement planning
# Evaluation of lump-sum distribution options
# Recommendations on a selection of fund groups
# Specialized research and investment information not readily available to
individuals
# In-depth knowledge of markets and products, kept current by ongoing tracking
# Estate, tax, insurance, and business planning
# Help with possible savings on sales charges through breakpoints, rights of
accumulation, and letters of intent
27
<PAGE>
MFS INVESTMENT OPPORTUNITIES
MUTUAL FUNDS
MFS Family of Funds[Registration Mark], shown on the facing page, falls into the
eight general categories below, all offer full-time professional management, a
diversified portfolio, and a wide array of shareholder services.
STOCK FUNDS seek growth of capital rather than income through investments in
stocks.
STOCK AND BOND FUNDS seek current income and growth of capital through
investments in both stocks and bonds.
BOND FUNDS seek current income through investments in debt securities.
WORLD FUNDS seek stock, balanced, and bond fund objectives through investments
in U.S. and foreign stocks and bonds.
LIMITED-MATURITY FUNDS seek current income and preservation of capital through
investments in debt securities with remaining
maturities of five years or less.
NATIONAL TAX-FREE BOND FUNDS seek current income exempt from federal income tax
through investments in debt securities issued by states and municipalities. [1]
STATE TAX-FREE BOND FUNDS seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state and
its municipalities. [1]
MONEY MARKET FUNDS seek preservation of capital and current income through
investments in short-term debt securities. [2]
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information for
literature [3] on MFS products and services: 1-800-637-2929, from 9 a.m. to
5 p.m. Eastern time any business day (leave a message any time).
[1] A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
[2] Investments in money market funds are not issued or guaranteed by the U.S.
government and there is no assurance that the fund will be able to maintain
a stable net asset value.
[3] Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
28
<PAGE>
THE MFS FAMILY OF FUNDS [Registration Mark]
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any
time). This material should be read carefully before investing or sending money.
STOCK
================================================================================
Massachusetts Investors Trust
- --------------------------------------------------------------------------------
Massachusetts Investors Growth Stock Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Capital Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Emerging Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Gold & Natural Resources Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Growth Opportunities Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Managed Sectors Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] OTC Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Research Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Value Fund
- --------------------------------------------------------------------------------
STOCK AND BOND
================================================================================
MFS [Registration Mark] Total Return Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Utilities Fund
- --------------------------------------------------------------------------------
BOND
================================================================================
MFS [Registration Mark] Bond Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Mortgage Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Securities Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] High Income Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Intermediate Income Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Strategic Income Fund
(formerly MFS [Registration Mark] Income & Opportunity Fund)
- --------------------------------------------------------------------------------
LIMITED MATURITY BOND
================================================================================
MFS [Registration Mark] Government Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal Limited Maturity Fund
- --------------------------------------------------------------------------------
WORLD
================================================================================
MFS [Registration Mark] World Asset Allocation Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Equity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Governments Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Total Return Fund
- --------------------------------------------------------------------------------
NATIONAL TAX-FREE BOND
================================================================================
MFS [Registration Mark] Municipal Bond Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal High Income Fund
(closed to new investors)
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal Income Fund
- --------------------------------------------------------------------------------
STATE TAX-FREE BOND
================================================================================
Alabama, Arkansas, California, Florida, Georgia, Louisiana, Maryland,
Massachusetts, Mississippi, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia, Washington, West Virginia
- --------------------------------------------------------------------------------
MONEY MARKET
================================================================================
MFS [Registration Mark] Cash Reserve Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Money Market Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Money Market Fund
- --------------------------------------------------------------------------------
<PAGE>
MFS [Registration Mark] WORLD [Dalbar Logo] Bulk Rate
EQUITY FUND TOP RATED SERVICE U.S. Postage
P A I D
500 Boylston Street Permit #55638
Boston, MA 02116 Boston, MA
[MFS Logo]
THE FIRST NAME IN MUTUAL FUNDS
MWE-2 12/95/37M 04/204/304
<PAGE>
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
MFS WORLDWIDE TOTAL RETURN FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the six years ended October 31, 1995:
Financial Highlights*
FINANCIAL STATEMENTS INCLUDED IN PART B:
At October 31, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the two years ended October 31, 1995:
Statement of Changes in Net Assets*
For the year ended October 31, 1995:
Statement of Operations*
- -------------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated October 31, 1995, filed with the Securities and Exchange
Commission ("SEC") on January 10, 1996.
