<PAGE>
As filed with the Securities and Exchange Commission on August 14, 1998
1933 Act File No. 33-37615
1940 Act File No. 811-6174
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 16
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 20
MFS INSTITUTIONAL TRUST
(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)
|_| on [date] pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|X| 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
================================================================================
<PAGE>
MFS INSTITUTIONAL TRUST
MFS INSTITUTIONAL CORE FIXED INCOME FUND
MFS INSTITUTIONAL GLOBAL FIXED INCOME FUND
MFS INSTITUTIONAL HIGH YIELD FUND
MFS INSTITUTIONAL EMERGING MARKETS DEBT FUND
MFS INSTITUTIONAL CORE EQUITY FUND
MFS INSTITUTIONAL RESEARCH FUND
MFS INSTITUTIONAL LARGE CAP AGGRESSIVE GROWTH FUND
MFS INSTITUTIONAL MID CAP GROWTH FUND
MFS INSTITUTIONAL EMERGING EQUITIES FUND
MFS INSTITUTIONAL INTERNATIONAL 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)
ITEM NUMBER STATEMENT OF 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 Funds - Performance
Information
(d) Condensed Financial Information *
4 (a) Front Cover Page; The Funds; *
Investment Objectives and Policies;
Investment Techniques; Additional
Risk Factors; Information Concerning
Shares of the Funds - Description of
Shares, Voting Rights and Liabilities
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
(b) Investment Objectives and Policies; *
Investment Techniques; Additional
Risk Factors
(c) Investment Objectives and *
Policies; Certain Securities and
Investment Techniques;
Additional Risk Factors
5 (a) The Funds; Management of the *
Funds - Investment Adviser
(b) Front Cover Page; Management *
of the Funds - Investment
Adviser; Back Cover Page
(c) Management of the Funds - *
Investment Adviser
(d) Management of the Funds - *
Administrator
(e) Management of the Funds - *
Shareholder Servicing Agent;
Back Cover Page
(f) Expense Summary; Information *
Concerning Shares of the Funds
- Investment Adviser
(g) Information Concerning Shares *
of the Funds - Purchases;
Certain Securities and Investment
Techniques - Portfolio
Trading
5A (a), (b), (c) ** **
6 (a) Information Concerning Shares *
of the Funds - Description of
Shares, Voting Rights and
Liabilities; Information
Concerning Shares of the
Funds - Redemptions
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
(b) Information Concerning Shares *
of the Funds - Description of
Shares, Voting Rights and
Liabilities
(c) * *
(d) * *
(e) Shareholder Services *
(f) Information Concerning Shares *
of the Funds -Distributions;
Shareholder Services -
Distribution Options
(g) Information Concerning Shares *
of the Funds - Tax Status;
Distributions
(h) Information Concerning Shares
of the Funds - Purchases
7 (a) Front Cover Page; Management *
of the Funds - Distributor; Back
Cover Page
(b) Information Concerning Shares *
of the Funds - Purchases; Net
Asset Value
(c) Information Concerning Shares *
of the Funds - Purchases;
Exchanges; Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the Funds -
Purchases
(e) * *
(f) * *
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
(g) Expense Summary; Information *
Concerning Shares of the Funds -
Purchases; Information Concerning
Shares of the Funds - Exchanges;
Information Concerning Shares of
the Funds - Redemptions; Information
Concerning Shares of the Funds -
Distributions; Information Concerning
Performance Information; Shareholder
Services
8 (a) Information Concerning Shares *
of the Funds - Redemptions;
Information Concerning Shares
of the Funds - Purchases;
Shareholder Services
(b), (c), (d) Information Concerning Shares *
of the Funds - Redemptions
9 * *
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
10 (a), (b) * Front Cover Page
11 * Front Cover Page or Table of
Contents
12 * The Trust; Definitions
13 (a), (b), (c) * Investment Policies and
Restrictions
(d) Certain Securities and *
Investment Techniques -
Portfolio Trading
14 (a), (b) * Management of the Funds -
Trustees and Officers
(c) * Management of the Funds -
Trustees and Officers;
Trustee Compensation Table
15 (a) * Description of Shares,
Voting Rights and
Liabilities
(b), (c) * Management of the Funds -
Trustees and Officers
16 (a) Management of the Funds - Management of the Funds -
Investment Adviser Investment Adviser;
Management of the Funds -
Trustees and Officers
(b) Management of the Funds - Management of the Funds -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Funds -
Administrator
(e) * Portfolio Transactions and
Brokerage Commissions
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
(f) * *
(g) * *
(h) * Management of the Funds -
Custodian; Independent
Auditors and Financial
Statements; Back Cover
Page
(i) * Management of the Funds -
Shareholder Servicing
Agent
17 (a), (b), (c), * Portfolio Transactions and
(d), (e) Brokerage Commissions
18 (a) Information Concerning Description of Shares,
Shares of the Funds - Voting Rights and
Description of Shares, Liabilities
Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shareholder Services
Shares of the Funds -
Purchases
(b) Information Concerning Determination of Net Asset
Shares of the Funds - Value
Net Asset Value; and Performance;
Purchases Management of the Funds -
Distributor
(c) * *
20 * Tax Status
21 (a) * Management of the Funds-
Distributor
(b),(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
<PAGE>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -----------------------
23 * Independent Auditors and
Financial Statements
* Not Applicable
** Contained in Annual Reports
<PAGE>
PROSPECTUS -- November 1, 1998
Shares of Beneficial Interest
MFS INSTITUTIONAL CORE FIXED INCOME FUND (THE "CORE FIXED INCOME FUND") -- The
primary investment objective of the Core Fixed Income Fund is to provide as high
a level of current income as is believed to be consistent with prudent
investment risk. The Fund's secondary objective is to protect shareholders'
capital. The Fund invests, under normal market conditions, at least 90% of its
total assets in fixed income securities including U.S. Government,
mortgage-backed and corporate issues, with tactical allocations to below
investment grade and non-United States ("U.S.") dollar denominated securities.
MFS INSTITUTIONAL GLOBAL FIXED INCOME FUND (THE "GLOBAL FUND") -- The investment
objectives of the Global Fund are to seek income and capital appreciation. The
Fund invests, under normal market conditions, at least 80% of its total assets
in globally diverse fixed income securities.
MFS INSTITUTIONAL HIGH YIELD FUND (THE "HIGH YIELD FUND") -- The investment
objective of the High Yield Fund is to seek high current income. The Fund
invests, under normal market conditions, at least 80% of its total assets in a
professionally managed diversified portfolio of high yield fixed income
securities.
MFS INSTITUTIONAL EMERGING MARKETS DEBT FUND (THE "EMERGING MARKETS FUND") --
The investment objective of the Emerging Markets Fund is to seek total return
(high current income and long-term growth of capital). The Fund invests, under
normal market conditions, at least 80% of its total assets in fixed income
securities of government, government-related, supranational and corporate
issuers located or primarily conducting their business in emerging market
countries.
MFS INSTITUTIONAL CORE EQUITY FUND (THE "CORE EQUITY FUND") -- The investment
objective of the Core Equity Fund is to provide long-term growth of capital
generally consistent with that of a diversified large cap portfolio and income
equal to approximately 90% of the dividend yield on the Standard & Poor's 500
Stock Index ("S&P 500"). The Fund invests, under normal market conditions, at
least 80% of its total assets in equity securities considered to be of high or
improving investment quality.
MFS INSTITUTIONAL RESEARCH FUND (THE "RESEARCH FUND") -- The investment
objective of the Research Fund is to provide long-term growth of capital. The
Fund invests, under normal market conditions, at least 80% of its total assets
in all types of equity securities of companies believed to possess better than
average prospects for long-term growth.
MFS INSTITUTIONAL LARGE CAP AGGRESSIVE GROWTH FUND (THE "AGGRESSIVE GROWTH
FUND") -- The investment objective of the Aggressive Growth Fund is to provide
long-term growth of capital. The Fund invests, under normal market conditions,
at least 80% of its total assets in common stocks, or securities convertible
into common stocks, of companies with market capitalizations in excess of $5
billion that are believed to possess better than average prospects for long-term
growth.
MFS INSTITUTIONAL MID CAP GROWTH FUND (THE "MID CAP FUND") -- The investment
objective of the Mid Cap Fund is to provide long-term growth of capital. The
Fund invests, under normal market conditions, at least 80% of its total assets
in the equity securities of companies with market capitalizations within the
range of approximately $500 million to $5 billion.
MFS INSTITUTIONAL EMERGING EQUITIES FUND (THE "EMERGING EQUITIES FUND") -- The
investment objective of the Emerging Equities Fund is to seek long-term growth
of capital. The Fund invests, under normal market conditions, at least 80% of
its total assets in equity securities of small and medium-sized companies that
are early in their life cycle but which may have the potential to become major
enterprises (emerging growth companies).
MFS INSTITUTIONAL INTERNATIONAL EQUITY FUND (THE "INTERNATIONAL EQUITY FUND") --
The investment objective of the International Equity Fund is to provide
long-term growth of capital. The Fund invests, under normal market conditions,
at least 80% of its total assets in foreign equity securities of companies whose
principal activities are located outside the U.S.
THE HIGH YIELD FUND AND THE EMERGING MARKETS FUND MAY INVEST UP TO 100% OF ITS
NET ASSETS IN LOWER-RATED BONDS,COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL
GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING
(SEE "ADDITIONAL RISK FACTORS -- LOWER RATED FIXED INCOME SECURITIES").
No assurance can be given that the investment objective(s) of the Core Fixed
Income Fund, the Global Fund, the High Yield Fund, the Emerging Markets Fund,
the Core Equity Fund, the Research Fund, the Aggressive Growth Fund, the Mid Cap
Fund, the Emerging Equities Fund and the International Equity Fund (individually
referred to as a "Fund" and collectively referred to as the "Funds") will be
achieved. Each Fund is a diversified series of MFS Institutional Trust (the
"Trust"), an open-end management investment company, except for the Global Fund
and the Emerging Markets Fund, which are non-diversified series of the Trust.
(continued on next page)
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
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.
[Logo] MFS(SM)
INVESTMENT MANAGEMENT
MFS(R) Institutional
Advisors, Inc.
MFS(R) Institutional Core
Fixed Income Fund
MFS(R) Institutional Global
Fixed Income Fund
MFS(R) Institutional
High Yield Fund
MFS(R) Institutional Emerging
Markets Debt Fund
MFS(R) Institutional Core
Equity Fund
MFS(R) Institutional
Research Fund
MFS(R) Institutional Large Cap
Aggressive Growth Fund
MFS(R) Institutional Mid Cap
Growth Fund
MFS(R) Institutional Emerging
Equities Fund
MFS(R) Institutional
International Equity Fund
(Each a series of MFS(R) Institutional Trust)
<PAGE>
The Funds' 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.
The Funds are designed for sale to institutional investor clients of MFS and
MFS Institutional Advisors, Inc., a wholly owned subsidiary of MFS, and other
similar investors. The minimum initial investment is generally $3 million per
investor (generally $1 million in the case of purchases by bank trust
departments for their clients), except for the Aggressive Growth Fund where
the minimum initial investment is $15 million (see "Purchases" below).
This Prospectus sets forth concisely the information concerning the Trust and
each Fund that a prospective investor ought to know before investing. The
Trust, on behalf of the Funds, has filed with the Securities and Exchange
Commission (the "SEC") a Statement of Additional Information, dated November
1, 1998, as amended or supplemented from time to time (the "SAI"), which
contains more detailed information about the Trust and the Funds and is
incorporated into this Prospectus by reference. See page 34 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). The SEC maintains an Internet World
Wide Web site (http://www.sec.gov) that contains the SAI, materials that are
incorporated by reference into the Prospectus and the SAI, and other
information regarding the Funds.
TABLE OF CONTENTS
PAGE
1. Expense Summary .................................................. 3
2. Condensed Financial Information .................................. 4
3. The Funds ........................................................ 9
4. Investment Objectives and Policies ............................... 10
Core Fixed Income Fund ....................................... 10
Global Fund .................................................. 11
High Yield Fund .............................................. 11
Emerging Markets Fund ........................................ 12
Core Equity Fund ............................................. 13
Research Fund ................................................ 13
Aggressive Growth Fund ....................................... 14
Mid Cap Fund ................................................. 14
Emerging Equities Fund ....................................... 14
International Equity Fund .................................... 15
5. Certain Securities and Investment Techniques ..................... 15
6. Additional Risk Factors .......................................... 23
7. Management of the Funds .......................................... 26
8. Information Concerning Shares of the Funds ....................... 28
Purchases .................................................... 28
Exchanges .................................................... 29
Redemptions .................................................. 29
Distributions ................................................ 30
Tax Status ................................................... 30
Net Asset Value .............................................. 31
Description of Shares, Voting Rights and Liabilities ......... 31
Performance Information ...................................... 32
Expenses ..................................................... 32
9. Shareholder Services ............................................. 33
Appendix A ....................................................... A-1
Appendix B ....................................................... B-1
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CORE
FIXED HIGH EMERGING CORE AGGRESSIVE EMERGING INTERNATIONAL
INCOME GLOBAL YIELD MARKETS EQUITY RESEARCH GROWTH MID CAP EQUITIES EQUITY
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
------ ------ ----- -------- ------ -------- ---------- ------- -------- -------------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed
on Purchases of Shares None None None None None None None None None None
Maximum Sales Load Imposed
on Reinvested Dividends
and Distributions .......... None None None None None None None None None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees .......... 0.45% 0.65% 0.50% 0.85% 0.60% 0.60% 0.75% 0.60% 0.75% 0.75%
Other Expenses (after any
applicable fee
limitation)(1)(2) ...... 0.05% 0.00% 0.15% 0.40% 0.05% 0.05% 0.05% 0.05% 0.00% 0.10%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses
(after any applicable
fee limitations)(1) ........ 0.50% 0.65% 0.65% 1.25% 0.65% 0.65% 0.80% 0.65% 0.75% 0.85%
- ------------
(1) The Adviser has agreed to bear each Fund's expenses such that each Fund's "Other Expenses" do not exceed the following
percentage per annum of such Fund's average daily net assets during the current fiscal year:
<CAPTION>
CORE
FIXED HIGH EMERGING CORE AGGRESSIVE EMERGING INTERNATIONAL
INCOME GLOBAL YIELD MARKETS EQUITY RESEARCH GROWTH MID CAP EQUITIES EQUITY
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
------ ------ ----- -------- ------ -------- ---------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.05% 0.00% 0.15% 0.40% 0.05% 0.05% 0.05% 0.05% 0.00% 0.10%
Otherwise "Other Expenses" and "Total Operating Expenses" for each respective Fund would have been the following
percentages per annum:
<CAPTION>
CORE
FIXED HIGH EMERGING CORE AGGRESSIVE EMERGING INTERNATIONAL
INCOME GLOBAL YIELD MARKETS EQUITY RESEARCH GROWTH MID CAP EQUITIES EQUITY
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
------ ------ ----- -------- ------ -------- ---------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
"Other Expenses" ............ 0.15%(3) 0.32% 0.15%(3) 1.22% 0.12%(3) 0.30% 0.10%(3) 0.38% 0.09% 1.26%
"Total Operating Expenses" .. 0.60% 0.97% 0.65% 2.07% 0.72% 0.90% 0.85% 0.98% 0.84% 2.01%
With respect to the Emerging Markets Fund, such payments by MFS are subject to reimbursement by such Fund. See "Information
Concerning Shares of the Funds -- Expenses" below.
(2) Each Fund has an expense offset arrangement which reduces such Fund's custodian fee based upon the amount of cash maintained
by such Fund with its custodian and dividend disbursing agent, and may enter into other such arrangements and directed
brokerage arrangements (which would also have the effect of reducing such Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
(3) "Other Expenses" are based on estimated amounts for the Fund's first full fiscal year since the Fund had not commenced
operations as of the date of this Prospectus.
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000 investment in each Fund, assuming (a) 5% annual return
and (b) redemption at the end of each of the time periods indicated:
<CAPTION>
CORE
FIXED HIGH EMERGING CORE AGGRESSIVE EMERGING INTERNATIONAL
INCOME GLOBAL YIELD MARKETS EQUITY RESEARCH GROWTH MID CAP EQUITIES EQUITY
PERIOD FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
- ------ ------ ------ ----- -------- ------ -------- ---------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ....................... $ 5 $ 7 $ 7 $ 13 $ 7 $ 7 $ 8 $ 7 $ 8 $ 9
3 years ...................... $16 $21 $21 $ 40 $21 $21 $26 $21 $24 $ 27
5 years ...................... $28 $36 $ 69 $36 $36 $42 $ 47
10 years ..................... $63 $81 $151 $81 $81 $93 $105
The purpose of the expense table above is to assist investors in understanding the various costs and expenses that a shareholder
of each Fund will bear directly or indirectly. More complete descriptions of the expenses of each Fund are set forth under the
caption "Management of the Funds -- Investment Adviser" and "Information Concerning Shares of the Funds -- Expenses" below.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF ANY FUND; ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
</TABLE>
<PAGE>
2. CONDENSED FINANCIAL INFORMATION
The following information has been audited since the inception of each Fund
(other than the Core Fixed Income Fund, the High Yield Fund, the Core Equity
Fund and the Aggressive Growth Fund) and should be read in conjunction with
the financial statements included in such Fund's Annual Report to
shareholders, which are incorporated by reference into the SAI in reliance
upon the report of each Fund's independent auditors, given upon their
authority as experts in accounting and auditing. Each Fund's current
independent auditors are Deloitte & Touche LLP.
Further information about the performance of each Fund (other than the Core
Fixed Income Fund, the High Yield Fund, the Core Equity Fund and the
Aggressive Growth Fund) is contained in each Fund's Annual Report to
shareholders, which can be obtained from the Shareholder Servicing Agent (see
back cover for address and phone number) without charge.
As of the fiscal year ended June 30, 1998, the Core Fixed Income Fund, the
High Yield Fund, the Core Equity Fund and the Aggressive Growth Fund had not
yet commenced investment operations.
<TABLE>
GLOBAL FUND FINANCIAL HIGHLIGHTS
YEAR ENDED JUNE 30,
<CAPTION>
----------------------------------------------
1998 1997 1996 1995 1994 1993*
------ ------ ------ ------ ------ ------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of period .... $ $ 9.28 $ 10.13 $ 9.64 $ 10.50 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations# --
Net investment income(S) ................. $ $ 0.58 $ 0.64 $ 0.65 $ 0.63 $ 0.17
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ............................ (0.25) (0.48) 0.70 (0.63) 0.33
------- ------- ------- ------- ------- -------
Total from investment operations ....... $ $ 0.33 $ 0.16 $ 1.35 $ -- $ 0.50
------- ------- ------- ------- ------- -------
Less distributions declared to shareholders --
From net investment income ............... $ $ (0.54) $ (0.48) $ (0.23) $ (0.31) $ --
In excess of net investment income ....... -- -- -- (0.55) --
From net realized gain on investments
and foreign currency transactions ....... -- (0.31) (0.63) -- --
In excess of net realized gains on
investments and foreign currency
transactions ............................ -- (0.22) -- -- --
------- ------- ------- ------- ------- -------
Total distributions declared to
shareholders........................... $ $ (0.54) $ (1.01) $ (0.86) $ (0.86) --
------- ------- ------- ------- ------- -------
Net asset value -- end of period .......... $ $ 9.07 $ 9.28 $ 10.13 $ 9.64 $ 10.50
======= ======= ======= ======= ======= =======
TOTAL RETURN .............................. % 3.40% 1.51% -- (0.57)% 5.00%++
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA(S):
Expenses ................................ % 0.65% 0.65% 0.72% 0.75% 0.80%+
Net investment income ................... % 6.09% 6.52% 6.66% 6.09% 5.53%+
PORTFOLIO TURNOVER ........................ % 365% 425% 279% 212% 73%
NET ASSETS AT END OF PERIOD (000 OMITTED) . $ $53,517 $62,807 $76,078 $42,364 $23,966
*For the period from the commencement of the Fund's investment operations, September 30, 1992, through June 30, 1993.
+Annualized.
++Not annualized.
#Per share data are 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 Adviser voluntarily waived its management fee and/or paid expenses of the Fund for the periods indicated. If these
fees had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income ............. $ $ 0.55 $ 0.61 $ 0.61 $ 0.58 $ 0.15
RATIOS (TO AVERAGE NET ASSETS):
Expenses## .................... % 0.97% 0.95% 1.14% 1.23% 1.48%+
Net investment income ......... % 5.78% 6.22% 6.23% 5.61% 4.85%+
</TABLE>
<PAGE>
<TABLE>
EMERGING MARKETS FUND FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996*
------------- ------------- --------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C>
Net asset value -- beginning of period ..................................... $ $ 10.88 $ 10.00
------ ------ ------
Income from investment operations# --
Net investment income(S) ............................................... $ $ 0.94 $ 0.70
Net realized and unrealized gain on investments and foreign
currency transactions ................................................ 1.41 0.56
------ ------ ------
Total from investment operations ................................... $ $ 2.35 $ 1.26
------ ------ ------
Less distributions declared to shareholders --
From net investment income ............................................. $ (0.83) (0.38)
From net realized gain on investments and foreign currency
transactions ......................................................... (0.46) --
------ ------ ------
Total distributions declared to shareholders ....................... $ (1.29) (0.38)
------ ------ ------
Net asset value -- end of period ........................................... $ $ 11.94 $ 10.88
====== ======= =======
TOTAL RETURN ............................................................... % 22.79% 12.93%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses ............................................................... % 1.25% 1.25%+
Net investment income .................................................. % 8.30% 7.59%+
PORTFOLIO TURNOVER ......................................................... % 473% 285%
NET ASSETS AT END OF PERIOD (000 OMITTED) .................................. $ $ 5,326 $ 4,160
*For the period from the commencement of the Fund's investment operations, August 7, 1995 through June 30, 1996.
+Annualized.
++Not annualized.