MFS UTILITIES FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the period from the commencement of operations on
January 22, 1992 to October 31, 1992 and the three years
ended October 31, 1995:
Financial Highlights*
FINANCIAL STATEMENTS INCLUDED IN PART B:
At October 31, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the two years ended October 31, 1995:
Statement of Changes in Net Assets*
For the year ended October 31, 1995:
Statement of Operations*
- --------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated October 31, 1995, filed with the SEC on January 4, 1996.
MFS WORLD EQUITY FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the period from the commencement of investment
operations on December 29, 1986 to November 30, 1987, for
the five years ended November 30, 1992, for the period ended
October 31, 1993 and the two years ended October 31, 1995:
Financial Highlights*
FINANCIAL STATEMENTS INCLUDED IN PART B:
At October 31, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended October 31, 1995:
Statement of Operations*
For the two years ended October 31, 1995:
Statement of Changes in Net Assets*
- -------------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated October 31, 1995, filed with the SEC on January 10,
1996.
-------------------------
(B) EXHIBITS
1 Amended and Restated Declaration of Trust of the
Registrant, dated February 2, 1995. (1)
2 Amended and Restated By-Laws, dated December 14, 1994.
(1)
3 Not Applicable.
4 Form of Certificate representing ownership of the
Registrant's Class A, B and C Shares of Beneficial
Interest. (4)
5 (a) Investment Advisory Agreement between MFS Worldwide
Total Return Trust and Massachusetts Financial Services
Company, dated August 10, 1990. (1)
(b) Investment Advisory Agreement for MFS Utilities Fund,
dated September 1, 1993. (1)
(c) Investment Advisory Agreement for MFS World Equity Fund,
dated September 1, 1993. (1)
6 (a) Dealer Agreement between MFS Fund Distributors, Inc.
("MFD") and a dealer, dated December 28, 1994 and the
Mutual Fund Agreement between MFD and a bank or NASD
affiliate, dated December 28, 1994. (2)
(b) Distribution Agreement between the Trust and MFS Fund
Distributors, Inc., dated January 1, 1995. (1)
7 Retirement Plan for Non-Interested Person Trustees,
dated January 1, 1991. (1)
8 (a) Custodian Agreement between Registrant and State
Street Bank and Trust Company, dated August 10, 1990.
(1)
(b) Amendment to Custodian Agreement, dated September 5,
1990. (1)
(c) Amendment to Custodian Agreement, dated September 11,
1991. (1)
9 (a) Shareholder Servicing Agreement between the
Registrant and MFS Service Center, Inc., dated August
10, 1990. (1)
(b) Amendment to Shareholder Servicing Agent Agreement,
dated December 28, 1993. (1)
(c) Exchange Privilege Agreement, dated September 1, 1995.
(6)
(d) Dividend Disbursing Agency Agreement, dated August 10,
1990. (1)
(e) Loan Agreement by and among the Banks named therein, the
MFS Funds named therein, and The First National Bank of
Boston, dated February 21, 1995. (3)
10 Consent and Opinion of Counsel for the fiscal year ended
October 31, 1995 filed with the Rule 24f-2 Notice on
December 29, 1995.
11 (a) Consent of Ernst & Young LLP - MFS World Total
Return and MFS Utilities Fund; filed herewith.