#Per share data are 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 Adviser voluntarily agreed to maintain the expenses of the Fund at not more than 1.25% of average
daily net assets. To the extent that actual expenses were over these limitations, the net investment
income per share and the ratios would have been:
Net investment income ................................................. $ $ 0.85 $ 0.43
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ........................................................... % 2.07% 4.21%+
Net investment income ................................................ % 7.48% 4.63%+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESEARCH FUND FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996*
------------- ------------- --------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C>
Net asset value -- beginning of period ................................... $ $ 9.78 $ 10.00
------ ------- -------
Income from investment operations# --
Net investment income(S) ............................................. $ $ 0.06 $ 0.02
Net realized and unrealized gain (loss) on investments and foreign
currency transactions .............................................. 2.29 (0.24)
------ ------- --------
Total from investment operations ................................. $ $ 2.35 (0.22)
------ ------- -------
Less distributions declared to shareholders --
From net investment income ........................................... $ $ (0.03) --
------- ------- ------
Net asset value -- end of period ......................................... $ $ 12.10 $ 9.78
======= ======= =======
TOTAL RETURN ............................................................. % 24.12% (2.20)%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses ............................................................ % 0.65% 0.65%+
Net investment income ................................................ % 0.56% 1.52%+
PORTFOLIO TURNOVER ....................................................... % 84% 6%
AVERAGE COMMISSION RATE ................................................. $ $0.0318 $0.0260
NET ASSETS AT END OF PERIOD (000 OMITTED) ................................ $ $42,292 $22,779
*For the period from the commencement of the Fund's investment operations, May 21, 1996, through June 30, 1996.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
(S)The Adviser voluntarily agreed to maintain the expenses of the Fund at not more than 0.65% of average
daily net assets. To the extent actual expenses were over this limitation, the net investment income per
share and the ratios would have been:
Net investment income ............................................ $ $ 0.03 --
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ................................................... % 0.90% 2.03%+
Net investment income ........................................ % 0.31% 0.14%+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MID CAP FUND FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996*
------------- ------------- --------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C>
Net asset value -- beginning of period ..................................... $ $ 11.13 $ 10.00
------ ------- -------
Income from investment operations# --
Net investment loss .................................................... $ $ (0.00)** $ (0.01)
Net realized and unrealized gain on investments ........................ 1.40 1.14
------ ------- -------
Total from investment operations ................................... $ $ 1.40 $ 1.13
------ ------- -------
Less distributions declared to shareholders --
From net realized gains on investments ................................. $ $ (0.28) $ --
------ ------ ------
Net asset value -- end of period ........................................... $ $ 12.25 $ 11.13
====== ======= =======
TOTAL RETURN ............................................................... % 12.80% 11.30%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses .............................................................. % 0.65% 0.70%+
Net investment loss .................................................... % (0.01)% (0.25)%+
PORTFOLIO TURNOVER ......................................................... % 136% 33%
AVERAGE COMMISSION RATE ................................................... $ $0.0527 $0.0505
NET ASSETS AT END OF PERIOD (000 OMITTED) .................................. $ $25,007 $ 8,149
*For the period from the commencement of the Fund's investment operations, December 28, 1995, through June 30, 1996.
**The per share net investment loss was $(0.00132).
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
(S)The Adviser voluntarily agreed to maintain the expenses of the Fund at not more than 0.65% of average daily net assets
effective May 3, 1996. During the period December 28, 1995, through May 2, 1996, the Adviser agreed to maintain the expenses
at not more than 0.75%. To the extent actual expenses were over these limitations, the net investment loss per share and ratios
would have been:
Net investment loss ......................................... $ $ (0.04) $ (0.09)
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ............................................... % 0.98% 2.59%+
Net investment loss ...................................... % (0.34)% (2.14)%+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EMERGING EQUITIES FUND FINANCIAL HIGHLIGHTS
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993*
------ ------ ------ ------ ------ -----
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of period .... $ $ 21.17 $ 16.42 $ 11.75 $ 10.17 $ 10.00
Income from investment operations# --
Net investment income (loss)(S) ....... $ (0.04) (0.04) (0.03) (0.03) $ 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions 3.42 6.55 5.04 1.82*** 0.16
------ -------- -------- -------- -------- ---------
Total from investment operations .. $ $ 3.38 $ 6.51 $ 5.01 $ 1.79 $ 0.17
------ -------- -------- -------- -------- ---------
Less distributions declared to shareholders
From net investment income ............ $ -- -- -- -- (0.00) --
From net realized gain on investments
and foreign currency transactions ... (3.10) (1.76) (0.34) (0.21) --
------ -------- -------- -------- -------- ---------
Total distributions declared to
shareholders..................... $ $ (3.10) $ 1.76) $ (0.34) $ (0.21) $ --
------ -------- -------- -------- -------- ---------
Net asset value -- end of period .......... $ $ 21.45 $ 21.17 $ 16.42 $ 11.75 $ 10.17
TOTAL RETURN .............................. % 18.49% 41.37% 43.21% 17.50% 1.70%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses ............................. % 0.75% 0.75% 0.75% 0.78% 0.90%+
Net investment income (loss) .......... % (0.22)% (0.22)% (0.19)% (0.27)% 2.24%+
PORTFOLIO TURNOVER ........................ % 96% 97% 86% 94% 0%
AVERAGE COMMISSION RATE### ................ $ $ 0.0575 -- -- -- --
NET ASSETS AT END OF PERIOD (000 OMITTED) . $ $383,637 $259,362 $107,019 $ 27,559 $ 3,052
*For the period from the commencement of the Fund's investment operations, June 16, 1993, through June 30, 1993.
**For the year ended June 30, 1994, the per share distribution from net investment income was $0.00175.
***The per share data is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##For fiscal years ending after July 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(S)The Adviser voluntarily waived a portion of its management fee and/or paid expenses of the Fund for the periods indicated.
If the fees had been incurred by the Fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) ...... $ $ (0.06) (0.06) (0.07) (0.11) $ 0.00
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ................... % 0.84% 0.87% 0.98% 1.54% 2.50%+
Net investment income (loss) . % (0.31)% (0.34)% (0.42)% (1.02)% 0.64%+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS
YEAR ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996*
------------- ------------- --------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C>
Net asset value -- beginning of period ..................................... $ $ 10.96 $ 10.00
------ ------ -------
Income from investment operations# --
Net investment income(S) ............................................... $ $ 0.23 $ 0.13
Net realized and unrealized gain on investments ........................ 2.23 0.83
------ ------- -------
Total from investment operations ................................... $ $ 2.46 $ 0.96
------ ------- -------
Less distributions declared to shareholders --
From net investment income ............................................. $ (0.13) --
From net realized gain on investments and foreign
currency transactions ................................................ (0.25) --
------ ------ ------
Total distributions declared to shareholders ....................... $ $ (0.38) --
------ ------ ------
Net asset value -- end of period ........................................... $ $ 13.04 $ 10.96
====== ======= =======
TOTAL RETURN ............................................................... % 22.97% 9.60%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses .............................................................. % 0.85% 0.94%+
Net investment income .................................................. % 1.98% 2.46%+
PORTFOLIO TURNOVER ......................................................... % 76% 19%
AVERAGE COMMISSION RATE ................................................... $ $0.0211 $0.0182
NET ASSETS AT END OF PERIOD (000 OMITTED) .................................. $ $10,688 $ 2,498
*For the period from the commencement of the Fund's investment operations, January 31, 1996, through June 30, 1996.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
(S)The Adviser voluntarily agreed to maintain the expenses of the Fund at no more than 0.85% of average daily net assets effective
May 3, 1996. During the period January 31, 1996 to May 2, 1996, the Adviser agreed to maintain the expenses at not more than
0.95%. To the extent actual expenses were over these limitations, the net investment income (loss) per share and ratios would
have been:
Net investment income (loss) ....................................... $ $ 0.10 (0.08)
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ..................................................... % 2.01% 4.91%
Net investment gain (loss) ..................................... % 0.85% (1.51)%
</TABLE>
3. THE FUNDS
Each Fund is a 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 in 1990. Each Fund is a diversified Fund except for the Global
Fund and the Emerging Markets Fund, which are non-diversified. The Trust
presently consists of ten separate series, each of which represents a
portfolio with separate investment policies. As of the date of this
Prospectus, the Core Fixed Income Fund, the High Yield Fund, the Core Equity
Fund and the Aggressive Growth Fund had not yet commenced investment
operations. Shares of each Fund are continuously offered and sold to investors
and each Fund uses the proceeds to buy securities for its portfolio. The
Trust's Board of Trustees provides broad supervision over the affairs of the
Trust and each Fund. The Adviser is responsible for the management of each
Fund's assets and the officers of the Trust are responsible for its
operations. The Adviser manages the portfolio from day to day in accordance
with each Fund's investment objective(s) and policies. Each Fund also offers
to buy back (redeem) its shares from its shareholders at any time at the next
determined net asset value.
4. INVESTMENT OBJECTIVES AND POLICIES
Each Fund has different investment objectives which it pursues through
separate investment policies, as described below. Any investment involves risk
and there can be no assurance that the investment objective(s) of any Fund
will be achieved. The differences in objectives and policies among the Funds
can be expected to affect the market and financial risk to which each Fund is
subject and the performance of each Fund. The investment objective(s) and
policies of each Fund may, unless otherwise specifically stated, be changed by
the Trustees of the Trust without a vote of the shareholders. A change in a
Fund's objective(s) may result in the Fund having investment objective(s)
different from the objective(s) which the shareholder considered appropriate
at the time of investment in that Fund.
Each Fund may engage in certain securities and investment techniques as
described below under the caption "Certain Securities and Investment
Techniques" and as described in the SAI under the caption "Investment Policies
and Restrictions." Each Fund's investments are subject to certain risks, as
described in the SAI and as described below under the caption "Additional Risk
Factors."
CORE FIXED INCOME FUND -- The Core Fixed Income Fund's primary investment
objective is to provide as high a level of current income as is believed to be
consistent with prudent investment risk. The Fund's secondary objective is to
protect shareholders' capital.
The Fund seeks to achieve its objectives by investing, under normal market
conditions, at least 90% of its total assets in:
(1) U.S. Government Securities (see "Certain Securities and Investment
Techniques -- U.S. Government Securities" below);
(2) 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;
(3) mortgage-backed securities, convertible and non-convertible corporate
debt securities (including adjustable, variable or floating rate
securities) and preferred stock;
(4) commercial paper, repurchase agreements and cash equivalents (such as
certificates of deposit and bankers' acceptances).
The Fund is designed for investors seeking exposure to a portfolio comprised
of fixed income securities of the type described above along with a variety of
other fixed income securities offering increased income potential.
Accordingly, consistent with its investment objectives and policies, the Fund
may invest in foreign securities, including emerging market securities and
Brady Bonds, lower rated fixed income securities, fixed income securities
issued by or on behalf of states, territories and possessions of the U.S. and
the District of Columbia and their political subdivisions, yankee or
eurodollar securities and asset-backed securities. Not more than 5% of the
Fund's net assets will be invested in emerging market securities, and not more
than 20% of the Fund's net assets will be invested in securities rated below
the four highest grades by Standard & Poor's Ratings Services ("S&P"), Fitch
IBCA ("Fitch"), or Duff & Phelps Credit Rating Co. ("Duff & Phelps") (AAA, AA,
A or BBB) or by Moody's Investors Services, Inc. ("Moody's") (Aaa, Aa, A or
Baa) and in comparable unrated securities. For a discussion of the risks of
investing in these securities, see "Additional Risk Factors -- Emerging
Markets Securities" and "-- Lower Rated Fixed Income Securities" below. For a
description of these ratings, see Appendix A to this Prospectus.
Although the Core Fixed Income Fund may purchase Canadian and other foreign
securities, under normal market conditions it may not invest more than 20% of
its net assets in non-dollar denominated non-Canadian foreign securities,
including emerging market securities.
The Core Fixed Income Fund may not directly purchase common stocks. However,
the Fund may retain up to 10% of its total assets in common stocks which were
acquired either by conversion of fixed income securities or by the exercise of
warrants attached thereto.
GLOBAL FUND -- The Global Fund's investment objective is to seek income and
capital appreciation.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its assets in a globally diverse portfolio of
fixed income securities. These securities will include securities issued or
guaranteed by a government or any of its political subdivisions, agencies or
instrumentalities, as well as securities issued by non-governmental issuers
such as corporations and trusts (see "Certain Securities and Investment
Techniques -- Fixed Income Securities" and "-- U.S. Government Securities"
below). The Fund may invest up to 100% (and generally expects to invest
between 50% and 80%) of its net assets in foreign securities (not including
American Depositary Receipts) (see "Additional Risk Factors -- Foreign
Securities" below). Up to 20% of the Fund's assets may also be invested in
equity securities (see "Investment Techniques -- Equity Securities" below).
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 U.S. as well
as in other countries where opportunities may be more rewarding. It is
believed that diversification of assets on a global basis decreases the degree
to which events in any one country, including the U.S., can affect the entire
portfolio. Although the percentage of the Fund's assets invested in securities
issued abroad and denominated in foreign currencies ("non-dollar securities")
will vary depending on the state of the economies of the principal countries
of the world, their financial markets and the relationship of their currencies
to the U.S. dollar, under normal conditions the Fund's portfolio is globally
diversified. However, for 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 U.S.
The Adviser will determine the amount of the Fund's assets to be invested in
the U.S. and the amount to be invested abroad. As a non-diversified series of
the Trust, 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"). The Fund will not invest 25% or
more of its net assets in the securities of any one foreign country and may
invest up to 25% of its net assets in emerging market securities (see "Certain
Securities and Investment Techniques -- Emerging Market Securities" and
"Additional Risk Factors -- Emerging Markets" below). In addition to its
emerging market debt exposure, the Fund may also invest up to 25% of its net
assets in securities rated below the four highest grades by S&P, Fitch or Duff
& Phelps (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or Baa) and comparable
unrated securities (commonly known as "junk bonds"). For a discussion of the
risks of investing in these securities, see "Additional Risk Factors -- Lower
Rated Fixed Income Securities" below and for a description of these ratings,
see Appendix A to this Prospectus. The Fund's portfolio will be managed
actively and the asset allocations modified as the Adviser deems necessary.
HIGH YIELD FUND -- The High Yield Fund's investment objective is to seek high
current income.
The Fund invests, under normal market conditions, at least 80% of its total
assets in a professionally managed diversified portfolio of high yield fixed
income securities. Capital growth, if any, is a consideration incidental to
the objective of the Fund of high current income.
Fixed income securities offering the high current income sought by the Fund
normally include those fixed income securities which offer a current yield
above that generally available on debt securities in the three highest rating
categories of the recognized rating agencies (commonly known as "junk bonds"
if rated below the four highest categories of recognized rating agencies). The
Fund may invest up to 100% of its net assets in such securities (see
"Additional Risk Factors -- Lower Rated Fixed Income Securities" below). For a
description of these rating categories, see Appendix A to this Prospectus.
However, since available yields and yield differentials vary over time, no
specific level of income or yield differential can ever be assured. The
dividends paid by the Fund 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 expenses of the Fund before such income is distributed to its
shareholders.
Fixed income securities include all types of debt obligations of both domestic
and foreign issuers, such as bonds, debentures, mortgage securities, notes,
bills, equipment lease certificates, equipment trust certificates (including
interests in trusts or other entities representing such obligations),
conditional sales contracts, commercial paper and obligations issued or
guaranteed by the U.S. Government, any foreign government or any of their
respective political subdivisions, agencies or instrumentalities (including
obligations, such as repurchase agreements, secured by such instruments), as
well as debt obligations which may have a call on common stock by means of a
conversion privilege or attached warrants.
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest and may involve equity features, such as conversion or
exchange rights or warrants for the acquisition of stock of the same or a
different issuer; participations based on revenues, sales or profits; or the
purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit). Under normal market
conditions, not more than 20% of the value of the total assets of the Fund
will be invested in equity securities, including common stocks, warrants and
rights.
Consistent with its investment objective and policies described above, the Fund
may also invest up to 50% of its total assets in foreign securities which are
not traded on a U.S. exchange, including emerging market securities. The Fund
has authority to invest up to 25% of its total assets in securities issued or
guaranteed by foreign governments or their agencies or instrumentalities. See
"Additional Risk Factors -- Foreign Securities" and "Certain Securities and
Investment Techniques -- Emerging Market Securities" below.
When and if available, fixed income 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. From time to time the Fund may
purchase securities not paying interest at the time acquired if, in the
opinion of the Adviser, such securities have the potential for future income
or capital appreciation.
EMERGING MARKETS FUND -- The Emerging Markets Fund's investment objective is
to seek total return (high current income and long-term growth of capital).
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its total assets in fixed income securities of
government, government-related, supranational and corporate issuers located,
or primarily conducting their business, in emerging markets (see "Certain
Securities and Investment Techniques -- Fixed Income Securities" and "--
Emerging Market Securities" and "Additional Risk Factors -- Emerging Markets"
below).
Until such time as the net assets of the Fund reach $10 million, the Fund has
adopted the investment policy to invest, under normal market conditions, at
least 80% of its total assets in the fixed income securities listed above, and
in forward foreign currency exchange contracts ("forward contracts") (see
"Certain Securities and Investment Techniques -- Forward Contracts" below).
The Fund intends to enter into forward contracts as an alternate method of
gaining exposure to certain emerging markets, and expects to achieve a similar
benefit from entering into a forward contract denominated in a country's
currency as from the purchase of an emerging market debt security.
The Fund may invest in debt securities which will consist of: (i) debt
securities or obligations issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in developed
or emerging market countries (including loans between governments and
financial institutions); (ii) debt securities or obligations issued by
government owned, controlled or sponsored entities located in emerging market
countries; (iii) interests in issuers organized and operated for the purpose
of restructuring the investment characteristics of instruments issued by any
of the entities described above; (iv) debt obligations issued by supranational
organizations such as the Asian Development Bank and the Inter-American
Development Bank, among others; and (v) debt obligations issued by
corporations located in developed or emerging market countries. The
restructuring described above involves the deposit with or purchase by an
entity of specific instruments and the issuance by that entity of one or more
classes of securities backed by, or representing interests in, the underlying
instruments. Certain issuers of such structured securities may be deemed to be
"investment companies" as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). As a result, the Fund's investment in such
securities may be limited by certain investment restrictions contained in the
1940 Act. See "Certain Securities and Investment Techniques -- Structured
Securities" and "-- Investment in Other Investment Companies" below.
The Fund takes a global approach to portfolio management and currently expects
to pursue investment opportunities in Latin America, Asia, Africa, the Middle
East and the developing countries of Europe, primarily in Eastern Europe.
While the Fund is not "diversified" for purposes of the 1940 Act, it intends
to maintain investments, under normal market conditions, in at least five
countries (outside of the U.S.).
Emerging market fixed income securities held by the Fund may include Brady
Bonds, Yankee Bonds and Eurobonds, loans, loan assignments and interests
issued by entities organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by emerging market issuers.
The Fund is not restricted by limits on weighted average maturity or duration
of an individual issue. Fixed income securities in which the Fund may invest
may have stated maturities ranging from overnight to 30 years or longer.
While the Fund will not invest in equity securities, the Adviser considers a
variety of factors in selecting emerging market fixed income securities to
achieve capital appreciation, including the creditworthiness of issuers,
interest rates, and currency exchange rates.
The Fund may invest up to 100% of its net assets in foreign securities. The
Fund is not restricted in the portion of its assets which may be invested in
securities denominated in a particular currency and up to 100% of the Fund's
assets may be invested in securities denominated in foreign currencies and
international currency units. The portion of the Fund's assets invested in
securities denominated in currencies other than the U.S. dollar will vary
depending on market conditions. Therefore, the value of the Fund's investments
may be significantly affected by changes in currency exchange rates. (See
"Additional Risk Factors -- Foreign Securities" below.)
The Fund may invest up to 100% of its net assets in fixed income securities
rated in the lower rating categories of recognized rating agencies (that is,
ratings of Ba or lower by Moody's or BB or lower by S&P, Fitch or Duff &
Phelps), and comparable unrated securities (commonly known as "junk bonds").
Emerging market fixed income securities generally are rated in the lower
rating categories of recognized rating agencies. 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 than
securities in the higher rating categories (see "Additional Risk Factors --
Lower Rated Fixed Income Securities" below). For a description of these
ratings, see Appendix A to this Prospectus. See Appendix B to this Prospectus
for a chart indicating the composition of the bond portion of the portfolio of
the Fund for the fiscal year ended June 30, 1998, with the debt securities
separated into rating categories.
CORE EQUITY FUND -- The Core Equity Fund's investment objective is to provide
long-term growth of capital generally consistent with that of a diversified
large cap portfolio and income equal to approximately 90% of the dividend
yield of the S&P 500.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in equity securities considered to be of high or improving investment
quality. The Fund may invest in all types of equity securities, including the
following: common stocks, preferred stocks and preference stocks; securities
such as bonds, warrants or rights that are convertible into stocks; and
depositary receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized markets. However, the Fund may hold its assets in cash or invest in
commercial paper, repurchase agreements or other forms of debt securities
either to provide reserves for future purchases of securities or as a
temporary defensive measure in certain economic environments.
The Fund may invest up to 10% of its total assets in foreign securities
(including American Depositary Receipts) which may be traded on U.S. exchanges
(see "Additional Risk Factors -- Foreign Securities" below).
RESEARCH FUND -- The Research Fund's investment objective is to provide long-
term growth of capital and future income.
The portfolio securities of the Fund are selected by a committee of investment
research analysts, under the supervision of the MFS Director of Research. This
committee includes investment analysts employed not only by the Adviser but
also by MFS International (U.K.) Limited, a wholly owned subsidiary of MFS.
The Fund's assets are allocated among industries by the analysts acting
together as a group. Individual analysts are then responsible for selecting
what they view as the securities best suited to meet the Fund's investment
objective within their assigned industry responsibility.
The Research Fund seeks to achieve its objective by investing, under normal
market conditions, at least 80% of its total assets in equity securities of
companies believed to possess better than average prospects for long-term
growth (see "Certain Securities and Investment Techniques -- Equity
Securities" below). A smaller proportion of the assets may be invested in
bonds, short-term obligations, preferred stocks or common stocks whose
principal characteristic is income production rather than growth. Such
securities may also offer opportunities for growth of capital as well as
income. In the case of both growth stocks and income issues, emphasis is
placed on the selection of progressive, well-managed companies. The Fund's
non-convertible debt investments, if any, may consist of "investment grade"
securities (rated Baa or better by Moody's or BBB or better by S&P, by Fitch
or by Duff & Phelps), and, with respect to no more than 10% of the Fund's net
assets, securities in the lower rated categories (rated Ba or lower by Moody's
or BB or lower by S&P, by Fitch or by Duff & Phelps) or securities which the
Adviser believes to be of comparable quality to these lower rated securities
(commonly known as "junk bonds"). For a description of these bond ratings, see
Appendix A to this Prospectus.
Consistent with its investment objective and policies described above, the
Research Fund may invest up to 20% (and expects generally to invest between 5%
and 15%) of its net assets in foreign securities (not including American
Depositary Receipts), including foreign growth securities, which are not
traded on a U.S. exchange. In addition, the Fund may also hold foreign
currency received in connection with investments in foreign securities or in
anticipation of purchasing foreign securities. (See "Additional Risk Factors
- -- Foreign Securities" below.)
AGGRESSIVE GROWTH FUND -- The Aggressive Growth Fund's investment objective is
to provide long-term growth of capital.
The Fund's policy is to invest, under normal market conditions, at least 80%
of its total assets in common stocks, or securities convertible into common
stocks, of companies with market capitalizations in excess of $5 billion
("Large Cap Companies") that are believed to possess better than average
prospects for long-term growth. Emphasis is placed on the selection of
progressive, well-managed companies with expanding profit margins, above
average return on equity and free cash flow. While the Fund will primarily
invest in stocks of Large Cap Companies, the Fund may also opportunistically
invest in small and medium size companies.
The Fund may invest up to 50% (and generally expects to invest between 0% and
30%) of its total assets in foreign securities (not including American
Depositary Receipts) (see "Additional Risk Factors -- Foreign Securities"
below).
MID CAP FUND -- The Mid Cap Fund's investment objective is to provide long-
term growth of capital.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its total assets in equity securities of companies
with medium market capitalizations ("Mid Cap Companies") (see "Certain
Securities and Investment Techniques -- Equity Securities" below). Mid Cap
Companies are those companies with a market capitalization within the range of
approximately $500 million to $5 billion. Such companies generally would be
expected to show earnings growth over time that is well above the growth rate
of the overall economy and the rate of inflation, and would have the products,
management and market opportunities which are usually necessary to continue
sustained growth.
Consistent with its investment objective and policies described above, the
Fund may invest up to 25% (and generally expects to invest between 0% and 10%)
of its net assets in foreign securities (not including American Depositary
Receipts), including foreign growth securities, which are not traded on a U.S.
exchange. In addition, the Fund may hold foreign currency received in
connection with investments in foreign securities or in anticipation of
purchasing foreign securities. (See "Additional Risk Factors -- Foreign
Securities" below.) The Fund may also hold foreign currency received in
connection with investments in foreign securities or in anticipation of
purchasing foreign securities.
EMERGING EQUITIES FUND -- The Emerging Equities Fund's investment objective is
to seek long-term growth of capital.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its assets in equity securities (see "Certain
Securities and Investment Techniques -- Equity Securities" below) of small and
medium-sized companies that are early in their life cycle but which may have
the potential to become major enterprises ("Emerging Growth Companies").
Emerging Growth Companies generally have annual gross revenues ranging from
$10 million to $1 billion, would be expected to show earnings growth over time
that is well above the growth rate of the overall economy and the rate of
inflation, and would have the products, management and market opportunities
which are usually necessary to become more widely recognized as growth
companies. However, the Fund may also invest in more established companies
whose rates of earnings growth are expected to accelerate because of special
factors, such as rejuvenated management, new products, changes in consumer
demand or basic changes in the economic environment. The Fund may invest up to
20% (and generally expects to invest betweeen 5% and 10%) of its net assets in
foreign securities (not including American Depositary Receipts) (see
"Additional Risk Factors -- Foreign Securities" below).
The Fund has adopted the following policy which is fundamental and which may
not be changed without shareholder approval: while the Fund will invest
primarily in common stocks, the Fund may, to a limited extent, seek
appreciation in other types of securities such as foreign or convertible
securities and warrants when relative values make such purchases appear
attractive either as individual issues or as types of securities in certain
economic environments.
INTERNATIONAL EQUITY FUND -- The International Equity Fund's investment
objective is to provide long-term growth of capital.
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its total assets in foreign equity securities of
companies whose principal activities are located outside the U.S. The equity
securities in which the Fund may invest include securities of more established
companies which represent opportunities for long-term growth (see "Certain
Securities and Investment Techniques -- Foreign Growth Securities" below). The
Fund may also invest up to 25% of its net assets in securities of companies
located, or primarily conducting their business in, emerging market countries
(see "Certain Securities and Investment Techniques -- Emerging Market
Securities"). The selection of securities is made solely on the basis of
potential for capital appreciation. The Fund does not intend to emphasize any
particular country and, under normal market conditions, will be invested in at
least five countries. In addition, the Fund may hold foreign currency received
in connection with investments in foreign securities or in anticipation of
purchasing foreign securities (see "Additional Risk Factors -- Foreign
Securities" below).
In determining where a company's principal activities are located, the Adviser
considers such factors as its country of organization, the principal trading
market for its securities, the source of its revenues and the location of its
assets. The company's principal activities are deemed to be located in a
particular country if: (a) the company is organized under the laws of, and
maintains a principal office in that country; (b) the company has its
principal securities trading market in that country, (c) the company derives
50% or more of its total revenues from goods sold or services performed in
that country; or (d) the company has 50% or more of its assets in that
country.
5. CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
Consistent with each Fund's investment objective(s) and policies, each Fund
may engage in the following securities and investment techniques, many of
which are described more fully in the SAI (see "Investment Policies and
Restrictions" in the SAI).
EQUITY SECURITIES: Each Fund (except the Core Fixed Income Fund and the
Emerging Markets Fund) may invest in all types of equity securities, including
the following: common stocks, preferred stocks and preference stocks;
securities such as bonds, warrants or rights that are convertible into stocks;
and depository receipts for those securities. These securities may be listed
on securities exchanges, traded in various over-the-counter markets or have no
organized market. The Core Fixed Income Fund may retain up to 10% of its total
assets in common stocks which were acquired either by conversion of fixed
income securities or by the exercise of warrants attached thereto. Since
shares of each Fund represent an investment in securities with fluctuating
market prices, the value of shares of a Fund will vary as the aggregate value
of a Fund's portfolio securities increases or decreases. Moreover, the amount
of dividends a Fund pays to its shareholders will vary in relation to the
amount of dividends and interest a Fund receives from its portfolio
securities.
FIXED INCOME SECURITIES: Fixed income securities in which each Fund (except
the Core Equity Fund, the Aggressive Growth Fund, the Mid Cap Fund and the
International Equity Fund) may invest include bonds (including zero coupon
bonds, deferred interest bonds and payable in-kind bonds unless otherwise
noted below (see "-- Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds"
below), debentures, mortgage securities, notes, bills, commercial paper,
obligations issued or guaranteed by a government or any of its political
subdivisions, agencies or instrumentalities, and certificates of deposit, as
well as debt obligations which may have a call on common stock by means of a
conversion privilege or attached warrants. The fixed income securities in
which the Core Equity Fund, the Aggressive Growth Fund, the Mid Cap Fund and
the International Equity Fund may invest include all of the above-mentioned
instruments except zero coupon bonds (except with respect to the Core Equity
Fund which may invest in zero coupon bonds), deferred interest bonds and
payable in-kind bonds.
U.S. GOVERNMENT SECURITIES: The Core Fixed Income Fund and the Global Fund,
and, for temporary defensive reasons, each other Fund, may invest in U.S.
Government securities, 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 ten years); and U.S. Treasury bonds (generally maturities of greater than
ten 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, 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 (collectively, "U.S. Government
Securities").
REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, a 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, a 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 the risks of investing in repurchase agreements.
LENDING OF PORTFOLIO SECURITIES: Each Fund (except the Emerging Equities Fund)
may seek to increase its income by lending portfolio securities to entities
deemed creditworthy by the Adviser. Such loans will usually be made to member
firms (and subsidiaries thereof) of the New York Stock Exchange and to member
banks of the Federal Reserve System, and would be required to be secured
continuously by collateral in cash, letters of credit or U.S. Government
Securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. If the Adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of the value of the total assets of the relevant Fund.
RESTRICTED SECURITIES: Each Fund may also purchase securities that are not
registered under the Securities Act of 1933 (the "1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). A determination is made 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, retains
oversight of the liquidity determinations, focusing on factors such as
valuation, liquidity and availability of information. Investing in Rule 144A
securities could have the effect of decreasing the level of liquidity in a
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing Rule 144A securities held in a Fund's portfolio.
Subject to each Fund's 15% limitation on investments in illiquid investments,
each Fund may also invest in restricted securities that may not be sold under
Rule 144A, which presents certain risks. As a result, each 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, the judgment of the Adviser may at times play a
greater role in valuing these securities than in the case of unrestricted
securities.
WHEN-ISSUED OR FORWARD DELIVERY SECURITIES: Each Fund except the Emerging
Equities 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 beyond customary settlement time. The commitment to
purchase a security for which payment will be made on a future date may be
deemed a separate security. Although each Fund is not limited in the amount of
securities for which it may have commitments to purchase on such basis, it is
expected that, under normal circumstances, each Fund will not commit more than
30% of its assets to such purchases. The Fund does not pay for the securities
until received or start earning interest on them until the contractual
settlement date. While awaiting delivery of securities purchased on such
basis, a Fund will segregate liquid assets sufficient to cover its
commitments. Although each Fund does not intend to make such purchases for
speculative purposes, purchases of securities on such basis may involve more
risk than other types of purchases.
AMERICAN DEPOSITARY RECEIPTS: Each Fund except the Core Fixed Income Fund and
the Emerging Markets 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 U.S.
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
exchange rates and more limited information about foreign issuers. See
"Additional Risk Factors -- Foreign Securities" below.
FOREIGN GROWTH SECURITIES: Each Fund except the Core Fixed Income Fund and the
Emerging Markets Fund may invest in securities of foreign growth companies,
including established foreign companies, whose rates of earnings growth are
expected to accelerate because of special factors, such as rejuvenated
management, new products, changes in consumer demand, or basic changes in the
economic environment or which otherwise represent opportunities for long-term
growth. See "Additional Risk Factors -- Foreign Securities" below. It is
anticipated that these companies will primarily be in nations with more
developed securities markets, such as Japan, Australia, Canada, New Zealand
and most Western European countries, including Great Britain.
EMERGING MARKET SECURITIES: Consistent with each Fund's investment
objective(s) and policies, a 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 location of its assets. The
issuer's principal activities generally are deemed to be located in a
particular emerging market 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.
See "Additional Risk Factors -- Emerging Markets" below.
BRADY BONDS: The Core Fixed Income Fund, the Global Fund, the High Yield Fund
and the Emerging Markets 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, Croatia, the Dominican Republic, Ecuador, Jordan,
Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland, Slovania,
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: (i) the collateralized repayment of principal at final
maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) 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.
INVESTMENT IN OTHER INVESTMENT COMPANIES: Each Fund except the Emerging
Equities Fund may invest in other investment companies to the extent permitted
by the 1940 Act (i) as a means by which a Fund may invest in securities of
certain countries which do not otherwise permit investment, (ii) as a means to
purchase securities of emerging market companies having limited free float, or
(iii) when the Adviser believes such investments may be more advantageous to a
Fund than a direct market purchase of securities. If a Fund invests in such
investment companies, the Fund's shareholders will bear not only their
proportionate share of the expenses of that particular Fund (including
operating expenses and the fees of the Adviser), but also will indirectly bear
similar expenses of the underlying investment companies.
STRUCTURED SECURITIES: The Emerging Markets Fund may invest a portion of its
assets in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations.
This type of restructuring involves the deposit with, or purchase by, an
entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one
or more classes of securities ("Structured Securities") backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued Structured
Securities to create securities with different investment characteristics,
such as varying maturities, payment priorities and interest rate provisions,
and the extent of the payments made with respect to Structured Securities is
dependent on the extent of the cash flow on the underlying instruments.
Because Structured Securities of the type in which the Fund anticipates it
will invest typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments. The Fund
is permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities. Structured Securities
are typically sold in private placement transactions, and there currently is
no active trading market for Structured Securities.
LOANS AND OTHER DIRECT INDEBTEDNESS: The High Yield Fund, the Emerging Markets
Fund, the Mid Cap Fund and the International Equity Fund may each invest a
portion of its assets in loans and other direct indebtedness. By purchasing a
loan, a 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.
Each 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 and
other direct investments may not be in the form of securities or may be
subject to restrictions on transfer, and only limited opportunities may exist
to resell such instruments. As a result, a Fund may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income
securities in which the Core Fixed Income Fund, the Global Fund, the High
Yield Fund, the Emerging Markets Fund and the Research Fund may invest include
zero coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind ("PIK bonds"). Fixed income securities in which the Core
Equity Fund may invest include zero coupon bonds. Zero coupon and deferred
interest 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 or the first interest payment date at a rate of interest reflecting
the market rate of the security at the time of issuance. While zero coupon
bonds do not require the periodic payment of interest, deferred interest bonds
provide for a period of delay before the regular payment of interest begins.
PIK bonds are debt obligations which provide that the issuer thereof may, at
its option, pay interest on such bonds in cash or in the form of additional
debt obligations. Such investments benefit the issuer by mitigating its need
for cash to meet debt service, but also require a higher rate of return to
attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value due to changes
in interest rates and other factors than debt obligations which make regular
payments of interest. A Fund will accrue income on such investments for tax
and accounting purposes, as required, 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 under disadvantageous circumstances
to satisfy a Fund's distribution obligations.
CORPORATE ASSET-BACKED SECURITIES: Each Fund except the Emerging Markets Fund,
the Core Equity Fund, the Research Fund and the Aggressive Growth 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. 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 services 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. A 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.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Core Fixed Income Fund and the High
Yield Fund may enter into mortgage "dollar roll" transactions with selected
banks and broker-dealers pursuant to which a 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 Core Fixed
Income Fund and the High Yield 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. In
the event that the party with whom the Fund contracts to replace substantially
similar securities on a future date fails to deliver such securities, the Fund
may not be able to obtain such securities at the price specified in such
contract and thus may not benefit from the price differential between the
current sales price and the repurchase price.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
The Core Fixed Income Fund and the High Yield Fund may invest a portion of its
assets in collateralized mortgage obligations, or "CMOs," which are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by certificates issued by the
GNMA, the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC"), but also may be collateralized by whole
loans or private mortgage pass-through securities (such collateral
collectively referred to as "Mortgage Assets"). The Core Fixed Income Fund and
the High Yield Fund may also invest a portion of its assets in multiclass
pass-through securities which are interests in a trust composed of Mortgage
Assets. CMOs (which include multiclass pass-through securities) may be issued
by agencies, authorities or instrumentalities of the U.S. Government or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. 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 CMOs have priority over others with respect
to the receipt of prepayments on the mortgages. Therefore, depending on the
type of CMOs in which the Core Fixed Income Fund invests, the investment may
be subject to a greater or lesser risk of prepayment than other types of
mortgage-related securities.
The Core Fixed Income Fund and the High Yield 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. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with
the required principal payment on such securities having the highest priority
after interest has been paid to all classes.
STRIPPED MORTGAGE-BACKED SECURITIES: The Core Fixed Income Fund may invest a
portion of its assets in stripped mortgage-backed securities, which are
derivative multiclass mortgage securities usually structured with two classes
that receive different proportions of the interest and principal distributions
from an underlying pool of mortgage assets.
MORTGAGE PASS-THROUGH SECURITIES: The Core Fixed Income Fund and the High
Yield 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 prepayment. Prepayments on underlying mortgages result
in a loss of anticipated interest, and all or part of a premium if any has
been 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 GNMA); or guaranteed by agencies or instrumentalities of the
U.S. Government (such as FNMA or FHLMC, which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage pass-through securities may also be issued by non-
governmental issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers). Some of these mortgage pass-through securities may be
supported by various forms of insurance or guarantees.
OPTIONS ON SECURITIES: Each Fund may write (sell) covered put and call options
on securities ("Options") and purchase put and call Options that are traded on
foreign or U.S. securities exchanges and over the counter. A Fund will write
such Options for the purpose of increasing its return and/or protecting the
value of its portfolio. In particular, where a 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 a portfolio security in connection with
which the Option may have been written or the increased cost of portfolio
securities to be acquired. However, the writing of Options constitutes only a
partial hedge, up to the amount of the premium, less any transaction costs. In
contrast, however, if the price of the security underlying the Option moves
adversely to the relevant Fund's position, the Option may be exercised and the
Fund will be required to purchase or sell the security at a disadvantageous
price, resulting in losses which may only be partially offset by the amount of
the premium. Each 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.
Each Fund may purchase put or call Options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that the expected changes occur, a Fund may be able to
offset the resulting adverse effect on its portfolio, in whole or in part,
through the Options purchased. The risk assumed by a Fund in connection with
such transactions is limited to the amount of the premium and related
transaction costs associated with the Option, although a Fund may be required
to forfeit such amounts in the event that the prices of securities underlying
the Options do not move in the direction or to the extent anticipated.
The Core Fixed Income Fund, the Global Fund, the High Yield Fund, the Emerging
Markets Fund and the Aggressive Growth 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 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. Yield curve options written by the Funds
will be "covered" but could involve additional risks.
FUTURES CONTRACTS: Each 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 securities as such instruments become available
for trading ("Futures Contracts"). Such transactions will be entered into for
hedging purposes, in order to protect a Fund's current or intended investments
from the effects of changes in interest or exchange rates, or for non-hedging
purposes, to the extent permitted by applicable law. For example, in the event
that an anticipated decrease in the value of portfolio securities occurs as a
result of 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
Futures Contracts sold by a Fund. Conversely, the adverse effects of an
increase in the cost of portfolio securities to be acquired, occurring as a
result of a decline in interest rates or a rise in the dollar value of
securities denominated in foreign currencies, may be offset, in whole or in
part, by gains on Futures Contracts purchased by a Fund. Each 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 each Fund believes that use of such contracts will benefit the
Fund, if the Adviser's 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. Transactions entered into for non-hedging purposes involve
greater risk, including the risk of losses which are not offset by gains on
other portfolio assets.
OPTIONS ON FUTURES CONTRACTS: Each Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts") for the purpose of
protecting against declines in the value of portfolio securities or against
increases in the cost of securities to be acquired, or 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. Transactions entered into for non-hedging purposes
involve greater risk, including the risk of losses which are not offset by
gains on other portfolio assets.
FORWARD CONTRACTS: Each Fund may enter into forward foreign currency exchange
contracts for the purchase and sale of a fixed quantity of a foreign currency
at a future date ("Forward Contracts"). A Fund may enter into Forward
Contracts for hedging purposes as well as for non-hedging purposes. By
entering into transactions in Forward Contracts, however, a 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. 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. Each 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. Each Fund has established procedures
which requires use of segregated assets or "cover" in connection with the
purchase and sale of such contracts.
OPTIONS ON FOREIGN CURRENCIES: Each Fund except the Emerging Equities Fund may
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 a 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 a Fund's position, it may forfeit the
entire amount of the premium paid for the Option plus related transaction
costs. Options on foreign currencies to be written or purchased by a Fund will
be traded on foreign and U.S. exchanges or over-the-counter.
OPTIONS ON STOCK INDICES: Each Fund except the Core Fixed Income Fund, the
Global Fund, the High Yield Fund and the Emerging Markets Fund may write
(sell) covered call and put options and purchase call and put options on
domestic or foreign stock indices ("Options on Stock Indices"). Each Fund may
write such options for the purpose of increasing its current income and/or to
protect its portfolio against declines in the value of securities it owns or
increases in the value of securities to be acquired. When a 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 a Fund for the writing of the option, less
related transaction costs. In addition, if the value of an underlying index
moves adversely to a Fund's option position, the option may be exercised, and
the Fund will experience a loss which may only be partially offset by the
amount of the premium received.
Each Fund except the Core Fixed Income Fund, the Global Fund, the High Yield
Fund and the Emerging Markets 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. A Fund's possible loss in either case will be
limited to 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 Core Fixed Income Fund, the Global Fund,
the High Yield Fund and the Emerging Markets Fund may enter into interest rate
swaps, currency swaps and other types of available swap agreements, such as
caps, floors and collars. 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, a 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
notional principal amount determined by the parties.
The Core Fixed Income Fund, the Global Fund, the High Yield Fund and the
Emerging Markets 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 could be used to shift each 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, or no
investment of cash. 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. A Fund may also
suffer losses if it is unable to terminate outstanding swap agreements or
reduce its exposure through offsetting transactions.
INDEXED SECURITIES: The Core Fixed Income Fund, the High Yield Fund and the
Emerging Markets Fund may also 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 (i.e., principal value) or
interest rates rise or fall according to changes in the value of one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their principal value or interest rates 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 and could involve the loss
of all or a portion of the principal amount of or interest on the instrument.
DEFENSIVE INVESTMENTS: When the Adviser believes that investing for temporary
defensive reasons is appropriate, such as during times of international,
political or economic uncertainty or turmoil, or in order to meet anticipated
redemption requests, part or all of a Fund's assets may be invested in cash
(including foreign currency) or cash equivalent short-term obligations
including, but not limited to, certificates of deposit, commercial paper,
short-term notes and U.S. Government Securities.
6. ADDITIONAL RISK FACTORS
FOREIGN SECURITIES: Transactions involving foreign equity and 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. These include changes in currency rates, exchange control
regulations, governmental administration or 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 may also include more limited information about foreign
issuers, higher brokerage costs, different or less stringent 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 U.S. 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.
EMERGING MARKETS: 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 a Fund is uninvested and no return is earned thereon. The inability
of a 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 either
in losses to a Fund due to subsequent declines in value of the portfolio
security or, if a 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 a Fund bears the risk that the
securities will not be delivered and that the Fund's payment will not be
returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions of repatriation of assets, and may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A 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 a Fund.
FIXED INCOME SECURITIES: To the extent a Fund invests in fixed income
securities, the net asset value of the Fund may change as the general levels
of interest rates fluctuate. When interest rates decline, the value of fixed
income securities can be expected to rise. Conversely, when interest rates
rise, the value of fixed income securities can be expected to decline. Each
Fund has no restrictions with respect to the maturities or duration of the
fixed income securities it holds. A Fund's investments in fixed income
securities with longer terms to maturity or greater duration are subject to
greater volatility than the Fund's shorter-term obligations.
LOWER RATED FIXED INCOME SECURITIES: Fixed income securities in which the Core
Fixed Income Fund, the Global Fund, the High Yield Fund, the Emerging Markets
Fund and the Research Fund may invest may be rated Baa by Moody's or BBB by
S&P, Fitch or Duff & Phelps (and comparable unrated securities). For a
description of these bond ratings, see Appendix A to this Prospectus. 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.
Consistent with each Fund's investment objective, the Core Fixed Income Fund,
the Global Fund, the High Yield Fund, the Emerging Markets Fund and the
Research Fund may also invest up to 25%, 100%, 20%, 10% and 100%,
respectively, in fixed income securities rated Ba or lower by Moody's or BB or
lower by S&P, Fitch or Duff & Phelps (and comparable unrated securities).
These securities are the equivalent of high yield, high risk bonds, commonly
known as "junk bonds." These securities are considered speculative and, while
generally providing greater yield 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 be affected by
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 securities are also affected by
changes in interest rates as described below). 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, a 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 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 any 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. A Fund's
achievement of its investment objective may be more dependent on the Adviser's
own credit analysis than in the case of an investment company primarily
investing in higher quality fixed income securities.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although each Fund may enter
into transactions in options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies for 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 a Fund's hedging strategy unsuccessful and could result in losses. The
Funds also may enter into transactions in options, Futures Contracts, Options
on Futures Contracts and Forward Contracts for other than hedging purposes,
which involves greater risk. In particular, such transactions may result in
losses for a 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 a
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 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 and indexes
underlying options, Futures Contracts and Options on Futures Contracts traded
by the Fund will include both domestic and foreign securities.
PORTFOLIO TRADING: While it is not generally each Fund's policy to invest or
trade for short-term profits, each Fund may dispose of a portfolio security
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 to a Fund. A Fund engages in portfolio trading if it
believes a transaction net of costs (including custodian charges) will help in
achieving its investment objective.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. Consistent with the foregoing primary
consideration, the Conduct Rules of the National Association of Securities
Dealers, Inc. and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of each Fund and of the investment
company clients of MFD, a wholly owned subsidiary of MFS and the principal
underwriter of certain funds in the MFS Family of Funds (the "MFS Funds"), 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 each Fund's operating expenses (e.g., fee charged by the custodian
of the Fund's assets). For a further discussion of portfolio trading, see the
SAI. Because each Fund may have a portfolio turnover rate of 100% or more,
transaction costs incurred by each 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.