(b) Consent of Deloitte & Touche LLP - MFS World Equity
Fund; filed herewith
12 Not Applicable.
13 Not Applicable.
14 (a) Forms for Individual Retirement Account Disclosure
Statement as currently in effect. (5)
(b) Forms for MFS 403(b) Custodial Account Agreement as
currently in effect. (5)
(c) Forms for MFS Prototype Paired Defined Contribution
Plans and Fund Agreement as currently in effect. (5)
15 (a) Amended and Restated Distribution Plan for Class A
shares of MFS World Total Return Fund, dated December
14, 1994. (1)
(b) Distribution Plan for Class A shares of MFS Utilities
Fund, dated December 14, 1994. (1)
(c) Distribution Plan for Class A shares of MFS World Equity
Fund, dated December 14, 1994. (1)
(d) Distribution Plan for Class B shares of MFS World Total
Return Fund, dated December 14, 1994. (1)
(e) Distribution Plan for Class B shares of MFS Utilities
Fund, dated December 14, 1994. (1)
(f) Distribution Plan for Class B shares of MFS World Equity
Fund, dated December 14, 1994. (1)
(g) Distribution Plan for Class C shares of MFS World Total
Return Fund, dated December 14, 1994. (1)
(h) Distribution Plan for Class C shares of MFS Utilities
Fund, dated December 14, 1994. (1)
(i) Distribution Plan for Class C shares of MFS World Equity
Fund, dated December 14, 1994. (1)
16 Schedule of Computation of Performance
Quotations-Average Annual Total Rate of Return,
Aggregate Total Rate of Return and Standardized Yield.
(2)
17 Not Applicable.
18 Not Applicable.
Power of Attorney, dated August 11, 1994. (1)
- -----------------------------
(1) Incorporated by reference to Registrant's Post-Effective Amendment No. 8
filed with the SEC via EDGAR on October 23, 1995.
(2) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR
on February 22, 1995.
(3) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS Municipal
Income Trust (File No. 811-4841) filed with the SEC via EDGAR on February
28, 1995.
(4) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 28, filed with the SEC via EDGAR
on July 28, 1995.
(5) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on
August 28, 1995.
(6) Incorporated by reference to MFS Series Trust X (File Nos. 33-1657 and
811-4492) Post-Effective Amendment No. 13 filed with the SEC via EDGAR on
November 28, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
FOR MFS WORLD TOTAL RETURN FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 12,392
(without par value) (as at February 1, 1996)
Class B Shares of Beneficial Interest 6,406
(without par value) (as at February 1, 1996)
Class C Shares of Beneficial Interest 831
(without par value) (as at February 1, 1996)
FOR MFS UTILITIES FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 3,796
(without par value) (as at February 1, 1996)
Class B Shares of Beneficial Interest 3,022
(without par value) (as at February 1, 1996)
Class C Shares of Beneficial Interest 455
(without par value) (as at February 1, 1996)
FOR MFS WORLD EQUITY FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 12,558
(without par value) (as at February 1, 1996)
Class B Shares of Beneficial Interest 18,208
(without par value) (as at February 1, 1996)
Class C Shares of Beneficial Interest 345
(without par value) (as at February 1, 1996)
ITEM 27. INDEMNIFICATION
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust dated February 2, 1995; and (b) Section 9 of the
Shareholder Servicing Agent Agreement, both of which were filed with the SEC on
October 23, 1995 as part of the Registrant's Post-Effective Amendment No. 8.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser and distributor 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, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
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 Limited Maturity Fund, MFS Series Trust I (which
has eight series: MFS Managed Sectors Fund, MFS Cash Reserve Fund, MFS World
Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research Growth and
Income Fund, MFS Core Growth Fund, MFS Equity Income Fund and MFS Special
Opportunities 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 Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 19 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Louisiana Municipal Bond Fund, MFS Maryland Municipal
Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal Bond
Fund, MFS New York Municipal Bond Fund, MFS North Carolina Municipal Bond Fund,
MFS Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal Bond Fund,
MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond Fund, MFS Virginia
Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS West Virginia
Municipal Bond Fund and MFS Municipal Income Fund) (the "MFS Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following no-load,
open-end Funds: MFS Institutional Trust ("MFSIT") (which has seven 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, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), Sun Growth Variable Annuity Funds, 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 Fund
(which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International Funds-Global
Governments Fund and MFS International Funds-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, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund and MFS Meridian Research Fund
(collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is
organized as an exempt company under the laws of the Cayman Islands. The
principal business address of each of the MFS Meridian Funds is P.O. Box 309,
Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
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, MFSIT, MVI and UST.
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.
MFS
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, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a Senior
Vice President, General Counsel and an Assistant Secretary, Joseph W. Dello
Russo is a Senior Vice President, Chief Financial Officer and Treasurer, Robert
T. Burns is a Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Assistant
Treasurer.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS GOVERNMENT LIMITED MATURITY FUND
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice President and
Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice President of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost is the Assistant Treasurer, and James R. Bordewick,
Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is the Assistant Treasurer, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Assistant Vice President of MFS, is an Assistant Vice President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, and James O. Yost, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo is
the Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, Ziad Malek is the President, James E. Russell
is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle and Richard W. S. Baker are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary, and
Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott and Jeffrey L.
Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James R. Bordewick, Jr., is the Assistant Secretary, James O. Yost is
the Assistant Treasurer, and Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
Thomas B. Hastings is the Assistant Treasurer.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings
is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and
a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director
and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady
and Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer and
Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery are
Directors, Arnold D. Scott is the Chairman and a Director, Douglas C. Grip, a
Senior Vice President of MFS, is the President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is
the Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli
is a Senior Vice President.
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)
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)
Joseph W. Dello Russo Director of Mutual Fund Operations, The
Boston Company, Exchange Place, Boston,
Massachusetts (until August, 1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal business
address of each of these persons is 500 Boylston Street, Boston, Massachusetts
02116.
(c) Not applicable.
ITEM 30. 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 500 Boylston Street
Company (investment adviser) Boston, MA 02116
MFS Fund Distributors, Inc. 500 Boylston Street
(principal underwriter) Boston, MA 02116
State Street Bank and State Street South
Trust Company (custodian) 5 - West
North Quincy, MA 02171
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest annual report to shareholders upon
request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 26th day of February, 1996.
MFS SERIES TRUST VI
By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on February 26, 1996.
SIGNATURE TITLE
--------- -----
Chairman, President (Principal
A. KEITH BRODKIN* Executive Officer) and Trustee
- ----------------------------
A. Keith Brodkin
Treasurer (Principal Financial
Officer and Principal
W. THOMAS LONDON* Accounting Officer)
- ----------------------------
W. Thomas London
RICHARD B. BAILEY* Trustee
- ----------------------------
Richard B. Bailey
MARSHALL N. COHAN* Trustee
- ----------------------------
Marshall N. Cohan
LAWRENCE H. COHN, M.D.* Trustee
- ----------------------------
Lawrence H. Cohn, M.D.
SIR J. DAVID GIBBONS* Trustee
- ----------------------------
Sir J. David Gibbons
<PAGE>
ABBY M. O'NEILL* Trustee
- ----------------------------
Abby M. O'Neill
WALTER E. ROBB, III* Trustee
- ----------------------------
Walter E. Robb, III
ARNOLD D. SCOTT* Trustee
- ----------------------------
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
- ----------------------------
Jeffrey L. Shames
J. DALE SHERRATT* Trustee
- ----------------------------
J. Dale Sherratt
WARD SMITH* Trustee
- ----------------------------
Ward Smith
*By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick,
Jr. on behalf of those indicated
pursuant to a Power of Attorney
dated August 11, 1994, previously
filed with the Securities and
Exchange Commission
Post-Effective Amendment No. 8 on
October 23, 1995.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
11 (a) Consent of Ernst & Young LLP - MFS World
Total Return and MFS Utilities Fund
(b) Consent of Deloitte & Touche LLP - MFS World
Equity Fund
EXHIBIT NO. 99.11(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference made to our firm under the captions
"Condensed Financial Information" in the Prospectus and "Independent Auditors
and Financial Statements" in the Statement of Additional Information and to the
incorporation by reference in this Post-Effective Amendment No. 9 to
Registration Statement No. 33-34502 on Form N-1A of our report dated December 8,
1995, on the financial statements and financial highlights of MFS World Total
Return Fund, a series of MFS Series Trust VI, included in the 1995 Annual
Report to Shareholders.
ERNST & YOUNG LLP
------------------------
Ernst & Young LLP
Boston, Massachusetts
February 26, 1996
EXHIBIT NO. 99.11(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference made to our firm under the captions
"Condensed Financial Information" in the Prospectus and "Independent Auditors
and Financial Statements" in the Statement of Additional Information and to the
incorporation by reference in this Post-Effective Amendment No. 9 to
Registration Statement No. 33-34502 on Form N-1A of our report dated December 8,
1995, on the financial statements and financial highlights of MFS Utilities
Fund, a series of MFS Series Trust VI, included in the 1995 Annual Report to
Shareholders.