----------------
The policies described above are not fundamental and may be changed without
shareholder approval.
The SAI includes a discussion of investment policies and a listing of specific
investment restrictions which govern each Fund's investment policies. The
specific investment restrictions listed in the SAI may be changed without
shareholder approval unless otherwise indicated. See "Investment Policies and
Restrictions" in the SAI. Except with respect to a Fund's policy on borrowing
and investing in illiquid securities, each Fund's investment limitations 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.
7. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER -- The Adviser manages the Global Fund, the Emerging
Equities Fund and the Emerging Markets Fund pursuant to separate Investment
Advisory Agreements dated August 7, 1992, August 7, 1992, and August 1, 1995,
respectively. The Core Fixed Income Fund, the Research Fund, the Mid Cap Fund
and the International Equity Fund are managed pursuant to separate Investment
Advisory Agreements, each dated November 30, 1995. The High Yield Fund, Core
Equity Fund and the Aggressive Growth Fund are managed pursuant to separate
Investment Advisory Agreements, each dated October 29, 1998. (These Agreements
are collectively referred to as the "Advisory Agreements".) Under the Advisory
Agreements, the Adviser provides each Fund with overall investment advisory
services. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for each Fund. For its services and facilities, the
Adviser receives a management fee computed and paid monthly in an amount equal
to the following annual rates of the average daily net assets of each Fund:
PERCENTAGE OF THE AVERAGE
DAILY NET ASSETS
FUND OF EACH FUND
- ---- ------------
Core Fixed Income Fund .......................... 0.45%
Global Fund ..................................... 0.65%
High Yield Fund ................................. 0.50%
Emerging Markets Fund ........................... 0.85%
Core Equity Fund ................................ 0.60%
Research Fund ................................... 0.60%
Aggressive Growth Fund .......................... 0.75%
Mid Cap Fund .................................... 0.60%
Emerging Equities Fund .......................... 0.75%
International Equity Fund ....................... 0.75%
Under certain circumstances, the Adviser has agreed to bear a portion of the
expenses of certain Funds such that each Fund's "Other Expenses" do not exceed
a predetermined amount (see "Expense Summary").
MFS also serves as investment adviser to each of the MFS Funds and to MFS
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 Variable Insurance Trust, MFS/Sun Life Series Trust
and seven variable accounts, each of which is a registered investment company
established by Sun Life Assurance Company of Canada (U.S.), a subsidiary of
Sun Life Assurance Company of Canada ("Sun Life"), in connection with the sale
of various fixed/variable annuity contracts. MFS and MFS Institutional
Advisors, Inc. also 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
$ billion on behalf of approximately million investor accounts as of
September 30, 1998. As of such date, the MFS organization managed
approximately $ billion of assets invested in equity securities,
approximately $ billion of assets invested in fixed income securities, and
$ billion of assets invested in securities of foreign issuers and non-U.S.
dollar securities. MFS is a subsidiary of Sun Life of Canada (U.S.) Financial
Services Holdings, Inc., which in turn is an indirect wholly owned subsidiary
of Sun Life. The Directors of MFS are Jeffrey L. Shames, John W. Ballen,
Donald A. Stewart, Arnold D. Scott, John D. McNeil, Kevin R. Parke, Thomas
J. Cashman, Joseph Dello Russo and William W. Scott, Jr. Mr. Shames is the
Chairman and Chief Executive Officer of MFS, Mr. Ballen is the President and
Chief Investment Officer of MFS, Mr. Arnold Scott is the Secretary and a Senior
Executive Vice President of MFS, Mr. Parke is the Chief Equity Officer, Director
of Equity Research and an Executive Vice President of MFS, Mr. Cashman is the
President of MFS Institutional Advisors, Inc., MFS's institutional investment
management subsidiary, Mr. Dello Russo is the Chief Financial Officer and an
Executive Vice President of MFS, Mr. William Scott is the President of MFS Fund
Distributors, Inc., MFS's mutual fund sales company subsidiary and Messrs.
McNeil and Stewart 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 U.S. since 1895,
establishing a headquarters office in the U.S. in 1973. The executive officers
of MFS report to the Chairman of Sun Life.
Mr. Shames and Mr. Scott are also Trustees of the Trust. W. Thomas London,
James O. Yost, Stephen E. Cavan and James R. Bordewick, Jr., Ellen M. Moynihan
and Mark E. Bradley, all of whom are officers of MFS, are officers of the
Trust.
In certain instances there may be securities which are suitable for a Fund's
portfolio as well as for portfolios of other clients of MFS. Some simultaneous
transactions are inevitable when several clients receive investment advice
from MFS, 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 a Fund is concerned, in
other cases, however, it may produce increased investment opportunities for a
Fund.
The identity and background of the portfolio manager(s) for each Fund is set
forth below.
FUND PORTFOLIO MANAGER(s)
---- --------------------
Core Fixed Income Fund -- Geoffrey L. Kurinsky, a Senior Vice President of the
Adviser, has been the Fund's portfolio manager since
January 1, 1996. Mr. Kurinsky has been employed as a
portfolio manager by the Adviser since 1987. Peter
C. Vaream, a Vice President of the Adviser, has been
the Fund's portfolio manager since January 1, 1996.
Mr. Vaream has been employed as a portfolio manager
by the Adviser since 1992.
Global Fund -- Steven C. Bryant, a Senior Vice President of the
Adviser, has been the Fund's portfolio manager since
January, 1998 Mr. Bryant has been employed as a
portfolio manager by the Adviser since 1987.
High Yield Fund -- Robert J. Manning, a Senior Vice President of the
Adviser, has been the Fund's portfolio manager since
its inception. Mr. Manning has been employed as a
portfolio manager by the Adviser since 1984.
Emerging Markets Fund -- Matthew W. Ryan and Robert J. Manning are the
portfolio managers of the above Fund. Mr. Ryan has
been employed as an analyst with the Adviser since
April, 1997. From July, 1993 to March, 1997, he
worked as an economist with the U.S. Executive
Director's Office of the International Monetary
Fund. Mr. Manning, a Senior Vice President of the
Adviser, has been employed as a portfolio manager by
the Adviser since 1984.
Core Equity Fund -- John D. Laupheimer, Jr., a Senior Vice President of
the Adviser, has been the Fund's portfolio manager
since its inception. Mr. Laupheimer has been
employed as a portfolio manager by the Adviser since
1992.
Research Fund -- Various equity research analysts employed by the
Adviser comprise a committee that manages the Fund
under the supervision of Kevin R. Parke, the MFS
Director of Research. Mr. Parke has been employed as
a portfolio manager by the Adviser since 1985.
Aggressive Growth Fund -- Christian Felipe, a Senior Vice President of the
Adviser, has been the Fund's portfolio manager since
its inception. Mr. Felipe has been employed as a
portfolio manager by the Adviser since 1986.
Mid Cap Fund -- Mark Regan, a Vice President of the Adviser, has
been the Fund's portfolio manager since January 1,
1996. Mr. Regan has been employed as a portfolio
manager by the Adviser since 1993. Prior to 1993,
Mr. Regan was employed by Eaton Vance Management as
a securities analyst. John W. Ballen, the President
and Chief Investment Officer of the Adviser, has
provided oversight of the Fund's management since
June 16, 1993. Mr. Ballen has been employed as a
portfolio manager by the Adviser since 1984.
Emerging Equities Fund -- Brian E. Stack, a Vice President of the Adviser, has
been the Fund's portfolio manager since August,
1995. Mr. Stack has been employed as a portfolio
manager by the Adviser since 1993. Prior to 1993,
Mr. Stack was employed by Robertson, Stephens & Co.
as a securities analyst. John W. Ballen, the
President and Chief Investment Officer of the
Adviser, has provided oversight of the Fund's
management since June 16, 1993. Mr. Ballen has been
employed as a portfolio manager by the Adviser since
1984.
International
Equity Fund -- David R. Mannheim, a Senior Vice President of the
Adviser, has been the Fund's portfolio manager since
January 31, 1996. Mr. Mannheim has been employed as
a portfolio manager by the Adviser since 1988.
ADMINISTRATOR -- MFS provides each Fund with certain financial, legal,
compliance, shareholder communications and other administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997, as
amended. Under this Agreement, each Fund pays MFS an administrative fee up to
0.015% per annum of such Fund's average daily net assets. This fee reimburses
MFS for a portion of the costs it incurs to provide such services.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of each 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 each Fund.
8. INFORMATION CONCERNING SHARES OF THE FUNDS
PURCHASES
Each Fund is designed for sale to institutional investor clients of MFS and
MFS Institutional Advisors, Inc. and other similar investors. Shares of each
Fund may be purchased through MFD in cash or in-kind without a sales charge at
their net asset value next computed after acceptance of the purchase order.
The minimum initial investment is generally $3 million (generally $1 million
in the case of purchases by bank trust departments for their clients), except
for the Aggressive Growth Fund in which case the minimum initial investment is
$15 million. There is no minimum on additional investments.
Each Fund intends to be as fully invested at all times as is reasonably
practicable in order to maximize total return. In order to make investments
which will immediately generate income, each Fund must have federal funds
available to it (i.e., monies credited to its custodian bank by a Federal
Reserve bank). An order for the purchase of shares of a Fund will be in "good
order" and will be accepted upon receipt of federal funds available for
investment. Payment by federal funds sent by wire is accepted immediately upon
receipt and payment by check is accepted when federal funds become available
for investment, which generally occurs on the next business day after receipt
of a check. Therefore, non-federal funds investment will remain idle for one
business day after receipt.
All investments in a Fund are credited to the shareholder's account in the
form of full and fractional shares at the net asset value per share next
determined after acceptance of the purchase order. The Funds do not generally
issue share certificates, but the Shareholder Servicing Agent maintains an
account for each shareholder and mails to each shareholder a confirmation of
each purchase or sale of shares in its account.
Purchases and exchanges should be made for investment purposes only. Each Fund
and MFD reserves the right to reject any specific purchase order deemed by MFS
to be abusive or contrary to the best interests of a Fund's other
shareholders.
OPENING AN ACCOUNT: Payments by check should be made to the order of [insert
name of Fund] and sent to that particular Fund as follows: MFS Service Center,
Inc., P.O. Box 1400, Boston, MA 02107-9906. Payments of federal funds should
be sent by wire to the custodian of the Fund as follows: State Street Bank and
Trust Company, Attn: Mutual Funds Division, For the account of: [Shareholder's
name], Re: [insert name of Fund] (Account No. 99034795) and Wire Number:
[Assigned by telephone].
Information on how to wire federal funds is available at any national bank or
any state bank which is a member of the Federal Reserve System. Shareholders
should also mail the completed Account Application to the Shareholder
Servicing Agent.
A shareholder must first telephone the Shareholder Servicing Agent (see back
cover for telephone number) to advise of its intended action and, if funds are
to be wired, to obtain a wire order number.
IN-KIND PURCHASES: Shares of each Fund may be purchased with securities
acceptable to that particular Fund. A Fund need not accept any security
offered for an in-kind purchase unless it is consistent with that Fund's
investment objective, policies and restrictions and is otherwise acceptable to
the Fund. Securities accepted in-kind for shares will be valued in accordance
with the Fund's usual valuation procedures (see "Net Asset Value" below).
Investors interested in making an in-kind purchase of Fund shares must first
telephone the Shareholder Servicing Agent (see back cover for telephone
number) to advise of its intended action and obtain instructions for an in-
kind purchase.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with a Fund for which payment has been received by that Fund (i.e., an
established account) may be exchanged for shares of any of the other series of
the Trust (if available for sale) 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 in
proper form (see "Redemptions" below). If an Exchange Request is being used to
open a new account with any other series of the Trust, the exchange must
involve shares having an aggregate value of at least $3 million (generally $1
million in the case of purchases by bank trust departments for their clients),
except for the Aggressive Growth Fund in which case the exchange must involve
shares having an aggregate value of at least $15 million. If the Exchange
Request is received by the Shareholder Servicing Agent on any business day
prior to the close of regular trading on 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 a Fund's right to reject purchase orders. 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 non-tax-exempt shareholders making the exchange. The exchange
privilege (or any aspect of it) may be changed or discontinued upon sixty days
prior written notice to shareholders.
REDEMPTIONS
Shares of a Fund may be redeemed on any business day in cash or in-kind. If
the Adviser determines, in its sole discretion, that it would be detrimental
to the best interests of the remaining shareholders of a Fund, a Fund may make
payment of the redemption price, either totally or partially, by a
distribution in-kind of securities (instead of cash) from that 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 (see "Net Asset Value" below). Securities
distributed by a Fund will be selected by the Adviser in light of the Fund's
objective and will not generally represent a pro rata distribution of each
security held in the Fund's portfolio. If a shareholder received a
distribution in-kind, the shareholder would incur brokerage charges when
converting the securities to cash. A distribution in-kind of portfolio
securities may include foreign securities, including securities of issuers in
emerging markets. A shareholder receiving such a redemption in-kind may
encounter difficulties and expenses selling such securities not typically
associated with disposal of U.S. securities. See "Additional Risk Factors --
Foreign Securities" and "-- Emerging Markets" above.
Within seven days after receipt of a redemption request in "good order" by the
Shareholder Servicing Agent, a Fund will make payment in cash in the amount of
(or, as described above, in-kind with a value equal to) the net asset value of
the shares next determined after such redemption request was received, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the New York Stock Exchange is closed or trading
on the New York Stock Exchange is restricted or to the extent otherwise
permitted by the 1940 Act, if an emergency exists. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or share 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 minimus
exceptions to the above requirements for redemptions. Redemptions in cash will
be made by transfer of federal funds for payment into the investor's account.
Redemptions in-kind will be made by the transfer and delivery of securities as
directed by the investor.
When opening an account with a Fund, shareholders will be required to
designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing.
The value of shares redeemed may be more or less than the shareholder's cost,
depending on portfolio performance and distributions made during the period
the shareholder owned his shares. Redemptions of shares are taxable events on
which a shareholder that is not an exempt shareholder may realize a gain or
loss (see "Tax Status" below).
The Trust reserves the right to redeem shares in any account for their then-
current value (which will be promptly paid to the shareholder) if at any time
the total investment in such account drops below $500,000 because of
redemptions or exchanges. 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.
SIGNATURE GUARANTEE: In order to protect shareholders against fraud, each 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. With respect to
written requests for redemptions, no signature guarantee or evidence that the
individual executing the stock power, written request for redemption, letter
of instruction or certificate will be required if the amount of the redemption
proceeds does not exceed specified minimums established from time to time by
MFD and the proceeds are wired or mailed to a predesignated account or
address.
DISTRIBUTIONS
Each Fund except the Core Fixed Income Fund and the High Yield Fund intends to
pay substantially all of its net investment income to its shareholders as
dividends on an annual basis. The Core Fixed Income Fund intends to declare
and pay to its shareholders substantially all of its net investment income as
dividends on a monthly basis. The High Yield Fund intends to declare daily and
pay to its shareholders substantially all of its net investment income as
dividends on a monthly basis. In determining the net investment income
available for distributions, a 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. If a Fund earns less than projected, or
otherwise distributes more than its earnings for the year, a portion of the
distributions may constitute a return of capital. A Fund may make one or more
distributions during the calendar year to its shareholders from any net long-
term capital gains, and may also make one or more distributions during the
calendar year to its shareholders from any net short-term capital gains. Each
Fund intends to distribute premiums from options, if any, annually.
Shareholders may elect to receive dividends and capital gain distributions in
either cash or additional shares. See "Information Concerning Shares of the
Funds -- Tax Status" and "Shareholder Services -- Distribution Options" below.
TAX STATUS
Each 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 each Fund
would otherwise be required to pay, each Fund intends to qualify each year as
a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). Because each Fund intends to distribute
all of its net investment income and net realized capital gains to its
shareholders in accordance with the timing requirements imposed by the Code,
it is not expected that any Fund will be required to pay any federal income or
excise taxes, although foreign-source income received by any Fund may be
subject to foreign withholding taxes.
Shareholders of a Fund that are not tax-exempt entities normally will have to
pay federal income taxes, and any state or local taxes, on the dividends and
capital gain distributions they receive from a Fund whether paid in cash or
reinvested in additional shares. A portion of the dividends paid by the Core
Equity Fund, Research Fund, Aggressive Growth Fund, Mid Cap Fund, Emerging
Equities Fund and International Equity Fund (but none of the Funds' capital
gain distributions) may qualify for the dividends received deduction for
corporations. The Core Fixed Income Fund, Global Fund, High Yield Fund and
Emerging Markets Fund expect that none of their distributions will be eligible
for the dividends received deduction for corporations. Shareholders may not
have to pay state or local income taxes on certain fund dividends derived from
interest on U.S. Government obligations. Investors should consult with their
tax advisers in this regard.
Shortly after the end of each calendar year, each individual 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 (as well as the
rate category or categories under which such gain is taxable), the portion, if
any, representing a return of capital (which is generally free of current
taxes but which results in a basis reduction), the portion, if any,
representing interest on U.S. Government obligations, and the amount, if any,
of federal income tax withheld. In certain circumstances, a Fund may elect to
"pass through" to shareholders foreign income taxes paid by that 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 includible in their gross income for federal income tax
purposes.
Fund distributions will reduce a Fund's net asset value per share.
Shareholders who buy shares shortly before a 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.
Each Fund intends to withhold U.S. federal income tax at the rate of 30% (or
any lower rate permitted under an applicable treaty) on taxable dividends and
other payments that are subject to such withholding, and that are made to non-
exempt persons who are neither citizens nor residents of the U.S. Each Fund is
also required in certain circumstances to apply backup withholding at the rate
of 31% on reportable dividends, capital gain distributions and redemption
proceeds paid to any individual or other non-corporate 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. Backup withholding will not, however,
be applied to payments that have been subject to 30% withholding. Prospective
investors should read the Fund's Account Application for additional
information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences to them of an
investment in the Fund.
NET ASSET VALUE
The net asset value of shares of each Fund is determined each day during which
the New York Stock Exchange is open for trading. This determination is made
once each day as of the close of regular trading on the New York Stock
Exchange by deducting the amount of a Fund's liabilities from the value of its
assets and dividing the difference by the number of its shares outstanding.
Assets in a Fund's 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. A share's net asset value is effective for orders received in "good
order" by a Fund prior to its calculation and received by a Fund prior to the
close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust has only one class of shares, entitled Shares of Beneficial Interest
(without par value). The Trust presently has ten series and has reserved the
right to create and issue additional series. Each share of a series represents
an equal proportionate interest in that series with each other share of that
series. The shares of each series participate equally in the earnings,
dividends and assets of the particular series. Shares when issued are fully
paid and non-assessable. Shareholders are entitled to one vote for each share
held. Shares of each series generally vote separately, for example to approve
investment advisory agreements, but shares of all series vote together,
including shares of other series of the Trust, to the extent required under
the 1940 Act, in the election or selection of Trustees and accountants.
Shareholders of each series would be entitled to share pro rata in the net
assets of that series available for distribution to shareholders upon
liquidation of the Trust or that series. The Trust is not required to and has
no current intention to hold annual shareholder meetings, although special
meetings may be called for purposes of electing or removing Trustees, changing
fundamental investment restrictions or approving an investment advisory
agreement.
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 errors and omissions
insurance) and the Trust itself was unable to meet its obligations.
[As of September 30, 1998 the MFS Pension Plans, 500 Boylston Street, Boston,
MA, owns of record % of the Emerging Market Fund's shares and, therefore,
controls such Fund.
As of September 30, 1998 MFS Fund Distributors, Inc., 500 Boylston Street,
Boston, MA, owns of record % of the Emerging Markets Fund's shares, and,
therefore, controls the Fund.
As of September 30, 1998 Boston Safe Deposit Co., Trustee, TWA Pilots DPA 401
(K) Plan, 1 Cabot Road, Medford, MA, owns of record % of the Research
Fund's shares, and, therefore, controls the Fund.
As of September 30, 1998 Depauw University, 313 S. Locust Street, Greencastle,
IN, owns of record % of the Mid Cap Fund's shares, and, therefore,
controls the Fund.
As of September 30, 1998 Cay-Ber Fund, 21 Reid Street, Hamilton, Bermuda Hmil
owns of record % of the International Equity Fund's Shares, and,
therefore, controls the Fund.
As of , 1998 MFS Service Center Inc., 500 Boylston, Boston, MA
owns of record % of the Core Fixed Income Fund's shares, and, therefore,
controls the Fund.]
PERFORMANCE INFORMATION
From time to time, a Fund may provide total rate of return and yield
quotations and may also quote fund rankings 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 a Fund
made at the net asset value with all distributions reinvested. Yield
quotations are based on the annualized net investment income per share of a
Fund over a 30-day period stated as a percent of the net asset value on the
last day of that period. Each Fund's total rate of return and yield 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, while yield reflects only net portfolio income
as of a stated time. A 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 each Fund will calculate its total
rate of return and yield, see the SAI.
EXPENSES
The Trust pays the compensation of its Trustees who are not officers of MFS
and all expenses of each Fund (other than those assumed by MFS) including but
not limited to: advisory and administrative services; governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute
allocable to each Fund, fees and expenses of independent auditors, of legal
counsel, and of any transfer agent, registrar or dividend disbursing agent of
each Fund; expenses of repurchasing and redeeming shares and servicing
shareholder accounts; expenses of preparing, printing and mailing
prospectuses, 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 Trust's Custodian, for all services to a Fund, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of shares of each Fund;
and expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of each Fund and the preparation,
printing and mailing of prospectuses are borne by each Fund except that the
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 of the Trust are allocated among the series
in a manner believed by management of the Trust to be fair and equitable.
Subject to termination or revision at the sole discretion of MFS, MFS has
agreed to bear the expenses (after taking into effect any compensating balance
and offset arrangements) of the Core Fixed Income Fund, the Global Fund, the
High Yield Fund, the Emerging Markets Fund, the Core Equity Fund, the Research
Fund, the Aggressive Growth Fund, the Mid Cap Fund, the Emerging Equities Fund
and the International Equity Fund such that "Other Expenses," which are
defined to include all such Fund's expenses except for management fees, taxes,
extraordinary expenses, brokerage and transaction costs, of each Fund do not
exceed the following percentage per annum of its average daily net assets:
0.05% of the Core Fixed Income Fund; 0.00% of the Global Fund; 0.15% of the
High Yield Fund; 0.40% of the Emerging Markets Fund; 0.05% of the Core Equity
Fund; 0.05% of the Research Fund; 0.05% of the Aggressive Growth Fund; 0.05%
of the Mid Cap Fund; 0.00% of the Emerging Equities Fund; and 0.10% of the
International Equity Fund (the "Maximum Percentage"). The obligation of MFS to
bear these expenses terminates on the date on which such Fund's "Other
Expenses" are less than or equal to the Maximum Percentage. With respect to
the Emerging Markets Fund, the payments made by MFS on behalf of the Emerging
Markets Fund under this arrangement are subject to reimbursement by the Fund
to MFS, which will be accomplished by the payment of an expense reimbursement
fee by the Fund to MFS computed and paid monthly at a percentage of its
average daily net assets for its then current fiscal year, with a limitation
that immediately after such payment the Emerging Markets Fund's "Other
Expenses" will not exceed the Maximum Percentage. The obligation of MFS to
bear the Emerging Markets Fund's "Other Expenses" pursuant to this
arrangement, and the Fund's obligation to pay the reimbursement fee to MFS,
terminates on the earlier of the date on which payments made by the Fund equal
the prior payment of such reimbursable expenses by MFS or December 31, 2005.