ERNST & YOUNG LLP
------------------------
Ernst & Young LLP
Boston, Massachusetts
February 26, 1996
EXHIBIT NO. 99.11(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 9 to Registration Statement No. 33-34502 of MFS Series Trust VI of
our report dated December 4, 1995 appearing in the annual report to shareholders
for the year ended October 31, 1995, of MFS World Equity Fund, a series of MFS
Series Trust VI and to the references to us under the headings "Condensed
Financial Information" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information, both of which are part
of such Registration Statement.
DELOITTE & TOUCHE LLP
------------------------
Deloitte & Touche LLP
Boston, Massachusetts
February 26, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS WORLD TOTAL RETURN FUND CLASS A FOR THE "PERIOD
ENDED OCTOBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY" REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> MFS WORLD TOTAL RETURN FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 163,041,889
<INVESTMENTS-AT-VALUE> 178,728,303
<RECEIVABLES> 2,706,890
<ASSETS-OTHER> 2,111
<OTHER-ITEMS-ASSETS> 1,151
<TOTAL-ASSETS> 181,438,455
<PAYABLE-FOR-SECURITIES> 920,735
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,116,425
<TOTAL-LIABILITIES> 3,037,160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,735,131
<SHARES-COMMON-STOCK> 9,536,061
<SHARES-COMMON-PRIOR> 9,439,318
<ACCUMULATED-NII-CURRENT> 5,220,666
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (402,060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,847,558
<NET-ASSETS> 178,401,295
<DIVIDEND-INCOME> 2,841,584
<INTEREST-INCOME> 5,176,435
<OTHER-INCOME> 0
<EXPENSES-NET> 3,381,088
<NET-INVESTMENT-INCOME> 4,636,931
<REALIZED-GAINS-CURRENT> 3,749,269
<APPREC-INCREASE-CURRENT> 8,187,457
<NET-CHANGE-FROM-OPS> 16,573,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (734,229)
<DISTRIBUTIONS-OF-GAINS> (453,126)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,123,469
<NUMBER-OF-SHARES-REDEEMED> (2,125,319)
<SHARES-REINVESTED> 98,593
<NET-CHANGE-IN-ASSETS> 19,951,695
<ACCUMULATED-NII-PRIOR> (335,220)
<ACCUMULATED-GAINS-PRIOR> (1,791,093)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,479,587
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,382,414
<AVERAGE-NET-ASSETS> 166,153,177
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0.79
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.57
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS WORLD TOTAL RETURN FUND CLASS B FOR THE "PERIOD
ENDED OCTOBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY" REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> MFS WORLD TOTAL RETURN FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 163,041,889
<INVESTMENTS-AT-VALUE> 178,728,303
<RECEIVABLES> 2,706,890
<ASSETS-OTHER> 2,111
<OTHER-ITEMS-ASSETS> 1,151
<TOTAL-ASSETS> 181,438,455
<PAYABLE-FOR-SECURITIES> 920,735
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,116,425
<TOTAL-LIABILITIES> 3,037,160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,735,131
<SHARES-COMMON-STOCK> 4,965,263
<SHARES-COMMON-PRIOR> 4,524,392
<ACCUMULATED-NII-CURRENT> 5,220,666
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (402,060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,847,558
<NET-ASSETS> 178,401,295
<DIVIDEND-INCOME> 2,841,584
<INTEREST-INCOME> 5,176,435
<OTHER-INCOME> 0
<EXPENSES-NET> 3,381,088
<NET-INVESTMENT-INCOME> 4,636,931
<REALIZED-GAINS-CURRENT> 3,749,269
<APPREC-INCREASE-CURRENT> 8,187,457
<NET-CHANGE-FROM-OPS> 16,573,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (140,223)
<DISTRIBUTIONS-OF-GAINS> (72,338)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,673,616
<NUMBER-OF-SHARES-REDEEMED> (1,250,017)
<SHARES-REINVESTED> 17,272
<NET-CHANGE-IN-ASSETS> 19,951,695
<ACCUMULATED-NII-PRIOR> (335,220)
<ACCUMULATED-GAINS-PRIOR> (1,791,093)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,479,587
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,382,414
<AVERAGE-NET-ASSETS> 166,153,177