9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of a Fund, should contact the Shareholder
Servicing Agent.
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in its account. At
the end of each calendar year, each shareholder will receive income tax
information regarding any reportable dividends, capital gain distributions or
other distributions for that year.
DISTRIBUTION OPTIONS -- The following options are available to all 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.
Dividends and capital gains distributions will be reinvested (net of any tax
withholding) in additional full and fractional shares at the net asset value
in effect at the close of business on the record date.
Dividends and capital gain distributions in amounts less than $10 will
automatically be reinvested in additional shares of a Fund. 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 distributions or redemption checks.
----------------
The Funds' SAI, dated November 1, 1998, contains more detailed information
about the Trust and the Funds, including, but not limited to, information
related to: (i) each Fund's investment 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 Adviser; (iii) portfolio trading; (iv) each Fund's
shares, including rights and liabilities of shareholders; (v) tax status of
dividends and distributions; and (vi) various services and privileges provided
by each Fund for the benefit of its shareholders.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
The ratings of Moody's, S&P, Fitch and Duff & Phelps 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
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 edged." 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 their may be other elements
present which make the long-term risk 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 ever 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 or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
S&P'S
AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
EXTREMELY STRONG.
AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is VERY STRONG.
A: An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still STRONG.
BBB: An obligation rated BBB exhibits ADEQUATE protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and
C the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB: An obligation rated BB is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated B is MORE VULNERABLE to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC: An obligation rated CCC is CURRENTLY VULNERABLE to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is CURRENTLY HIGHLY VULNERABLE to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this
obligation are being continued.
D: An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation 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.
R: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
FITCH
AAA: Highest credit quality. AAA ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely
to be adversely affected by foreseeable events.
AA: Very high credit quality. AA ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High credit quality. A ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade
BB: Speculative. BB ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC, C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D: Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50% -- 90% of such outstandings,
and D the lowest recovery potential, i.e. below 50%.
DUFF & PHELPS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/
or interest payments.
DP: Preferred stock with dividend arrearages.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within a rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Duff & Phelps does not rate the specific issue.
<PAGE>
APPENDIX B
PORTFOLIO COMPOSITION CHART
The table below shows the percentages of the Emerging Markets Fund's assets at
June 30, 1998 invested in bonds assigned to the various rating categories by
Moody's, S&P, Fitch and Duff & Phelps and in unrated bonds determined by MFS
to be of comparable quality. The highest of the four rating services is used
with respect to each rating.
MFS EMERGING MARKETS FUND
COMPILED UNRATED BONDS OF
RATING RATINGS COMPARABLE QUALITY TOTAL
- ------ -------- ------------------ ------
AAA/Aaa
AA/Aa
A/A
BBB/Baa 6.32% 6.32%
BB/Ba 28.50 3.90% 32.40
B/B 27.75 27.75
CCC/Caa
CC/Ca
C/C
Default
------ ----- ------
Total 62.57% 3.90% 66.47%
------ ----- ------
The chart does not necessarily indicate what the composition of the Emerging
Markets Fund's portfolio will be in subsequent years. Rather, the Fund's
investment objective, policies and restrictions indicate the extent to which
the Fund may purchase securities in the various categories.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
(800) 637-2262
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
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) 637-2262
Mailing Address
P.O. Box 1400
Boston, MA 02107-9906
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[Graphic Omitted]
MFS(R) INSTITUTIONAL CORE FIXED INCOME FUND
MFS(R) INSTITUTIONAL GLOBAL FIXED INCOME FUND
MFS(R) INSTITUTIONAL HIGH YIELD FUND
MFS(R) INSTITUTIONAL EMERGING MARKETS DEBT FUND
MFS(R) INSTITUTIONAL CORE EQUITY FUND
MFS(R) INSTITUTIONAL RESEARCH FUND
MFS(R) INSTITUTIONAL LARGE CAP AGGRESSIVE GROWTH FUND
MFS(R) INSTITUTIONAL MID CAP GROWTH FUND
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
500 Boylston Street
Boston, MA 02116
1/98
[Graphic Omitted]
<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
MFS(R) INSTITUTIONAL CORE FIXED INCOME FUND
MFS(R) INSTITUTIONAL GLOBAL FIXED INCOME FUND
MFS(R) INSTITUTIONAL HIGH YIELD FUND
MFS(R) INSTITUTIONAL EMERGING MARKETS DEBT FUND
MFS(R) INSTITUTIONAL CORE EQUITY FUND
MFS(R) INSTITUTIONAL RESEARCH FUND
MFS(R) INSTITUTIONAL LARGE CAP AGGRESSIVE GROWTH FUND
MFS(R) INSTITUTIONAL MID CAP GROWTH FUND
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
Each a Series of MFS Institutional Trust
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
STATEMENT OF
ADDITIONAL INFORMATION
November 1, 1998
- --------------------------------------------------------------------------------
Page
----
1. Definitions ........................................................... 2
2. Investment Policies and Restrictions .................................. 2
3. Management of the Funds ............................................... 16
Trustees .......................................................... 16
Officers .......................................................... 16
Trustee Compensation Table ........................................ 16
Investment Adviser ................................................ 17
Administrator ..................................................... 18
Custodian ......................................................... 18
Shareholder Servicing Agent ....................................... 19
Distributor ....................................................... 19
4. Portfolio Transactions and Brokerage Commissions ...................... 19
5. Tax Status ............................................................ 20
6. Determination of Net Asset Value and Performance ...................... 21
7. Description of Shares, Voting Rights and Liabilities .................. 23
8. Independent Auditors and Financial Statements ......................... 24
Appendix A - Performance Quotations ....................................... A-1
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Funds' Prospectus,
dated November 1, 1998. 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
"Core Fixed Income Fund" -- MFS Institutional Core Fixed Income Fund,
formerly known as MFS Institutional Core Plus
Fixed Income Fund until its name was changed
on October 16, 1997, a diversified series of
MFS Institutional Trust.
"Global Fund" -- MFS Institutional Global Fixed Income Fund,
formerly known as MFS Institutional Worldwide
Fixed Income Fund until its name was changed
on October 16, 1997, a non-diversified series
of MFS Institutional Trust.
"High Yield Fund" -- MFS Institutional High Yield Fund, a
diversified series of the Trust.
"Emerging Markets Fund" -- MFS Institutional Emerging Markets Debt Fund,
formerly known as MFS Institutional Emerging
Markets Income Fund until its name was changed
on October 16, 1997, a non- diversified series
of MFS Institutional Trust.
"Core Equity Fund" -- MFS Institutional Core Equity Fund, a
diversified series of the Trust.
"Research Fund" -- MFS Institutional Research Fund, a diversified
series of MFS Institutional Trust.
"Aggressive Growth Fund" -- MFS Institutional Large Cap Aggressive Growth
Fund, a diversified series of the Trust.
"Mid Cap Fund" -- MFS Institutional Mid Cap Growth Fund,
formerly known as MFS Institutional Mid-Cap
Growth Equity Fund until its name was changed
on October 16, 1997, a diversified series of
MFS Institutional Trust.
"Emerging Equities Fund" -- MFS Institutional Emerging Equities Fund, a
diversified series of MFS Institutional Trust.
"International Equity
Fund" -- MFS Institutional International Equity Fund, a
diversified series of MFS Institutional Trust.
"Funds" -- Core Fixed Income Fund, Global Fund, High
Yield Fund, Emerging Markets Fund, Core Equity
Fund, Research Fund, Aggressive Growth Fund,
Mid Cap Fund, Emerging Equities Fund and
International Equity Fund.
"MFS" or the "Adviser" -- Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware
Corporation
"Prospectus" -- The Prospectus of the Funds, dated November 1,
1998, as amended or supplemented from time to
time.
"Trust" -- MFS Institutional Trust, a Massachusetts
business trust.
2. INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT POLICIES. The investment objective(s) and policies of the Funds are
described in the Prospectus. The following discussion of the Funds' investment
policies and restrictions supplements and should be read in conjunction with
the information set forth in the Prospectus.
EMERGING MARKET SECURITIES: The Emerging Markets Fund and the Emerging
Equities Fund invests primarily in fixed income securities of government,
government-related, supranational and corporate issuers located or primarily
conducting their business in emerging markets. Each Fund may also invest in
emerging market securities. Such investments entail significant risks as
described in the Prospectus under the caption "Additional Risk Factors --
Emerging Market Securities" and as more fully described below.
COMPANY DEBT -- Governments of many emerging market countries have exercised
and continue to exercise substantial influence over many aspects of the
private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in
the future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
in a Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect a Fund's assets should these conditions recur.
SOVEREIGN DEBT -- Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole, the governmental entity's policy towards the International Monetary
Fund, and the political constraints to which a governmental entity may be
subject. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to reduce
principal and interest averages on their debt. The commitment on the part of
these governments, agencies and others to make such disbursements may be
conditioned on a governmental entity's implementation of economic reforms and/
or economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may result in the cancellation of such
third parties' commitments to lend funds to the governmental entity, which may
further impair such debtor's ability or willingness to service its debts in a
timely manner. Consequently, governmental entities may default on their
sovereign debt. Holders of sovereign debt (including a Fund) may be requested
to participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign
debt on which governmental entities have defaulted may be collected in whole
or in part.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations
and other financial institutions. Certain emerging market governmental issuers
have not been able to make payments of interest on or principal of debt
obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political and
social stability of those issuers.
The ability of emerging market governmental issuers to make timely payments on
their obligations is likely to be influenced strongly by the issuer's balance
of payments, including export performance, and its access to international
credits and investments. An emerging market whose exports are concentrated in
a few commodities could be vulnerable to a decline in the international prices
of one or more of those commodities. Increased protectionism on the part of an
emerging market's trading partners could also adversely affect the country's
exports and tarnish its trade account surplus, if any. To the extent that
emerging markets receive payment for its exports in currencies other than
dollars or non-emerging market currencies, its ability to make debt payments
denominated in dollars or non-emerging market currencies could be affected.
To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a
withdrawal of external funding could adversely affect the capacity of emerging
market country governmental issuers to make payments on their obligations. In
addition, the cost of servicing emerging market debt obligations can be
affected by a change in international interest rates since the majority of
these obligations carry interest rates that are adjusted periodically based
upon international rates.
Another factor bearing on the ability of emerging market countries to repay
debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
LIQUIDITY; TRADING VOLUME; REGULATORY OVERSIGHT -- The securities markets of
emerging market countries are substantially smaller, less developed, less
liquid and more volatile than the major securities markets in the U.S.
Disclosure and regulatory standards are in many respects less stringent than
U.S. standards. Furthermore, there is a lower level of monitoring and
regulation of the markets and the activities of investors in such markets.
The limited size of many emerging market securities markets and limited
trading volume in the securities of emerging market issuers compared to volume
of trading in the securities of U.S. issuers could cause prices to be erratic
for reasons apart from factors that affect the soundness and competitiveness
of the securities issuers. For example, limited market size may cause prices
to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may
be substantially curtailed and prices for a Fund's securities in such markets
may not be readily available. The Trust may suspend redemption of its shares
for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly, if a Fund
believes that appropriate circumstances exist, it will promptly apply to the
SEC for a determination that an emergency is present. During the period
commencing from a Fund's identification of such condition until the date of
the SEC action, a Fund's securities in the affected markets will be valued at
fair value determined in good faith by or under the direction of the Board of
Trustees.
DEFAULT; LEGAL RECOURSE -- A Fund may have limited legal recourse in the event
of a default with respect to certain debt obligations it may hold. If the
issuer of a fixed-income security owned by a Fund defaults, that Fund may
incur additional expenses to seek recovery. Debt obligations issued by
emerging market governments differ from debt obligations of private entities;
remedies from defaults on debt obligations issued by emerging market
governments, unlike those on private debt, must be pursued in the courts of
the defaulting party itself. A Fund's ability to enforce its rights against
private issuers may be limited. The ability to attach assets to enforce a
judgment may be limited. Legal recourse is therefore somewhat diminished.
Bankruptcy, moratorium and other similar laws applicable to private issuers of
debt obligations may be substantially different from those of other countries.
The political context, expressed as an emerging market governmental issuer's
willingness to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt may not contest payments to the holders of
debt obligations in the event of default under commercial bank loan
agreements.
INFLATION -- Many emerging markets have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have
been imposed in certain countries. Of these countries, some, in recent years,
have begun to control inflation through prudent economic policies.
WITHHOLDING -- Income from securities held by a Fund could be reduced by a
withholding tax on the source or other taxes imposed by the foreign countries
in which a Fund makes its investments. A Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to the Fund
or to entities in which the Fund has invested. The Adviser will consider the
cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the taxes will not be subject
to change.
FOREIGN CURRENCIES -- The Emerging Markets Fund may invest up to 100% of its
assets in securities denominated in foreign currencies and international
currency units and each other Fund may invest a portion of its assets in
foreign currencies. Accordingly, changes in the value of these currencies and
units against the U.S. dollar may result in corresponding changes in the U.S.
dollar value of the Fund's assets denominated in those currencies and units.
Some emerging market countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
emerging market countries may restrict the free conversion of their currencies
into other currencies. Further, certain emerging market currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
REPURCHASE AGREEMENTS: As described in the Prospectus, each Fund may enter
into repurchase agreements with sellers who are member firms (or a subsidiary
thereof) of the New York Stock Exchange or members of the Federal Reserve
System, recognized domestic or foreign securities dealers or institutions
which the Adviser has determined to be of comparable creditworthiness. The
securities that a Fund purchases and holds have values that 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 a Fund, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to a Fund together with the repurchase price
on repurchase.
The repurchase agreement provides that in the event the seller fails to pay
the amount agreed upon on the agreed upon delivery date or upon demand, as the
case may be, a 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. Each Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, each
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 each Fund has the right
to make margin calls at any time if the value of the securities falls below
the agreed upon collateral.
LENDING OF PORTFOLIO SECURITIES: Each Fund (except the Emerging Equities Fund)
may seek to increase its income by lending portfolio securities to entities
deemed creditworthy by the Adviser. Such loans 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. A 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, a Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned. The Fund would also receive a fee from the borrower or compensation
based on investment of the cash collateral, less a fee paid to the borrower,
if the collateral is in the form of cash. 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 each Fund's total assets.
FOREIGN SECURITIES: Each Fund may invest in foreign securities as discussed in
the Prospectus. Investments in foreign issues involve considerations and
possible risks not typically associated with investments in securities issued
by domestic companies or with debt securities issued by foreign governments.
There may be less publicly available information about a foreign company than
about a domestic company, and many foreign companies are not subject to
accounting, auditing and financial reporting standards and requirements
comparable to those to which U.S. companies are subject. Foreign securities
markets, while growing in volume, have substantially less volume than U.S
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic companies. Fixed
brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the U.S. There is also less government
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the U.S.
WHEN-ISSUED OR FORWARD DELIVERY SECURITIES: If a 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 SEC
concerning such purchases. Since that policy currently recommends that an
amount of a 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
liquid assets sufficient to cover any commitments. However, although each 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, a Fund
may have to sell assets which have been set aside in order to meet
redemptions. Also, if a 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.
AMERICAN DEPOSITARY RECEIPTS: American Depositary Receipts ("ADRs") 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. Each Fund except the Core
Fixed Income Fund and the Emerging Markets 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. A 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. A
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.
INVESTMENT IN OTHER INVESTMENT COMPANIES: A Fund's investment in other
investment companies, as described in the Prospectus, is limited in amount by
the Investment Company Act of 1940, as amended (the "1940 Act"). Such
investment may involve the payment of substantial premiums above the value of
such investment companies' portfolio securities, and the total return on such
investment will be reduced by the operating expenses and fees of such other
investment companies, including advisory fees.
LOANS AND OTHER DIRECT INDEBTEDNESS: The High Yield Fund, the Emerging Markets
Fund, the Mid Cap Fund and the International Equity Fund may purchase loans
and other direct indebtedness. In purchasing a loan, a 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 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 loans 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.
Alternatively, such loans may be structured as a novation, pursuant to which a
Fund would assume all of the rights of the lending institution in a loan, or
as an assignment, pursuant to which a 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 Mid Cap Fund and the International Equity 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 a Fund may involve revolving credit
facilities or other standby financing commitments which obligate a Fund to pay
additional cash or a certain date or on demand. These commitments may have the
effect of requiring a 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 a Fund is committed to advance additional funds,
it will at all times hold and maintain in a segregated account liquid assets
in an amount sufficient to meet such commitments.
A Fund's ability to receive payments of principal, interest and other amounts
due in connection with these investments will depend primarily on the
financial condition of the borrower. Direct indebtedness of developing
countries involves the risk that the governmental entities responsible for the
repayment of the note may be unable, or unwilling, to pay interest and repay
principal where due. In selecting the loans and other direct investments which
a Fund will purchase, the Adviser will rely upon its (and not that of the
original lending institution's) own credit analysis of the borrower. As a Fund
may be required to rely upon another lending institution to collect and pass
on to the Fund amounts payable with respect to the loan and to enforce a
Fund's rights under the loan, an insolvency, bankruptcy or reorganization of
the lending institution may delay or prevent a Fund from receiving such
amounts. In such cases, a Fund will evaluate the creditworthiness of the
lending institution and will treat both the borrower and the lending
institution as an "issuer" of the loan participation for purposes of certain
investment restrictions pertaining to the diversification of that 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 may involve additional risks to a Fund.
For example, if a loan is foreclosed, a Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, a Fund could be held liable as a
co-lender. It is unclear whether loans and other forms of direct indebtedness
offer securities law protections against fraud and misrepresentation. In the
absence of definitive regulatory guidance, a Fund relies on the Adviser's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Fund. In addition, loans and other direct
investments may not be in the form of securities or may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, a Fund may be unable to sell such investments
at an opportune time or may have to resell them at less than fair market
value. To the extent that the Adviser determines that any such investments are
illiquid, each Fund will include them in the investment limitations described
below.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Core
Fixed Income Fund and the High Yield Fund may enter into mortgage "dollar
roll" transactions pursuant to which each sell mortgage-backed securities for
delivery in the future and simultaneously contracts to repurchase
substantially similar securities on a specified future date. A Fund records
these transactions as sale and purchase transactions, rather than as borrowing
transactions. During the roll period, a Fund foregoes principal and interest
paid on the mortgage-backed securities. A 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. A Fund may also be
compensated by receipt of a commitment fee.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
The Core Fixed Income Fund and the High Yield Fund each may invest a portion
of its assets in collateralized mortgage obligations or "CMOs," which are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by certificates issued by the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Association
("FHLMC"), but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral collectively hereinafter referred to
as "Mortgage Assets"). The Core Fixed Income Fund and the High Yield Fund each
may also invest a portion of its assets in multiclass pass-through securities
which are equity interests in a trust composed of Mortgage Assets. Unless the
context indicates otherwise, all references herein to CMOs include multiclass
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distributions on the multiclass pass-
through securities. CMOs may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. The issuer
of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates are usually issued in multiple
classes 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 a part of the premium if any has been paid. Interest is paid or accrues
on all classes of the CMOs on a monthly, quarterly or semiannual basis. The
principal of and interest on the Mortgage Assets may be allocated among the
several classes of a series of a CMO in innumerable ways. In a common
structure, payments of principal, including any principal prepayments, on the
Mortgage Assets are applied to the classes of the series of a CMO in the order
of their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of CMOs until all other classes
having an earlier stated maturity or final distribution date have been paid in
full. Certain CMOs may be stripped (securities which provide only the
principal or interest factor of the underlying security). See "Stripped
Mortgage-Backed Securities" below for a discussion of the risks of investing
in these stripped securities and of investing in classes consisting primarily
of interest payments or principal payments.
The Core Fixed Income Fund and the High Yield 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.
STRIPPED MORTGAGE-BACKED SECURITIES: The Core Fixed Income Fund may invest a
portion of its assets in stripped mortgage-backed securities ("SMBS") which
are derivative multiclass mortgage securities issued by agencies of or
instrumentalities of the U.S. Government, or by private originators of, or
investors in mortgage loans, including savings and loan institutions, mortgage
banks, commmercial banks and investment banks.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of SMBS will have one class receiving some of
the interest and most of the principal from the Mortgage Assets, while the
other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the
interest (the interest-only or "IO" class) while the other class will receive
all of the principal (the principal-only or "PO" class). The yield to maturity
on an IO is extremely sensitive to the rate of principal payments, including
prepayments on the related underlying Mortgage Assets, and a rapid rate of
principal payments may have a material adverse effect on such security's yield
to maturity. If the underlying Mortgage Assets experience greater than
anticipated prepayments of principal, the Core Fixed Income Fund may fail to
fully recoup its initial investment in these securities. The market value of
the class consisting primarily or entirely of principal payments generally is
unusually volatile in response to changes in interest rates. Because SMBS were
only recently introduced, established trading markets for these securities
have not yet developed, although the securities are traded among institutional
investors and investment banking firms.
MORTGAGE PASS-THROUGH SECURITIES: The Core Fixed Income Fund and the High
Yield 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 GNMA, are described as
"modified pass-through" securities. These securities entitle the holder to
receive all interest 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
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the
full faith and credit of the U.S. Government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA (such as
savings and loan institutions, commercial banks and mortgage bankers) and
backed by pools of FHA-insured or VA-guaranteed mortgages. These guarantees,
however, do not apply to the market value or yield of mortgage pass-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 FNMA and FHLMC. FNMA
is a government-sponsored corporation owned entirely by private stockholders.
It is subject to general regulation by the Secretary of Housing and Urban
Development. FNMA purchases conventional residential mortgages (i.e.,
mortgages not insured or guaranteed by any governmental agency) from a list of
approved 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.
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.
OPTIONS ON SECURITIES: Each Fund may write (sell) covered call and put options
on securities ("Options") and purchase call and put Options. A Fund may write
Options for the purpose of attempting to increase its return and for hedging
purposes. In particular, if a 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.
A 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 a 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 a
Fund in the same market environments in which call Options are used in
equivalent buy-and-write transactions.
A Fund may also write combinations of put and call Options on the same
security, a practice known as a "straddle." By writing a straddle, a 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 a
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, a 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, a
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 each 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.
A 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. A 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 a Fund, the benefits realized by a 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 certain 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 each Fund's writing of over-the-counter options in accordance
with the following procedure. Except as provided below, each 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 each 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 a 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. A Fund will treat all or a portion of the formula as illiquid for
purposes of the SEC illiquidity ceiling imposed by the SEC staff. A 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.
OPTIONS ON STOCK INDICES: Each Fund except the Core Fixed Income Fund, the
Global Fund, the High Yield and the Emerging Markets Fund may write (sell)
covered call and put options and purchase call and put options on stock
indices ("Options on Stock Indices"). Each 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) upon conversion or exchange of other securities in its
portfolio. Where a 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 liquid assets representing the difference is segregated by the
Fund. A Fund may cover put options on stock indices by maintaining liquid
assets with a value equal to the exercise price in a segregated account, or
else 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 (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 liquid assets representing the difference
is segregated by the Fund. 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.
A Fund will receive a premium from writing a put or call option on a stock
index, 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 a
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, a Fund will
realize a loss in its call option position, which will reduce the benefit of
any unrealized appreciation in the Fund's stock investment. By writing a put
option, a 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 indexes will increase a
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.
Each Fund except the Core Fixed Income Fund, the Global Fund, the High Yield
Fund and the Emerging Markets Fund may also purchase put options on stock
indices to hedge their investments against a decline in value. By purchasing a
put option on a stock index, a Fund will seek to offset a decline in the value
of securities it owns through appreciation of the put option. If the value of
a Fund's investments does not decline as anticipated, or if the value of the
option does not increase, a 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 a Fund's security holdings.
The purchase of call options on stock indices may be used by a 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 a Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, a 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 a 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 a Fund owns.
YIELD CURVE OPTIONS: The Core Fixed Income Fund, the Global Fund, the High
Yield Fund, the Emerging Markets Fund and the Aggressive Growth Fund may enter
into options on the yield "spread," or yield differential, between two
securities, transactions referred to as a "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, a Fund may purchase or write such options for
hedging purposes. For example, a 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 Core Fixed
Income Fund, the Global Fund, the High Yield Fund, the Emerging Markets Fund
and the Aggressive Growth 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 a Fund will be "covered." A
call (or put) option is covered if a Fund holds another call (or put) option
on the spread between the same two securities and maintains in a segregated
account liquid assets sufficient to cover the Fund's net liability under the
two options. Therefore, a 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 illiquidity ceiling. See "Options on Securities" above for a
discussion of the policies the Adviser intends to follow to limit a Fund's
investment in these securities.
FUTURES CONTRACTS: Each Fund may enter into contracts for the purchase or sale
for future delivery of securities or foreign currencies or contracts based on
indexes of 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 each Fund intends to purchase at a later date. Futures
Contracts may also be entered into for non-hedging purposes to the extent
permitted by applicable law. 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. A Fund will incur
brokerage fees when it purchases and sells Futures Contracts. At the time such
a purchase or sale is made, a 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 a Fund may
provide or receive cash that reflects the decline or increase in the value of
the contract.
One purpose of the purchase or sale of a Futures Contract, for hedging
purposes in the case of a portfolio holding long term debt securities, is to
protect a Fund from fluctuations in interest rates without actually buying or
selling long term debt securities. For example, if a 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. A 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 a Fund to maintain a defensive position without having to
sell its portfolio securities. Transactions entered into for non-hedging
purposes include greater risk, including the risk of losses which are not
offset by gains on other portfolio assets.
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, a 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 a 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 a Fund could
have the effect of diluting dividend earnings. To the extent a Fund enters
into Futures Contracts for this purpose, the assets in the segregated asset
account maintained to cover a Fund's obligations with respect to such Futures
Contracts will consist of liquid assets 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 securities provides for the making and
acceptance of a cash settlement based on changes in value of the underlying
index. The Core Equity Fund, the Research Fund, the Aggressive Growth Fund,
the Mid Cap Fund, the Emerging Equities Fund and the International Equity
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 and for non-hedging purposes to the extent permitted by applicable law.
For example, a 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 in part, by gains on the futures position. When a 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 in whole, offset increases in the cost of
securities that Fund intends to purchase. As such acquisitions are made, the
corresponding positions in stock index futures contracts will be closed out.
In a substantial majority of these transactions, a 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. Futures Contracts on other securities indices may be
used in a similar mannner in order to protect the portfolio from broad
fluctuations in securities prices and for non-hedging purposes to the extent
permitted by applicable law.
OPTIONS ON FUTURES CONTRACTS: Each 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 constitutes a partial hedge against
declining prices of the security or currency underlying the Futures Contract.
If the futures price at expiration of the option is below the exercise price,
a 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 security or currency underlying the Futures Contract. If the futures price
at expiration of the option is higher than the exercise price, a 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 a 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, a 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.
A Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts, or for
non-hedging purposes to the extent permitted by applicable law. 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, a 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 a 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, a 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 a 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 a Fund to forego all or a portion of
such benefits up to the amount of the premium paid and related transaction
costs. Transactions entered into for non-hedging purposes include greater
risk, including the risk of losses which are not offset by gains on other
portfolio assets.
FORWARD CONTRACTS: Each 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"). A Fund may
enter into Forward Contracts for hedging purposes as well as for non-hedging
purposes. A Fund may also enter into Forward Contracts for "cross hedging"
purposes 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, a Fund may be required to forego the benefits of
advantageous changes in exchange rates. A 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, a
Fund may purchase or sell such currency, respectively, through a Forward
Contract. If the expected changes in the value of the currency occur, a 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, a
Fund may sustain losses which will reduce its gross income. Such transactions,
therefore, could be considered speculative.
Each Fund has established procedures which require the use of segregated
assets or "cover" in connection with the purchase and sale of such contracts.
In those instances in which a Fund satisfies this requirement through
segregation of assets, it will maintain, in a segregated account, liquid
assets, in an amount equal to the value of its commitments under Forward
Contracts.
OPTIONS ON FOREIGN CURRENCIES: Each Fund except the Emerging Equities 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, a Fund may purchase put
options on the foreign currency. If the value of the currency did decline, a
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, a 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 a 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, a 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.
A 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 -- Each 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 that
Fund's portfolio. If the values of portfolio securities being hedged do not
move in the same amount or direction as the instruments underlying options,
Futures Contracts or Forward Contracts traded, a Fund's hedging strategy may
not be successful and a 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, Future 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, a Fund's overall
return could be less than if the hedging transaction had not been undertaken.
In the case of futures and options based on an index of securities or
individual fixed income securities, 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. As a result, the
correlation probably will not be exact. Consequently, a 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. In addition,
where a 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), a 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 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, a Fund's overall performance may be
poorer than if it had not entered into any such contract. For example, if a
Fund has hedged against the possibility of an increase in interest rates, and
rates instead decline, a 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.
It should be noted that a Fund may purchase and write Options not only for
hedging purposes, but also for the purpose of attempting to increase its
return. As a result, a 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.
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 a 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 a 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 a 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.
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 a 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 a 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 a 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 a
Fund's position, unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with a 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 a 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 the Commodities
Futures Trading Commission ("CFTC") has 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 a Fund to enter into the trading strategies
identified herein or to liquidate existing positions.
As a result of its investments in foreign securities, a Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in foreign currencies. A 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 a Fund is exercised or the Fund is unable to close out a
Forward Contract it has entered into. In addition, a 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, a 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 a 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 a Fund's
position. Such losses could also adversely affect a Fund's hedging strategies.
Certain tax requirements may limit the extent to which a Fund will be able to
hold currencies.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that a Fund
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that a Fund enter into
transactions in Futures Contracts, Options on Futures Contracts and Options on
Foreign Currencies traded on a CFTC-regulated exchange only (i) for bona fide
hedging purposes (as defined in CTFC regulations), or (ii) for non-bona fide
hedging purposes, provided that the aggregate initial margin and premiums
required to establish such non-bona fide hedging positions does not exceed 5%
of the liquidation value of the Fund's assets after taking into account
unrealized profits and unrealized losses on any such contracts the Fund has
entered into, and excluding, in computing such 5%, the in-the-money amount
with respect to an option that is in-the-money at the time of purchase.
Each 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, each 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 a Fund purchases a Futures Contract, an amount of liquid assets will be
deposited in a segregated account with a 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.
SWAPS AND RELATED TRANSACTIONS: The Core Fixed Income Fund, the Global Fund,
the High Yield Fund and the Emerging Markets Fund may enter into interest rate
swaps, currency swaps and other types of available swap agreements, such as
caps, floors and collars.
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 a
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. A Fund is
not limited to any particular form or variety of swap agreement if MFS
determines it is consistent with the Fund's investment objective and policies.
A Fund will maintain cash or appropriate liquid assets to cover its current
obligations under swap transactions. If a 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 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 a 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 a 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 a
Fund, the Fund must be prepared to make such payments when due. In addition,
if the counter-party's creditworthiness declined, the value of the swap
agreement would be likely to decline, potentially resulting in losses. If the
counterparty defaults, a Fund's risk of loss consists of the net amount of
payments that the Fund is contractually entitled to receive. Each 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.
INDEXED SECURITIES: The Core Fixed Income Fund, the High Yield Fund and the
Emerging Markets Fund may purchase securities whose prices are indexed to the
prices of foreign currencies, interest rates, commodities, securities or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity (i.e., principal value) or
coupon rate is determined by reference to a specific instrument or statistic.
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 value may decline
substantially if the issuer's creditworthiness deteriorates.
INVESTMENT RESTRICTIONS. Each Fund has adopted the following fundamental and
nonfundamental investment restrictions. Fundamental restrictions cannot be
changed without the approval of the holders of a majority of that Fund's
shares (which, as used in this SAI, means the lesser of (i) more than 50% of
its outstanding shares, or (ii) 67% or more of its outstanding shares present
at a meeting at which holders of more than 50% of its outstanding shares are
represented in person or by proxy). Except for Investment Restriction (1) and
each Funds' nonfundamental investment policy regarding investing in illiquid
securities, 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 Core Fixed Income Fund, Emerging Markets Fund, Research Fund, Mid Cap Fund
and International Equity Fund each may not:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed;
(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) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (excluding Options, Options on Futures
Contracts, Options on Stock Indices, Options on Foreign Currencies and any
other type of option, and Futures Contracts) in the ordinary course of its
business. Each Fund reserves the freedom of action to hold and to sell real
estate, mineral leases, commodities or commodity contracts (including Options,
Options on Futures Contracts, Options on Stock Indices, Options on Foreign
Currencies and any other type of option, and Futures Contracts) acquired as a
result of the ownership of securities;
(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any type
of option (including Options, Options on Futures Contracts, Options on Stock
Indices, Options on Foreign Currencies), Forward Contracts, Futures Contracts
and swap and collateral arrangements with respect to initial and variation
margin are not deemed to be the issuance of a senior security;
(5) make loans to other persons. For these purposes, the purchase of short-
term commercial paper, the purchase of a portion or all of an issue of debt
securities, the lending of portfolio securities, or the investment of a Fund's
assets in repurchase agreements, shall not be considered the making of a loan;
or
(6) purchase any securities of an issuer of a particular industry if, as a
result, 25% or more of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry (except
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements collateralized by such
obligations).
In addition, each such Fund has adopted the following nonfundamental policies
which may be changed without shareholder approval. Each such Fund will not:
(1) 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
net 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 a 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;
(2) purchase securities issued by any other investment company in excess of
the amount permitted by the 1940 Act, except when such purchase is part of a
plan of merger or consolidation; currently, each Fund does not intend to
invest more than 5% of its total net assets in such securities.
(3) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer or a director of the investment adviser of the Fund, if one
or more of such persons also owns beneficially more than 0.5% of the
securities of such issuer, and such persons owning more than 0.5% of such
securities together own beneficially more than 5% of such securities;
(4) purchase any securities or evidences of interest therein on margin,
except that each Fund may obtain such short-term credit as may be necessary
for the clearance of any transaction and except that each Fund, may make
margin deposits in connection with any type of option (including Options on
Futures Contracts, Options, Options on Foreign Currencies and Options on Stock
Indices) and Futures Contracts;
(5) sell any security which a 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;
(6) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners and
guarantors, have a record of less than three years' continuous operation or
relevant business experience;
(7) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with respect
to any type of option (including Options on Futures Contracts, Options and
Options on Foreign Currencies and Options on Stock Indices), Futures Contracts
and payments of initial and variation margin in connection therewith, are not
considered a pledge of assets;
(8) borrow, except as a temporary measure for extraordinary or emergency
purposes;
(9) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding or
sale of (i) warrants where the grantor of the warrants is the issuer of the
underlying securities or (ii) put or call options or combinations thereof with
respect to securities, indexes of securities, Options, Options on Futures
Contracts, Options on Foreign Currencies or (b) the purchase, ownership,
holding or sale of contracts for the future delivery of securities or
currencies; or
(10) invest for the purpose of exercising control or management.
The Emerging Equities Fund may not:
(1) borrow amounts in excess of 5% of its gross assets, and then only as a
temporary measure for extraordinary purposes, or pledge, mortgage or
hypothecate an amount of its assets taken at market value which would exceed
15% of its gross 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 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 investments in any particular industry, but if it is deemed
appropriate for the attainment of the Fund's investment objective, up to 25%
of the Fund's assets, at market value at the time of each investment, may be
invested 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) or mineral leases, commodities
or commodity contracts (except for options, Futures Contracts, Options on
Futures Contracts and Forward 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. The Fund will not purchase securities
for the purpose of acquiring real estate or mineral leases, commodities or
commodity contracts (except for options, Futures Contracts, Options on Futures
Contracts and Forward Contracts);
(5) make loans to other persons except that the Fund may enter into
repurchase agreements. Not more than 15% of the Fund's total assets will be
invested in repurchase agreements maturing in more than seven days. Subject to
the limitation set forth in the policies below, the Fund may purchase a
portion of an issue of debt securities of types commonly distributed to
financial institutions. For these purposes the purchase of short-term
commercial paper or a portion 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 the Fund's 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;
(8) invest for the purpose of exercising control or management;
(9) purchase securities issued by any other registered investment company or
registered 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 shall not purchase the securities of any
investment company or investment trust if such purchase at the time thereof
would cause more than 10% of the Fund's total assets, taken at market value,
to be invested in the securities of such issuer; and provided, further, that
the Fund shall not purchase securities issued by any open-end investment
company;
(10) purchase or retain any securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is a member, 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;
(11) 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 except that the Fund
may make margin deposits in connection with options, Futures Contracts,
Options on Futures Contracts and Forward Contracts;
(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; or
(13) issue any senior securities except as permitted by the 1940 Act.
In addition, the Emerging Equities Fund has adopted the following non-
fundamental investment policies which may be changed without shareholder
approval. The Fund will not:
(1) Invest in 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, or repurchase agreements
maturing in more than seven days, if more than 15% of the Fund's assets (taken
at market value) would be invested in such securities or such repurchase
agreements;
(2) Invest more than 20% of its total assets in foreign securities
(excluding American Depositary Receipts);
(3) Invest more than 5% of the Fund's net assets in warrants and not more
than 2% of the Fund's net assets, in warrants which are not listed on the New
York or American Stock Exchange; or
(4) Invest more than 5% of its assets in companies which, including their
respective predecessors, have a record of less than three years' continuous
operation.
(5) Invest 25% or more of the market value of its total assets in securities
of issuers in any one industry.
The Global 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);
(2) Underwrite securities issued by other persons except insofar as the
Trust may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) Invest more than 25% 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 (except gold, and then
subject to a limit of 10% of its gross assets) or commodity contracts (except
gold futures/forward contracts, 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 acquired as a result of the ownership of
securities;
(5) Make loans to other persons except through the lending of its portfolio
securities in accordance with, and to the extent permitted by, its investment
objective and policies and except through repurchase agreements. Not more than
15% 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 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 securities issued
or guaranteed by the U.S. Government, any foreign government or any of their
agencies or instrumentalities;
(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 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;
(10) Invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous operation;
(11) 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;
(12) 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 Con-
tracts, Options on Futures Contracts, Options and Options on Foreign
Currencies; or
(13) 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.
In addition, the Global Fund has adopted the following non-fundamental
investment policy which may be changed without shareholder approval. The Fund
will not:
(1) Invest in 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 a specific security, if more than 15% of the
Fund's assets (taken at market value) would be invested in such securities.
The High Yield Fund, Core Equity Fund and Aggressive Growth Fund each may
not:
(1) borrow amounts from banks in excess of 33 1/3% of its total assets,
including amounts borrowed;
(2) underwrite securities issued by other persons except insofar as a Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(3) purchase or sell real estate (excluding securities secured by real
estate or interests therein and securities of companies, such as real estate
investment trusts, which deal in real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(excluding Options, Options on Futures Contracts, Options on Stock Indices,
Options on Foreign Currency and any other type of option, Futures Contracts,
any other type of futures contract, and Forward Contracts) in the ordinary
course of its business. Each Fund reserves the freedom of action to hold and
to sell real estate, mineral leases, commodities or commodity contracts
(including Options, Options on Futures Contracts, Options on Stock Indices,
Options on Foreign Currency and any other type of option, Futures Contracts,
any other type of futures contract, and Forward Contracts) acquired as a
result of the ownership of securities;
(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any
type of option (including Options on Futures Contracts, Options, Options on
Stock Indices and Options on Foreign Currencies), short sale, Forward
Contracts, Futures Contracts, any other type of futures contracts, and
collateral arrangements with respect to initial and variation margin, are
not deemed to be the issuance of a senior security;
(5) make loans to other persons. For these purposes, the purchase of
short-term commercial paper, the purchase of a portion or all of an issue of
debt securities, the lending of portfolio securities, or the investment of a
Fund's assets in repurchase agreements, shall not be considered the making
of a loan; or
(6) purchase any securities of an issuer of a particular industry, if as a
result, 25% or more of its total assets would be invested in securities of
issuers whose principal business activities are in the same industry (except
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements collateralized by such
obligations).
In addition, the Core Equity Fund, Aggressive Growth Fund and High Yield Fund
each has the following nonfundamental policies which may be changed without
shareholder approval. Each such Fund will not:
(1) 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 a Fund's net
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 a Fund's limitation on investment in illiquid
securities. Securities that are not registered under the 1933 Act 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;
(2) invest for the purpose of exercising control or management; or
(3) pledge, mortgage or hypothecate in excess of 33 1/3% of its total
assets. For purposes of this restriction, collateral arrangements with respect
to any type of option (including Options on Futures Contracts, Options,
Options on Stock Indices and Options on Foreign Currencies), any short sale,
any type of futures contract (including Futures Contracts), Forward Contracts
and payments of initial and variation margin in connection therewith, are not
considered a pledge of assets.
3. MANAGEMENT OF THE FUNDS
The Trust's Board of Trustees provides broad supervision over the affairs of
the Trust. The Adviser is responsible for the investment management of each
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
JEFFREY L. SHAMES,* Chairman and President (born 6/2/55)
Massachusetts Financial Services Company, Chairman, Chief Executive Officer
and Director
NELSON J. DARLING, JR. (born 12/27/20)
Private Investor and Trustee
Address: 27 School Street, Boston, Massachusetts
WILLIAM R. GUTOW (born 9/27/41)
Vice Chairman, Capitol Entertainment Management Company
Address: 3 Ruedulac, Dallas, Texas
OFFICERS
W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary (born 3/6/59)
Massachusetts Financial Services Company, Senior Vice President and Associate
General Counsel
JAMES O. YOST,* Assistant Treasurer (born 6/12/60)
Massachusetts Financial Services Company, Vice President
ELLEN M. MOYNIHAN,* Assistant Treasurer (born 11/13/57)
Massachusetts Financial Services Company, Vice President (since September
1996); Deloitte & Touche LLP, Senior Manager (until September 1996)
MARK E. BRADLEY,* Assistant Treasurer (born 11/23/59)
Massachusetts Financial Services Company, Vice President (since March 1997);
Putnam Investments, Vice President (from September 1994 until March 1997);
Ernst & Young, Senior Tax Manager (until September 1994)
- ----------
*"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 of MFS is
the investment adviser or distributor.
As of September 30, 1998, all Trustees and officers as a group owned less than
1% of each Fund, not including the following shares of the following funds,
representing the following percentage of the outstanding shares of such Fund,
owned by certain employee benefit plans of MFS of which Mr. Shames is a Trustee.
APPROXIMATE APPROXIMATE
NUMBER OF % OF
FUND SHARES OUTSTANDING SHARES
- ---- ----------- ------------------
Global Fund %
Emerging Markets Fund %
Mid Cap Fund %
Emerging Equities Fund %
International Equity Fund %
Each Fund pays the compensation of any Trustee who is not affiliated with the
Adviser (who will receive from $ to $ annually depending on
attendance at meetings, plus fees for meetings of special committees, such as
the Audit Committee).
<TABLE>
TRUSTEE COMPENSATION TABLE
<CAPTION>
TRUSTEE FEES
FROM EACH
OF THE
CORE FIXED
INCOME
FUND,
THE HIGH TRUSTEE FEES
TRUSTEE FEES TRUSTEE FEES YIELD FUND, FROM EACH
FROM EACH FROM EACH THE CORE OF THE TOTAL
OF THE OF THE EQUITY FUND RESEARCH TRUSTEE
GLOBAL FUND EMERGING AND THE FUND FEES FROM
AND THE MARKETS FUND AGGRESSIVE AND THE TRUST AND
EMERGING AND THE GROWTH INTERNATIONAL FUND
NAME OF TRUSTEE EQUITIES FUND(1) MID CAP FUND(1) FUND(1) EQUITY FUND(1) COMPLEX(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jeffrey L. Shames $ 0 $ 0 $ 0 $ 0 $ 0
Nelson J. Darling, Jr. 2,500 2,500 0 625 25,133
William R. Gutow 2,500 2,500 0 625 25,133
</TABLE>
(1) For fiscal year ended June 30, 1998.
(2) For calendar year ended December 31, 1997. All Trustees receiving
compensation served as Trustees of -- funds advised by MFS (having
aggregate net assets at December 31, 1997 of approximately $ million).