<PER-SHARE-NAV-BEGIN> 10.54
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.77
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.52
<EXPENSE-RATIO> 2.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS WORLD TOTAL RETURN FUND CLASS C FOR THE "PERIOD
ENDED OCTOBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY" REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> MFS WORLD TOTAL RETURN FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 163,041,889
<INVESTMENTS-AT-VALUE> 178,728,303
<RECEIVABLES> 2,706,890
<ASSETS-OTHER> 2,111
<OTHER-ITEMS-ASSETS> 1,151
<TOTAL-ASSETS> 181,438,455
<PAYABLE-FOR-SECURITIES> 920,735
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,116,425
<TOTAL-LIABILITIES> 3,037,160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157,735,131
<SHARES-COMMON-STOCK> 945,316
<SHARES-COMMON-PRIOR> 1,035,184
<ACCUMULATED-NII-CURRENT> 5,220,666
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (402,060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,847,558
<NET-ASSETS> 178,401,295
<DIVIDEND-INCOME> 2,841,584
<INTEREST-INCOME> 5,176,435
<OTHER-INCOME> 0
<EXPENSES-NET> 3,381,088
<NET-INVESTMENT-INCOME> 4,636,931
<REALIZED-GAINS-CURRENT> 3,749,269
<APPREC-INCREASE-CURRENT> 8,187,457
<NET-CHANGE-FROM-OPS> 16,573,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27,610)
<DISTRIBUTIONS-OF-GAINS> (13,755)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 296,274
<NUMBER-OF-SHARES-REDEEMED> (389,108)
<SHARES-REINVESTED> 2,966
<NET-CHANGE-IN-ASSETS> 19,951,695
<ACCUMULATED-NII-PRIOR> (335,220)
<ACCUMULATED-GAINS-PRIOR> (1,791,093)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,479,587
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,382,414
<AVERAGE-NET-ASSETS> 166,153,177
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.76
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.52
<EXPENSE-RATIO> 2.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS UTILITIES FUND CLASS A FOR THE "PERIOD ENDED OCTOBER
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY" REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> MFS UTILITIES FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 81,728,324
<INVESTMENTS-AT-VALUE> 89,670,205
<RECEIVABLES> 3,720,497
<ASSETS-OTHER> 14,198
<OTHER-ITEMS-ASSETS> 1,098
<TOTAL-ASSETS> 93,405,998
<PAYABLE-FOR-SECURITIES> 2,448,547
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 301,286
<TOTAL-LIABILITIES> 2,749,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,808,160
<SHARES-COMMON-STOCK> 6,402,600
<SHARES-COMMON-PRIOR> 6,003,346
<ACCUMULATED-NII-CURRENT> 2,044,315
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (137,970)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,941,660
<NET-ASSETS> 90,656,165
<DIVIDEND-INCOME> 2,568,036
<INTEREST-INCOME> 1,126,691
<OTHER-INCOME> 0
<EXPENSES-NET> 863,931
<NET-INVESTMENT-INCOME> 2,830,796
<REALIZED-GAINS-CURRENT> 3,089,196
<APPREC-INCREASE-CURRENT> 9,031,929
<NET-CHANGE-FROM-OPS> 14,951,921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,950,814)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,699,306
<NUMBER-OF-SHARES-REDEEMED> (2,514,510)
<SHARES-REINVESTED> 214,458
<NET-CHANGE-IN-ASSETS> 26,455,933
<ACCUMULATED-NII-PRIOR> 62,055
<ACCUMULATED-GAINS-PRIOR> (1,092,330)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 505,241
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,153,286
<AVERAGE-NET-ASSETS> 72,416,808
<PER-SHARE-NAV-BEGIN> 7.00
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 1.22
<PER-SHARE-DIVIDEND> (0.33)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.20
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS UTILITIES FUND CLASS B FOR THE "PERIOD ENDED OCTOBER
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY" REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> MFS UTILITIES FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 81,728,324
<INVESTMENTS-AT-VALUE> 89,670,205
<RECEIVABLES> 3,720,497
<ASSETS-OTHER> 14,198
<OTHER-ITEMS-ASSETS> 1,098
<TOTAL-ASSETS> 93,405,998