As of September 30, 1998, the following shareholders owned more than 5% of the
outstanding shares of the Funds indicated:
APPROXIMATE APPROXIMATE
NUMBER OF % OF OUTSTANDING
FUND SHAREHOLDER SHARES OWNED SHARES OWNED
---- ----------- ------------ ----------------
Core Fixed MFS Attn: Robert Blake, %
Income Fund 20th Floor, 500 Boylston
St., Boston, MA
Core Fixed MFS Service Center Inc., %
Income Fund Audit Account Reinvest,
Corporate Actions, 20th
Floor, Attn: Harry
Thompson, 500 Boylston,
Boston, MA 02116
Core Fixed MFS Service Center, Inc., %
Income Fund Audit Account Corporate
Actions, 20th Floor, Attn:
Harry Thompson, 500
Boylston, Boston, MA
Global Fund Common Balanced Fund of %
the Joint Investment Trust
of Christian Church
Foundation, Inc., P.O. Box
1986, Indianapolis, IN
46206-1986
Global Fund Berklee College of Music, %
Inc., Endowment Fund, 1140
Boylston Street, Boston,
MA
Global Fund The Defined Benefit Plan, %
Cooperative Banks
Employees Retirement
Association, 1 Edgewater
Drive, Norwood, MA
Global Fund Boat & Co., P.O. Box %
14737, St. Louis, MO
Global Fund State Street Bank and %
Trust Company, Trustee
under Palmer & Dodge
Qualified Plans,
Batterymarch Park, Three
Pine Hill Drive, Quincy,
MA
Global Fund Trustees of the MFS %
Pension Plan, c/o Mark
Leary, MFS, 500 Boylston
Street, Boston, MA
Global Fund The Archdiocesan Joint %
Perpetual Care Fund, 1011
First Avenue, New York, NY
Emerging Markets Trustees of the MFS %
Fund Pension Plan, c/o Mark
Leary, MFS, 500 Boylston
St., Boston, MA
Emerging Markets MFD, Attn: Thomas %
Fund Hastings, 500 Boylston
St., Boston, MA
Emerging Trustees of the MFS %
Markets Defined Contribution Plan,
Fund c/o Mark Leary, MFS, 500
Boylston Street, Boston,
MA
Research Fund Boston Safe Deposit & %
Trust Company, Trustee of
the Eastman Kodak
Employees Savings &
Retirement Plan, 1 Cabot
Road, Medford, MA
02155-5141
Research Fund Boston Safe Deposit & %
Trust Co., Trustee for the
TWA Pilots DAP 401K Plan,
Attn: Cathey Milley, 1
Cabot Road, Medford, MA
Research Fund Colonial Gas Company, %
Pension Plan, 40 Market
Street, Lowell, MA
01852-1806
Research Fund Jupiter & Co., c/o %
Investors Bank & Trust,
P.O. Box 9130-FPG90,
Boston, MA 02117-9130
Mid Cap Fund Depauw University, %
313 S. Locust St.,
Greencastle, IN
Mid Cap Fund Trustees of the MFS %
Pension Plan, c/o Carman
Patti, MFS, 500 Boylston
St., Boston, MA
Mid Cap Fund Woodberry Forest School, %
Attn: Treasurer, One
Walker Drive, 10 Woodberry
Station, Woodberry Forest,
VA 22989-0010
Mid Cap Fund University of Redlands %
Endowment Fund, 1200 E
Colton Avenue, P.O. Box
3080, Redlands, CA
92373-0999
Mid Cap Fund The Childrens Hospital of %
Philadelphia Pension Fund,
34th Civic Center Blvd.,
Philadelphia, PA
19104-4303
Emerging Norwest Bank Minnesota, %
Equities Fund N.A., Trustee, Rosemont,
Inc., Master Investment
Trust, 733 Marquette Ave.,
Minneapolis, MN
Emerging Northern Trust Co., %
Equities Fund Trustee, FBO American
Brands 401K Plan, P.O. Box
92956, Chicago, IL
Emerging Norwest Bank North Dakota, %
Equities Fund N.A., Trustee, Dakota
Clinic Ltd. Retirement
Plan, 406 Main Avenue,
Fargo, ND
Emerging ICMA Retirement Trust, 777 %
Equities Fund North Capitol Street NE,
Washington, DC
Emerging Boston Safe Deposit and %
Equities Fund Trust Co. as Trustee for
the TWA Pilots DAP/401K
Plan, Attn:
Loretta Accolla, 1 Cabot
Road, Medford, MA 02155
International Trustees of the MFS %
Equity Fund Pension Plan, c/o Mark
Leary, MFS, 500 Boylston
St., Boston, MA
International Trustees of the MFS %
Equity Fund Defined Contribution Plan,
c/o Mark Leary, MFS, 500
Boylston St., Boston, MA
International The Cay-Ber Fund, 21 Reid %
Equity Fund Street, Hamilton, Bermuda
HM11
International Bost & Co., Mellon Bank %
Equity Fund NA, Attn: Mutual Funds
Dept., P.O. Box 3198,
Pittsburgh, PA
International Bost & Co., Mellon Bank %
Equity Fund NA, Attn: Mutual Funds
Dept., P.O. Box 3198,
Pittsburgh, PA
The Trust's 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 by a court or other body
approving the settlement or other disposition, or by a reasonable
determination based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers and Trustees 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 subsidiary of Sun Life of Canada (U.S.) Financial
Services Holdings, Inc., which in turn is an indirect wholly owned subsidiary
of Sun Life Assurance Company of Canada ("Sun Life"). The Prospectus contains
information with respect to the management of the Adviser and other investment
companies for which MFS serves as investment adviser.
The Adviser manages the assets of the Global Fund and the Emerging Equities
Fund pursuant to Investment Advisory Agreements dated August 7, 1992,
respectively, the Emerging Markets Fund pursuant to an Investment Advisory
Agreement dated August 1, 1995; each of the Core Fixed Income Fund, the
Research Fund, the Mid Cap Fund and the International Equity Fund pursuant to
an Investment Advisory Agreement dated November 30, 1995; and each of the High
Yield Fund, the Core Equity Fund and the Aggressive Growth Fund pursuant to
separate Investment Advisory Agreements, each dated October 29, 1998
(collectively, the "Advisory Agreements"). Under the Advisory Agreements, the
Adviser provides each Fund with overall investment advisory services. Subject
to such policies as the Trustees may determine, the Adviser makes investment
decisions for each Fund. For these services and facilities, the Adviser
receives a management fee computed and paid monthly equal on an annualized
basis to 0.45% of the Core Fixed Income Fund's average daily net assets, 0.65%
of the Global Fund's average daily net assets, 0.50% of the High Yield Fund's
average daily net assets, 0.85% of the Emerging Markets Fund's average daily
net assets, 0.60% of the Core Equity Fund's average daily net assets, 0.60% of
the Research Fund's average daily net assets, 0.75% of the Aggressive Growth
Fund's average daily net assets, 0.60% of the Mid Cap Fund's average daily net
assets, 0.75% of the Emerging Equities Fund's average daily net assets and
0.75% of the International Equity Fund's average daily net assets. The Adviser
had voluntarily reduced the management fee for certain Funds prior to June 30,
1998.
For the Trusts fiscal year ended June 30, 1998, 1997 and 1996, MFS received
the following aggregate fees and MFS waived the following fees, in whole or in
part, for the same periods:
For the fiscal year ended June 30, 1998:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND(1) MFS(2) MFS
- ------- ------------ -------------
Global Fund $ $
Emerging Markets Fund
Research Fund
Mid Cap Growth Fund
Emerging Equities Fund
International Equity Fund
(1) The Core Fixed Income Fund, the High Yield Fund, the Core Equity Fund and
the Aggressive Growth Fund had not commenced investment operations prior
to June 30, 1998.
(2) After any applicable fee limitation.
For the fiscal year ended June 30, 1997:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND(1) MFS(2) MFS
- ------- ------------ -------------
Global Fund $ 219,146 $207,260
Emerging Markets Fund 3,078 36,879
Research Fund 94,822 62,070
Mid Cap Growth Fund 41,127 50,187
Emerging Equities Fund 2,017,430 272,053
International Equity Fund 0 31,898
(1) The Core Fixed Income Fund, the High Yield Fund, the Core Equity Fund and
the Aggressive Growth Fund had not commenced investment operations prior
to June 30, 1997.
(2) After any applicable fee limitation.
For the fiscal year ended June 30, 1996:
ADVISORY FEES ADVISORY FEES
RECEIVED BY WAIVED BY
FUND(1) MFS(2) MFS
- ------- ------------ -------------
Global Fund $ 241,940 $210,968
Emerging Markets Fund(3) 0 20,043
Research Fund(4) 0 14,286
Mid Cap Growth Fund(5) 0 14,827
Emerging Equities Fund 1,175,336 211,515
International Equity Fund(6) 0 7,030
(1) The Core Fixed Income Fund, the High Yield Fund, the Core Equity Fund and
the Aggressive Growth Fund had not commenced investment operations prior
to June 30, 1996.
(2) After any applicable fee limitation.
(3) For the period from the commencement of investment operations on August 7,
1995 to June 30, 1996.
(4) For the period from the commencement of investment operations on May 21,
1996 to June 30, 1996.
(5) For the period from the commencement of investment operation on December
28, 1995, to June 30, 1996.
(6) For the period from the commencement of investment operations on January
31, 1996, to June 30, 1996.
MFS pays the compensation of the Trust's officers and any Trustee who is
affiliated with the Adviser. 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 each Fund's investments, effecting each
Fund's portfolio transactions.
The Advisory Agreements of the Core Fixed Income Fund, the Global Fund, the
Emerging Markets Fund, the Research Fund, the Mid Cap Fund, the Emerging
Equities Fund and the International Equity Fund will remain in effect until
August 1, 1999. The Advisory Agreements of the High Yield Fund, the Core
Equity Fund and the Aggressive Growth Fund will remain in effect until August
1, 2000. Each Agreement 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 each Fund's outstanding voting securities
(as defined in "Investment Policies and Restrictions -- Investment
Restrictions") and, in either case, by a majority of the Trustees who are not
parties to the Advisory Agreements or interested persons of any such party.
Each Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of each Fund's outstanding
voting securities (as defined in "Investment Policies and Restrictions --
Investment Restrictions") or by either party on not more than 60 days' nor
less than 30 days' written notice. Each Advisory Agreement further provides
that MFS may render services to others. Each 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 each 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 Agreements.
ADMINISTRATOR
MFS provides each Fund with certain financial, legal, compliance, shareholder
communications and other administrative services pursuant to a Master
Administrative Services Agreement dated March 1, 1997, as amended. Under this
Agreement, each Fund pays MFS an administrative fee up to 0.015% per annum of
such Fund's average daily net assets. This fee reimburses MFS for a portion of
the costs it incurs to provide such services. MFS received the following fees
under the Agreement for each respective Fund:
FOR THE YEAR FOR THE PERIOD
ENDED MARCH 1, 1997 TO
FUND(1) JUNE 30, 1998 JUNE 30, 1997
- ------- ------------- -----------------
Global Fund $ 3,164
Emerging Markets Fund 250
Research Fund 1,531
Mid Cap Fund 684
Emerging Equities Fund 15,556
International Equity Fund 27
(1) The Core Fixed Income Fund, the High Yield Fund, the Core Equity Fund and
the Aggressive Growth Fund had not commenced investment operations prior
to June 30, 1998.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of each
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling each Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on
each 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 shares of each Fund. The Custodian does not determine
the investment policies of each Fund or decide which securities each Fund will
buy or sell. Each Fund may, however, invest in securities, including
repurchase agreements, issued by the Custodian and may deal with the Custodian
as principal in securities transactions. The Custodian also acts as the
dividend disbursing agent of each Fund.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Trust's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated November 30, 1995 (the "Agency
Agreement"). The Shareholder Servicing Agent's responsibilities under the
Agency Agreement include administering and performing transfer agent functions
and keeping records in connection with the issuance, transfer and redemption
of the shares of each Fund. For these services, the Shareholder Servicing
Agent will receive a fee up to 0.1125% per annum of each Fund's average daily
net assets. In addition, the Shareholder Servicing Agent will be reimbursed by
each 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 each Fund, has contracted with the
Shareholder Servicing Agent to perform certain dividend disbursing agent
functions for each Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as the distributor for the
continuous offering of shares of the Trust pursuant to a Distribution
Agreement dated as of June 15, 1994 (the "Distribution Agreement").
The Distribution Agreement will remain in effect until August 1, 1999 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 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.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE
COMMISSIONS
Specific decisions to purchase or sell securities for the Funds are made by
employees of the Adviser who are appointed and supervised by its senior
officers. Changes in each Fund's investments are reviewed by its Board of
Trustees. Each Fund's portfolio manager or management committee may serve
other clients of the Adviser or any subsidiary of the Adviser in a similar
capacity.
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 may, as authorized by each 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 Conduct Rules 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 Trust and of the other investment company clients of MFD, the
principal underwriter of certain funds in the MFS Family of Funds (the "MFS
Funds"), as a factor in the selection of broker-dealers to execute the Trust's
portfolio transactions.
Under the Advisory Agreements and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause a 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 a 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 a 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 through such broker-dealers, but at present, unless
otherwise directed by a Fund, a commission higher than one charged elsewhere
will not be paid to such a firm solely because it provided such Research. The
Trustees of the Trust (together with the Trustees of the other MFS Funds) have
directed the Adviser to allocate a total of $39,355 of commission business
from the MFS Funds to Pershing Division of Donaldson, Luftkin & Jenrette as
consideration for the annual renewal of certain publications provided by
Lipper Analytical Securities Corporation (which provides information useful to
the Trustees in reviewing the relationship between each Fund and the Adviser).
In certain instances there may be securities which are suitable for a 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 a 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 a Fund is concerned. In other cases, however, the
Adviser believes that a Fund's ability to participate in volume transactions
will produce better executions for the Fund.
For the period ended June 30, 1998, the following Funds paid total brokerage
commissions on total transactions as follows:
TOTAL TOTAL
COMMISSIONS TRANSACTIONS
----------- ------------
Research Fund
Mid Cap Fund
Emerging Equities Fund $ $
International Equity Fund
For the period ended June 30, 1997, the following Funds paid total brokerage
commissions on total transactions as follows:
TOTAL TOTAL
COMMISSIONS TRANSACTIONS
----------- ------------
Research Fund 65,219 45,955,123
Mid Cap Fund 45,976 26,713,939
Emerging Equities Fund $603,375 $303,420,860
International Equity Fund 40,001 11,438,228
For the period ended June 30, 1996, the following Funds paid total brokerage
commissions on total transactions as follows:
TOTAL TOTAL
COMMISSIONS TRANSACTIONS
----------- ------------
Research Fund 28,468 18,323,484
Mid Cap Fund 6,525 4,320,341
Emerging Equities Fund $289,407 $173,945,262
International Equity Fund 11,367 2,526,195
During the fiscal year ended June 30, 1998, the Global Fund and the Emerging
Equities Fund acquired and owned securities issued by
, an affiliate of a regular broker-dealer of such funds, in the amount of
$ and $ , respectively. During the fiscal year ended June 30,
1998, the Research Fund acquired and owned securities issued by
, a regular broker-dealer of the Fund, in the amount of
$ .
5. TAX STATUS
Each Fund intends to elect or has elected to be treated and intends to qualify
each year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (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 of the Fund's portfolio assets. Because each 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 any Fund will be required to pay any federal income or
excise taxes, although a Fund's foreign-source income may be subject to
foreign withholding taxes. However, a Fund will be subject to a non-deductible
4% excise tax to the extent it fails to distribute by the end of any calendar
year substantially all of its ordinary income for that year plus its capital
gain net income for the one-year period ending on October 31 of that year,
plus certain other amounts. If a Fund should fail to qualify as a "regulated
investment company" in any year, that 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.
Shareholders of each Fund that are not tax-exempt entities 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 are
taxable to each Fund's non tax-exempt shareholders as ordinary income for
federal income tax purposes, whether the distributions are paid in cash or
reinvested in additional shares. Because the Core Fixed Income Fund, Global
Fund, High Yield Fund and Emerging Markets Fund expect to earn primarily
interest income, it is expected that none of that Fund's dividends will
qualify for the dividends received deduction for corporations. A portion of
the ordinary income dividends paid by each of the Core Equity Fund, Research
Fund, Aggressive Growth Fund and Mid Cap Fund, Emerging Equities Fund,
International Equity Fund 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 gain
(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 each Fund's shareholders as long-term capital gains for federal income tax
purposes without regard to the length of time the shareholders have held their
shares. Such capital gains will generally be taxable to shareholders as if the
shareholders had directly realized gains from the same sources from which they
were realized by the Fund. Any Fund dividend that is declared in October,
November or December of any calendar year, that is payable to shareholders of
record in such a month, and that is paid the following January, will be
treated as if received by the shareholders on December 31 of the year in which
the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the paying Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
a 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; a
long-term capital gain realized by an individual, estate or trust may be
eligible for reduced tax rates if the shares were held for more than 18
months. However, any loss realized upon a disposition of shares in a 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.
Each 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. Any
investment in zero coupon bonds, deferred interest bonds, payment-in-kind
bonds, certain stripped securities and certain securities purchased at a
market discount will cause a Fund to recognize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Fund, that 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. Any
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.
Any Fund's transactions in options, Futures Contracts, Forward Contracts,
short sales "against the box" and swaps and related transactions 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 a Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if closed out) on that day, and any gain or
loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by a 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. Each Fund will limit its activities in options, Futures Contracts,
Forward Contracts, short sales "against the box" 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 a
Fund. Foreign exchange gains and losses realized by a Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for
nonhedging purposes and investment by a Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on that Fund. A
Fund may elect to mark to market any investments in "passive foreign
investment companies" on the last day of each year. This election may cause a
Fund to recognize income prior to the receipt of cash payments with respect to
those investments; 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. Investment income received by a 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 which may entitle a Fund to a reduced rate of tax or an
exemption from tax on such income; the Funds intend to qualify for treaty
reduced rates where available. It is not possible, however, to determine a
Fund's effective rate of foreign tax in advance since the amount of each
Fund's assets to be invested within various countries is not known. If a Fund
holds more than 50% of its assets in foreign stock and securities at the close
of its taxable year, the Fund may elect to "pass through" to that 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 includible 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 (subject to such limitations) be able to claim a credit but not a
deduction. No deduction will be permitted to individuals in computing their
alternative minimum tax liability. If a Fund does not qualify or elect to
"pass through" to its shareholders foreign income taxes paid by it, its
shareholders will not be able to claim any deduction or credit for any part of
the foreign taxes paid by that Fund.
Dividends and certain other payments to non-exempt 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 the rate of 30%.
Each Fund intends to withhold U.S. Federal income tax at the rate of 30% (or
any lower rate permitted under an applicable treaty) on taxable dividends and
other payments to Non-U.S. Persons that are subject to such withholding. 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 a Fund by Non-U.S.
Persons may also be subject to tax under the laws of their own jurisdictions.
Each 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.
As long as each Fund qualifies as a regulated investment company under the
Code, it will not be required to pay Massachusetts income or excise tax.
Distributions of a 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 income taxes. Each Fund
intends to advise individual shareholders of the extent, if any, to which its
distributions consist of such interest. Shareholders are urged to consult
their tax advisors 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 Funds.
The foregoing is only a general summary of some of the important Federal
income tax considerations generally affecting the Funds and their
shareholders. No attempt is made to present a complete explanation of the
Federal tax treatment of their activities, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors are
urged to consult their own tax advisers for more detailed information and for
information regarding any state, local or foreign taxes applicable to the
Funds and to dividends and other distributions therefrom.
6. DETERMINATION OF NET ASSET VALUE AND
PERFORMANCE
NET ASSET VALUE-- The net asset value of shares of each Fund is determined
each day during which the New York Stock Exchange (the "Exchange") is open for
trading. (As of the date of this SAI, such Exchange is open for trading every
week day except for the following holidays or the days on which they are
observed: New Year's Day; Martin Luther King Day, President's Day; Good
Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day.) This determination of net asset value of shares of a Fund is
made once during each such day as of the close of regular trading on such
Exchange by deducting the amount of the Fund's liabilities from the value of
its assets and dividing the difference by the number of its shares
outstanding. Bonds and other fixed income securities (other than short-term
obligations but including listed issues) in a 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 by the Board of Trustees to reflect the fair value of
such securities. Use of the pricing service has been approved by the Board of
Trustees. Forward Contracts will be valued using a pricing model taking into
consideration market data from an external pricing source. All other
securities, futures contracts and listed options in a 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
stock market 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
securities with a remaining maturity in excess of 60 days will be valued upon
dealer supplied valuations. Other short-term obligations 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.
Short-term obligations with a remaining maturity in excess of 60 days will be
valued based upon dealer supplied valuations. Other short-term obligations in
a 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 New York Stock
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 a
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, each
Fund's distributor, prior to the close of that business day.
TOTAL RATE OF RETURN: Each Fund will calculate its total rate of return for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (made at net asset
value with all distributions reinvested) to reach the value of that investment
at the end of the periods. Each Fund may also calculate total rates of return
which represent aggregate performance over a period or year-by-year
performance.
YIELD: Any yield quotation of a Fund is based on the annualized net investment
income per share of the Fund over a 30-day period. The yield for the Fund is
calculated by dividing the net investment income per share of the Fund earned
during the period by the net asset value per share of the Fund on the last day
of that period. The resulting figure is then annualized. Net investment income
per share is determined by dividing (i) the dividends and interest earned by
the Fund during the period, minus accrued expenses for the period, by (ii) the
average number of Fund shares entitled to receive dividends during the period
multiplied by the net asset value per share on the last day of the period.
PERFORMANCE INFORMATION: Any yield or total rate of return quotation provided
by a Fund should not be considered as representative of the performance of a
Fund in the future since the net asset value of shares of each Fund will vary
based not only on the type, quality and maturities of the securities held in a
Fund's portfolio, but also on changes in the current value of such securities
and on changes in the expenses of a 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 a
Fund to yields and total rates of return published for other investment
companies or other investment vehicles.
GENERAL: From time to time, each 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, and
similar or related matters.
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.
From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from
surveys, regarding individual and family financial planning. Such views may
include information regarding: retirement planning; tax management strategies;
estate planning; general investment techniques (e.g., asset allocation and
disciplined saving and investing); business succession; ideas and information
provided through the MFS Heritage Planning(sm) program, an intergenerational
financial planning assistance program; issues with respect to insurance (e.g.,
disability and life insurance and Medicare supplemental insurance); issues
regarding financial and health care management for elderly family members; and
other similar or related matters.
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 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 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(R) Union Standard(R) Equity Fund is the first fund to invest
solely 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.
7. 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) and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Trust. The
Trust presently has ten series and reserves the right to create and issue
additional series of shares. Each share of a series represents an equal
proportionate interest in that series with each other share of that series.
Shares of each series participate equally in the earnings, dividends and
assets of the particular series. Shares of each series vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shares of all series vote together in the election of Trustees or
selection of accountants. Should the Trust be liquidated, shareholders of each
series would be entitled to share pro rata in the net assets of their
respective series available for distribution to shareholders.
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. To the extent any Fund's shareholder owns a controlling
percentage of the Fund's shares, such shareholder may affect the outcome of
such matters to a greater extent than other Fund shareholders (see
"Description of Shares, Voting Rights and Liabilities" in the Prospectus).
Although Trustees are not elected annually by the shareholders, shareholders
have the right under certain circumstances to remove one or more Trustees. No
material amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the Trust's outstanding
shares (as defined in "Investment Policies and Restrictions -- Investment
Restrictions"). Shares have no pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable. The Trust may be terminated (i) upon
the merger or consolidation of the Trust with another organization or upon the
sale of all or substantially all of its assets, if approved by the vote of the
holders of two-thirds of the outstanding shares of the Trust, except that if
the Trustees recommend such merger, consolidation or sale, the approval by
vote of the holders of more than 50% of the outstanding shares will be
sufficient, (ii) upon liquidation and distribution of the assets of the Trust
or the Fund (as applicable), if approved by the holders of not less than two-
thirds of the outstanding shares of the Trust or the Fund (as applicable), or
(iii) by the Trustees by written notice to the Trust's shareholders or Fund
shareholders (as applicable). 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 the 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, its shareholders, Trustees, officers,
employees and agents covering possible tort and other liabilities. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate insurance
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.
8. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are each Fund's independent auditors providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
For each Fund the following documents, each of which is included in the Annual
Report to shareholders for each Fund, are incorporated by reference into this
SAI and have been so incorporated in reliance upon the report of Deloitte &
Touche LLP, independent auditors, as experts in accounting and auditing:
PERIOD COVERED
DOCUMENT FUND IN DOCUMENT
-------- ---- --------------
Portfolio of Investments Each Fund, except at June 30, 1998
the Core Fixed
Income Fund, the
High Yield Fund, the
Core Equity Fund and
the Aggressive
Growth Fund
Statement of Assets and Each Fund, except at June 30, 1998
Liabilities the Core Fixed
Income Fund, the
High Yield Fund, the
Core Equity Fund and
the Aggressive
Growth Fund
Statement of Operations Each Fund, except For the year ended June
the Core Fixed 30, 1998.
Income Fund, the
High Yield Fund, the
Core Equity Fund and
the Aggressive
Growth Fund
Statement of Changes in Each of the Global Each year in the two
Net Assets and the Emerging year period ended June
Equities Fund 30, 1998
Statement of Changes in Emerging Markets From the commencement of
Net Assets Fund investment operations
on August 7, 1995
through June 30, 1996
and the one year ended
June 30, 1997
Statement of Changes in Research Fund From the commencement of
Net Assets investment operations
on May 21, 1996
through June 30, 1996
and the one year ended
June 30, 1997
Statement of Changes in Mid Cap Fund From the commencement of
Net Assets investment operations
on December 28, 1995
through June 30, 1996
and the one year ended
June 30, 1997
Statement of Changes in International From the commencement of
Net Assets Equity Fund investment operations
on January 31, 1996
through June 30, 1996
and the one year ended
June 30, 1997
Statement of Operations Each of the Global For the two years ended
Fund and the June 30, 1997
Emerging
Equities Fund
Statement of Operations Emerging Markets From the commencement of
Fund investment operations
on August 7, 1995
through June 30, 1996
and the one year
period ended June 30,
1997
Statement of Operations Research Fund From the commencement of
investment operations
on May 21, 1996
through June 30, 1996
and the year ended
June 30, 1997
Statement of Operations Mid Cap Fund From the commencement of
investment operations
December 28, 1995
through June 30, 1996
and the year ended
June 30, 1997
Statement of Operations International From the commencement of
Equity Fund investment operations
on January 31, 1996
through June 30, 1996
and the year ended
June 30, 1997
Notes to the Financial Each Fund except the
Statements High Yield Fund, the
Core Equity Fund and
the Aggressive
Growth Fund
Independent Auditors' Report Each Fund except the
High Yield Fund, the
Core Equity Fund and
the Aggressive
Growth Fund
A copy of each Fund's Annual Report accompanies this SAI. As of the date of
this SAI, the Core Fixed Income Fund, the High Yield Fund, the Core Equity
Fund and the Aggressive Growth Fund had not yet commenced investment
operations.
<PAGE>
MFS(R) INSTITUTIONAL CORE FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
Assets:
Cash $ 110.00
Deferred organization expenses 17,600.00
----------
Total assets $17,710.00
Liabilities:
Accrued expenses 17,600.00
----------
Net assets for 11 shares of beneficial interest outstanding $ 110.00
==========
Net Asset Value, Redemption Price and Offering Price Per Share $ 10.00
==========
NOTES:
(1) The MFS Institutional Core Fixed Income Fund (the "Fund") was organized as
a business trust under the laws of The Commonwealth of Massachusetts. The
Fund is a part of the MFS Institutional Trust (the "Trust") which consists
of ten series of shares or funds. The Fund has been inactive except for
matters relating to its organization and registration as an investment
company under the Investment Company Act of 1940 and the sale of 11 shares
of beneficial interest (initial shares) to Massachusetts Financial
Services Company.
(2) Organizational expenses are being deferred and will be amortized over five
years beginning with the commencement of investment operations. The amount
paid by the Fund on any redemption by Massachusetts Financial Services
Company, or any current holder of any fund's initial shares, will be
reduced by the pro rata portion of any unamortized organizational expenses
which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Institutional Trust and Shareholders of MFS
Institutional Core Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Institutional Core Fixed Income Fund (one of the series comprising MFS
Institutional Trust) as of June 30, 1998. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit 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 are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit of the statement of assets
and liabilities provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of MFS Institutional Core Fixed
Income Fund at June 30, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 1, 1998
<PAGE>
APPENDIX A
PERFORMANCE QUOTATIONS
The performance quotations below should not be considered as representative of
the performance of the Funds in the future since the net asset value and
public offering price of shares of the Funds will vary. See "Determination of
Net Asset Value" and "Performance" in the SAI.
All performance quotations are as of June 30, 1998(1).
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURNS
---------------------------------- ACTUAL 30-DAY 30-DAY YIELD
LIFE OF YIELD (INCLUDING (WITHOUT ANY CURRENT
1 YEAR 5 YEAR FUND ANY WAIVERS) WAIVERS) DISTRIBUTION RATE
------ ------ ------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Global Fund ........................ % % %(2) % % %
Emerging Markets Fund .............. % N/A %(3) % % %
Research Fund ...................... % N/A %(4) N/A N/A %
Mid Cap Growth Fund ................ % N/A %(5) N/A N/A %
Emerging Equities Fund ............. % N/A %(6) N/A N/A %
International Equity Fund .......... % N/A %(7) N/A N/A %
</TABLE>
(1) As of the date of this SAI, the Core Fixed Income Fund, the High Yield
Fund, the Core Equity Fund and the Aggressive Growth Fund had not yet
commenced operations.
(2) For the period from the commencement of investment operations, September
30, 1992 to the fiscal year ended June 30, 1998.
(3) For the period from the commencement of investment operations, August 7,
1995 through the fiscal year ended June 30, 1998.
(4) For the period from the commencement of investment operations, May 21,
1996 through the fiscal year ended June 30, 1998.
(5) For the period from the commencement of investment operations, December
28, 1995 through the fiscal year ended June 30, 1998.
(6) For the period from the commencement of investment operations, June 16,
1993 through the fiscal year ended June 30, 1998.
(7) For the period from the commencement of investment operations, January 31,
1996 through the fiscal year ended June 30, 1998.
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
(800) 637-2262
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) 637-2262
MAILING ADDRESS:
P.O. Box 1400, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston MA 02110
MFS(R) INSTITUTIONAL CORE FIXED INCOME FUND
MFS(R) INSTITUTIONAL GLOBAL FIXED INCOME FUND
MFS(R) INSTITUTIONAL HIGH YIELD FUND
MFS(R) INSTITUTIONAL EMERGING MARKETS DEBT FUND
MFS(R) INSTITUTIONAL CORE EQUITY FUND
MFS(R) INSTITUTIONAL RESEARCH FUND
MFS(R) INSTITUTIONAL LARGE CAP AGGRESSIVE GROWTH FUND
MFS(R) INSTITUTIONAL MID CAP GROWTH FUND
MFS(R) INSTITUTIONAL EMERGING EQUITIES FUND
MFS(R) INSTITUTIONAL INTERNATIONAL EQUITY FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
11/97
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
MFS INSTITUTIONAL GLOBAL FIXED INCOME FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from September 30, 1992, commencement of
operations, through June 30, 1998:
Financial Highlights [to be provided]
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At June 30, 1998:
Portfolio of Investments*
Statement of Assets and Liabilities*
For each year in the two year period ended June 30, 1998:
Statement of Changes in Net Assets*
For the year ended June 30, 1998:
Statement of Operations*
MFS INSTITUTIONAL EMERGING MARKETS DEBT FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from August 7, 1995, commencement of
operations, through June 30, 1998:
Financial Highlights [to be provided]
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At June 30, 1998 [to be provided]:
Portfolio of Investments*
Statement of Assets and Liabilities*
For each year in the two-year period ended June 30, 1998:
Statement of Changes in Net Assets*
For the year ended June 30, 1998:
Statement of Operations*
<PAGE>
MFS INSTITUTIONAL RESEARCH FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from May 21, 1996, commencement of operations,
through June 30, 1998:
Financial Highlights [to be provided]
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At June 30, 1998 [to be provided]:
Portfolio of Investments**
Statement of Assets and Liabilities**
For each year in the two-year period ended June 30, 1998:
Statement of Changes in Net Assets**
For the year ended June 30, 1998:
Statement of Operations**
MFS INSTITUTIONAL MID CAP GROWTH FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from December 28, 1995, commencement of
operations, through June 30, 1998:
Financial Highlights [to be provided]
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At June 30, 1998:
Portfolio of Investments*
Statement of Assets and Liabilities*
For each year in the two-year period ended June 30, 1998:
Statement of Changes in Net Assets*
For the year ended June 30, 1998:
Statement of Operations*
MFS INSTITUTIONAL EMERGING EQUITIES FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from June 16, 1993, commencement of
operations, through June 30, 1998:
Financial Highlights [to be provided]
<PAGE>
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At June 30, 1998:
Portfolio of Investments*
Statement of Assets and Liabilities*
For each year in the two year period ended June 30, 1998:
Statement of Changes in Net Assets*
For the year ended June 30, 1998:
Statement of Operations*
MFS INSTITUTIONAL INTERNATIONAL EQUITY FUND
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the period from January 31, 1996, commencement of
operations, through June 30, 1998:
Financial Highlights [to be provided]
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At June 30, 1998:
Portfolio of Investments**
Statement of Assets and Liabilities**
For each year in the two-year period ended June 30, 1998:
Statement of Operations**
For the year ended June 30, 1998:
Statement of Changes in Net Assets**
- ----------
* Incorporated herein by reference to the Fund's Annual Report to Shareholders,
filed with the SEC via EDGAR on or before September 8, 1998.
** Incorporated hereby by reference to the Fund's Annual Report to Shareholders,
filed with the SEC via EDGAR on or before September 8, 1998.
(b) EXHIBITS ON BEHALF OF MFS INSTITUTIONAL TRUST
1 (a) Declaration of Trust, dated September 13, 1990. (1)
(b) Certificate of Amendment to Declaration of Trust,
dated June 1, 1992. (1)
(c) Amendment No. 2 to the Declaration of Trust, dated
August 13, 1992. (1)
(d) Amendment to Declaration of Trust - Designation of
Series, dated May 16, 1995. (1)
(e) Amendment to Declaration of Trust - Designation of
Series, dated August 29, 1995. (2)
(f) Amendment to Declaration of Trust - Redesignation of
Series, dated October 31, 1995. (7)
(g) Amendment to Declaration of Trust - Redesignation of
Series, dated November 28, 1995. (7)
(h) Amendment to Declaration of Trust - Redesignation of
Series, dated April 24, 1996. (8)
(i) Amendment to the Declaration of Trust -
Redesignation of Shares. (11)
(j) Form of Amendment to the Declaration of Trust
Establishment and Designation of Series; filed herewith.
2 (a) Amended and Restated By-Laws, dated June 1, 1992. (5)
(b) Amendment No. 1 to Amended and Restated By-Laws,
dated October 14, 1993. (5)
3 Not Applicable.
4 Form of Share Certificate. (4)
5 (a) Investment Advisory Agreement between MFS Emerging
Equities Fund and Massachusetts Financial Services
Company, as adviser, dated August 7, 1992. (5)
(b) Investment Advisory Agreement between MFS Worldwide
Fixed Income Fund and Massachusetts Financial Services
Company, as adviser, dated August 7, 1992. (5)
(c) Investment Advisory Agreement between the Registrant, on
behalf of MFS Institutional Emerging Markets Fixed
Income Fund, and Massachusetts Financial Services
Company, as adviser, dated June 26, 1995. (1)
(d) Investment Advisory Agreement between the Registrant, on
behalf of MFS Institutional Core Plus Fixed Income Fund,
and Massachusetts Financial Services Company, as
adviser, dated November 30, 1995. (7)
(e) Investment Advisory Agreement between the Registrant, on
behalf of MFS Institutional Research Fund, and
Massachusetts Financial Services Company, as adviser,
dated November 30, 1995. (7)
(f) Investment Advisory Agreement between the Registrant, on
behalf of MFS Institutional Mid-Cap Growth Equity Fund,
and Massachusetts Financial Services Company, as
adviser, dated November 30, 1995. (7)
(g) Investment Advisory Agreement between the Registrant, on
behalf of MFS Institutional International Equity Fund,
and Massachusetts Financial Services Company, as
adviser, dated November 30, 1995. (7)
(h) Form of Investment Advisory Agreement between
Registrant, on behalf of MFS Institutional Core Equity
Fund and Massachusetts Financial Services Company, as
adviser, dated October 29, 1998; filed herewith.
(i) Form of Investment Advisory Agreement between
Registrant, on behalf of MFS Institutional High Yield
Fund and Massachusetts Financial Services Company, as
adviser, dated October 29, 1998; filed herewith.
(j) Form of Investment Advisory Agreement between
Registrant, on behalf of MFS Institutional Large Cap
Aggressive Growth Fund and Massachusetts Financial
Services Company, as adviser, dated October 29, 1998;
filed herewith.
6 Distribution Agreement by and between MFS Institutional
Trust and MFS Fund Distributors, Inc., dated June 15,
1994. (5)
7 Not Applicable.
8 (a) Custodian Agreement between the Registrant and State
Street Bank and Trust Company, dated July 31, 1995. (2)
(b) Amendment to Custodian Contract dated November 30,
1995. (7)
9 (a) Amended and Restated Shareholder Servicing Agent
Agreement between Registrant and MFS Service Center,
Inc. as Shareholder Servicing Agent dated November
30, 1995. (7)
(b) Exchange Privilege Agreement between the MFS
Institutional Trust, on behalf of each of its series,
and MFS Fund Distributors, Inc., dated July 26, 1995.
(7)
(c) Dividend Disbursing Agency Agreement between the
Registrant and State Street Bank and Trust Company,
dated October 31, 1990. (5)
(d) 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. (6)
(e) Third Amendment dated February 14, 1997 to the Loan
Agreement dated February 21, 1995 by and among the Banks
named therein and the First National Bank of Boston. (9)
(f) Master Administrative Services Agreement, dated March 1,
1997, as amended. (10)
10 Opinion and Consent of Counsel. (12)
11 Consent of Deloitte & Touche LLP; [to be provided].
12 Not Applicable.
13 (a) Investment representation letter from initial
shareholder of MFS Institutional Emerging Markets
Fixed Income Fund. (1)
14 Not Applicable.
15 Not Applicable.
16 Schedule of Computation for Performance Quotations
Aggregate Total Rate of Return, Average Annual Total
Rate of Return and Yield Calculations. (3)
17 Financial Data Schedules; [to be provided].
18 Not Applicable.
Power of Attorney dated August 12, 1994. (5)
Power of Attorney dated February 19, 1998; filed herewith.
- ----------
(1) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on May 18, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 8 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on September 15, 1995.
(3) 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.
(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 Post-Effective Amendment No. 9 filed with the
SEC via EDGAR on October 27, 1995.
(6) Incorporated by reference to Post-Effective Amendment No. 28 on Form N-2
for MFS Municipal Income Trust (File No. 811-4841), filed with the SEC via
EDGAR on February 28, 1995.
(7) Incorporated by reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on February 8, 1996.
(8) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on April 26, 1996.
(9) Incorporated by reference to MFS Series Trust I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 28 filed with the SEC via EDGAR on
June 26, 1997.
(10) Incorporated by reference to Massachusetts Investors Growth Stock Fund
(File Nos. 2-14677 and 811-859) Post-Effective Amendment No. 64 filed with
the SEC via EDGAR on October 29, 1997.
(11) Incorporated by reference to Registrant's Post-Effective Amendment No. 15
filed with the SEC via EDGAR on October 28, 1997.
(12) Incorporated by reference to Post-Effective Amendment 15 to the
Registrant's Registration Statement on Form N-1A filed with the SEC via
EDGAR on October 28, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable
Item 26. Number of Holders of Securities
MFS Institutional Core Fixed Income Fund
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 3
(without par value) (as of June 30, 1998)
MFS Institutional Global Fixed Income Fund
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 8
(without par value) (as of June 30, 1998)
MFS Institutional Emerging Markets Debt Fund
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 10
(without par value) (as of June 30, 1998)
MFS Institutional Research Fund
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 16
(without par value) (as of June 30, 1998)
MFS Institutional Mid Cap Growth Fund
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 11
(without par value) (as of June 30, 1998)
MFS Institutional International Equity Fund
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 10
(without par value) (as of June 30, 1998)
MFS Institutional Emerging Equities Fund
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 41
(without par value) (as of June 30, 1998)
Item 27. Indemnification
Article V of the Registrant's Declaration of Trust provides that the
Registrant will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust, unless as to liabilities to the
Registrant or its shareholders, it is finally adjudicated that they engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or with respect to any matter unless it is
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interest of the Registrant. In the case of a
settlement, such indemnification will not be provided unless it has been
determined in accordance with the Declaration of Trust that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, 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 (except the Vertex Funds mentioned below):
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 thirteen series: MFS
Managed Sectors Fund, MFS Cash Reserve Fund, MFS World Asset Allocation Fund,
MFS Strategic Growth Fund, MFS Research Growth and Income Fund, MFS Core Growth
Fund, MFS Equity Income Fund, MFS Special Opportunities Fund, MFS Convertible
Securities Fund, MFS Blue Chip Fund, MFS New Discovery Fund, MFS Science and
Technology Fund and MFS Research International Fund), MFS Series Trust II (which
has three series: MFS Emerging Growth Fund, MFS Large Cap Growth Fund and MFS
Intermediate Income 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 Mid Cap Growth Fund), MFS Series Trust V (which has
six series: MFS Total Return Fund, MFS Research Fund, MFS International
Opportunities Fund, MFS International Strategic Growth Fund, MFS International
Value Fund and MFS Asia Pacific 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 eight series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS
International Growth Fund, MFS International Growth and Income Fund, MFS Real
Estate Investment Fund, MFS Strategic Value Fund, MFS Small Cap Value Fund and
MFS Emerging Markets Debt Fund), MFS Series Trust XI (which has six series: MFS
Union Standard Equity Fund, Vertex All Cap Fund, Vertex Research All Cap Fund,
Vertex Growth Fund, Vertex Discovery Fund and Vertex Contrarian Fund (the Vertex
Funds are expected to be declared effective April 28, 1998)), and MFS Municipal
Series Trust (which has 16 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 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 Virginia 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 MFS Funds is 500 Boylston Street,
Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following open-end
Funds: MFS Institutional Trust ("MFSIT") (which has seven series) and MFS
Variable Insurance Trust ("MVI") (which has thirteen 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 MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series
Trust ("MFS/SL") (which has 26 series), 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 (collectively, the
"Accounts"). The principal business address of MFS/SL is 500 Boylston Street,
Boston, Massachusetts 02116. The principal business address of each of the
aforementioned Accounts is One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181.
Vertex Investment Management, Inc., a Delaware corporation and a
wholly owned subsidiary of MFS, whose principal business address is 500 Boylston
Street, Boston, Massachusetts 02116 ("Vertex"), serves as investment adviser to
Vertex All Cap Fund, Vertex Research All Cap Fund, Vertex Growth Fund, Vertex
Discovery Fund and Vertex Contrarian Fund, each a series of MFS Series Trust XI.
The principal business address of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of Bermuda and a subsidiary of MFS, whose principal
business address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves
as investment adviser to and distributor for MFS American Funds (which has six
portfolios: MFS American Funds-U.S. Equity Fund, MFS American Funds-U.S.
Emerging Growth Fund, MFS American Funds-U.S. High Yield Bond Fund, MFS American
Funds - U.S. Dollar Reserve Fund, MFS American Funds-Charter Income Fund and MFS
American Funds-U.S. Research 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 Governments 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, MFS Meridian Research Fund, MFS
Meridian U.S. High Yield Fund, MFS Meridian Emerging Markets Debt Fund, MFS
Meridian Strategic Growth Fund and MFS Meridian World Asset Allocation 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 Institutional Advisors (Australia) Ltd. ("MFSI-Australia"), a
private limited company organized under the Corporations Law of New South Wales,
Australia whose current address is Level 37, Governor Phillip Tower, One Farrer
Place, Sydney, N5W2000, Australia, is involved primarily in investment
management and distribution of Australian superannuation unit trusts and acts as
an investment adviser to institutional accounts.
MFS Holdings Australia Pty Ltd. ("MFS Holdings Australia"), a
private limited company organized pursuant to the Corporations Law of New South
Wales, Australia whose current address is Level 37, Governor Phillip Tower, One
Farrer Place, Sydney, NSW2000 Australia, and whose function is to serve
primarily as a holding company.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of
MFS, serves as distributor for the MFS Funds, MVI and MFSIT.
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 and MVI.
MFS Institutional Advisors, Inc. ("MFSI"), 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 Jeffrey L. Shames, Arnold D. Scott, John
W. Ballen, Donald A. Stewart and John D. McNeil. Mr. Shames is the Chairman
and Chief Executive Officer, Mr. Ballen is President and Chief Investment
Officer, Mr. Scott is a Senior Executive Vice President and Secretary,
William W. Scott, Jr., Thomas J. Cashman, Jr., Joseph W. Dello Russo and
Kevin R. Parke are Executive Vice Presidents (Mr. Parke is also Chief Equity
Officer), Stephen E. Cavan is a Senior Vice President, General Counsel and an
Assistant Secretary, Robert T. Burns is a Senior Vice President, Associate
General Counsel and an Assistant Secretary of MFS, and Thomas B. Hastings is
a Vice President and Treasurer of MFS.
<PAGE>
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
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley, Vice
Presidents of MFS, are the Assistant Treasurers, James R. Bordewick, Jr.,
Senior Vice President and Associate General Counsel of MFS, is the Assistant
Secretary.
MFS Series Trust II
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, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Government Markets Income Trust
MFS Intermediate Income Trust
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, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Series Trust III
James T. Swanson, Robert J. Manning and Joan S. Batchelder,
Senior Vice Presidents of MFS, and Bernard Scozzafava, Vice President of MFS,
are Vice Presidents, Sheila Burns-Magnan, Assistant Vice President of MFS,
and Daniel E. McManus, Vice President of MFS, are Assistant Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James
O. Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers,
and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Series Trust IV
MFS Series Trust IX
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, Ellen M. Moynihan and Mark E. Bradley
are the Assistant Treasurers and James R. Bordewick, Jr. is the Assistant
Secretary.
<PAGE>
MFS Series Trust VII
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, Ellen M. Moynihan and Mark E. Bradley
are the Assistant Treasurers and James R. Bordewick, Jr. is the Assistant
Secretary.
MFS Series Trust VIII
Jeffrey L. Shames, Leslie J. Nanberg and James T. Swanson and
John D. Laupheimer, Jr., a Senior Vice President of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James
O. Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers
and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Municipal Series Trust
Robert A. Dennis is Vice President, David B. Smith and Geoffrey
L. Schechter, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Vice President of MFS, is an Assistant Vice President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS Variable Insurance Trust
MFS Series Trust XI
MFS Institutional Trust
Jeffrey L. Shames is the President and Chairman, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS Municipal Income Trust
Robert J. Manning is Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS Multimarket Income Trust
MFS Charter Income Trust
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, Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers
and James R. Bordewick, Jr. is the Assistant Secretary.
<PAGE>
MFS Special