<PAYABLE-FOR-SECURITIES> 2,448,547
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 301,286
<TOTAL-LIABILITIES> 2,749,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,808,160
<SHARES-COMMON-STOCK> 4,064,762
<SHARES-COMMON-PRIOR> 2,831,020
<ACCUMULATED-NII-CURRENT> 2,044,315
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (137,970)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,941,660
<NET-ASSETS> 90,656,165
<DIVIDEND-INCOME> 2,568,036
<INTEREST-INCOME> 1,126,691
<OTHER-INCOME> 0
<EXPENSES-NET> 863,931
<NET-INVESTMENT-INCOME> 2,830,796
<REALIZED-GAINS-CURRENT> 3,089,196
<APPREC-INCREASE-CURRENT> 9,031,929
<NET-CHANGE-FROM-OPS> 14,951,921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (894,547)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,097,196
<NUMBER-OF-SHARES-REDEEMED> (2,964,865)
<SHARES-REINVESTED> 101,411
<NET-CHANGE-IN-ASSETS> 26,455,933
<ACCUMULATED-NII-PRIOR> 62,055
<ACCUMULATED-GAINS-PRIOR> (1,092,330)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 505,241
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,153,286
<AVERAGE-NET-ASSETS> 72,416,808
<PER-SHARE-NAV-BEGIN> 6.98
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 1.22
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.18
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS UTILITIES FUND CLASS C FOR THE "PERIOD ENDED OCTOBER
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY" REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> MFS UTILITIES FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 81,728,324
<INVESTMENTS-AT-VALUE> 89,670,205
<RECEIVABLES> 3,720,497
<ASSETS-OTHER> 14,198
<OTHER-ITEMS-ASSETS> 1,098
<TOTAL-ASSETS> 93,405,998
<PAYABLE-FOR-SECURITIES> 2,448,547
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 301,286
<TOTAL-LIABILITIES> 2,749,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,808,160
<SHARES-COMMON-STOCK> 604,046
<SHARES-COMMON-PRIOR> 342,999
<ACCUMULATED-NII-CURRENT> 2,044,315
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (137,970)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,941,660
<NET-ASSETS> 90,656,165
<DIVIDEND-INCOME> 2,568,036
<INTEREST-INCOME> 1,126,691
<OTHER-INCOME> 0
<EXPENSES-NET> 863,931
<NET-INVESTMENT-INCOME> 2,830,796
<REALIZED-GAINS-CURRENT> 3,089,196
<APPREC-INCREASE-CURRENT> 9,031,929
<NET-CHANGE-FROM-OPS> 14,951,921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (123,779)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 533,340
<NUMBER-OF-SHARES-REDEEMED> (286,745)
<SHARES-REINVESTED> 14,452
<NET-CHANGE-IN-ASSETS> 26,455,933
<ACCUMULATED-NII-PRIOR> 62,055
<ACCUMULATED-GAINS-PRIOR> (1,092,330)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 505,241
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,153,286
<AVERAGE-NET-ASSETS> 72,416,808
<PER-SHARE-NAV-BEGIN> 6.99
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.18
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF MFS WORLD EQUITY FUND CLASS A AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> MFS WORLD EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 180,595,671
<INVESTMENTS-AT-VALUE> 210,381,371
<RECEIVABLES> 9,295,271
<ASSETS-OTHER> 57,114
<OTHER-ITEMS-ASSETS> 310,452
<TOTAL-ASSETS> 220,044,208
<PAYABLE-FOR-SECURITIES> 2,477,405
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,209,101
<TOTAL-LIABILITIES> 8,686,506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,636,411
<SHARES-COMMON-STOCK> 3,127,282
<SHARES-COMMON-PRIOR> 1,000,924
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 420,453
<ACCUMULATED-NET-GAINS> 10,175,959
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,965,785
<NET-ASSETS> 211,357,702
<DIVIDEND-INCOME> 3,976,263
<INTEREST-INCOME> 773,851
<OTHER-INCOME> (419,051)
<EXPENSES-NET> 4,722,866
<NET-INVESTMENT-INCOME> (391,803)
<REALIZED-GAINS-CURRENT> 9,883,882
<APPREC-INCREASE-CURRENT> 9,058,497
<NET-CHANGE-FROM-OPS> 18,550,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,000,929
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,007,859
<NUMBER-OF-SHARES-REDEEMED> 2,011,280
<SHARES-REINVESTED> 129,779
<NET-CHANGE-IN-ASSETS> (17,511,754)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,305,276
<OVERDISTRIB-NII-PRIOR> 28,650
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,981,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,766,891
<AVERAGE-NET-ASSETS> 198,119,422
<PER-SHARE-NAV-BEGIN> 16.95
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.37
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.73
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.68
<EXPENSE-RATIO> 1.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF MFS WORLD EQUITY FUND CLASS B AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> MFS WORLD EQUITY FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 180,595,671
<INVESTMENTS-AT-VALUE> 210,381,371
<RECEIVABLES> 9,295,271
<ASSETS-OTHER> 57,114
<OTHER-ITEMS-ASSETS> 310,452
<TOTAL-ASSETS> 220,044,208
<PAYABLE-FOR-SECURITIES> 2,477,405
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,209,101
<TOTAL-LIABILITIES> 8,686,506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,636,411
<SHARES-COMMON-STOCK> 3,127,282
<SHARES-COMMON-PRIOR> 1,000,924
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 420,453
<ACCUMULATED-NET-GAINS> 10,175,959
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,965,785
<NET-ASSETS> 211,357,702
<DIVIDEND-INCOME> 3,976,263
<INTEREST-INCOME> 773,851
<OTHER-INCOME> (419,051)
<EXPENSES-NET> 4,722,866
<NET-INVESTMENT-INCOME> (391,803)
<REALIZED-GAINS-CURRENT> 9,883,882
<APPREC-INCREASE-CURRENT> 9,058,497
<NET-CHANGE-FROM-OPS> 18,550,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,000,929
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,007,859
<NUMBER-OF-SHARES-REDEEMED> 2,011,280
<SHARES-REINVESTED> 129,779
<NET-CHANGE-IN-ASSETS> (17,511,754)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,305,276
<OVERDISTRIB-NII-PRIOR> 28,650
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,981,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,766,891
<AVERAGE-NET-ASSETS> 198,119,422
<PER-SHARE-NAV-BEGIN> 16.78
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 1.37
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.55
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.55
<EXPENSE-RATIO> 2.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF MFS WORLD EQUITY FUND CLASS C AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 033
<NAME> MFS WORLD EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 180,595,671
<INVESTMENTS-AT-VALUE> 210,381,371
<RECEIVABLES> 9,295,271
<ASSETS-OTHER> 57,114
<OTHER-ITEMS-ASSETS> 310,452
<TOTAL-ASSETS> 220,044,208
<PAYABLE-FOR-SECURITIES> 2,477,405
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,209,101
<TOTAL-LIABILITIES> 8,686,506
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,636,411
<SHARES-COMMON-STOCK> 3,127,282
<SHARES-COMMON-PRIOR> 1,000,924
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 420,453
<ACCUMULATED-NET-GAINS> 10,175,959
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,965,785
<NET-ASSETS> 211,357,702
<DIVIDEND-INCOME> 3,976,263
<INTEREST-INCOME> 773,851
<OTHER-INCOME> (419,051)
<EXPENSES-NET> 4,722,866
<NET-INVESTMENT-INCOME> (391,803)
<REALIZED-GAINS-CURRENT> 9,883,882
<APPREC-INCREASE-CURRENT> 9,058,497
<NET-CHANGE-FROM-OPS> 18,550,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,000,929
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,007,859
<NUMBER-OF-SHARES-REDEEMED> (2,011,280)
<SHARES-REINVESTED> 129,779
<NET-CHANGE-IN-ASSETS> (17,511,754)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,305,276
<OVERDISTRIB-NII-PRIOR> 28,650
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,981,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,766,891
<AVERAGE-NET-ASSETS> 198,119,422
<PER-SHARE-NAV-BEGIN> 16.80
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 1.37
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.59
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.53
<EXPENSE-RATIO> 2.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
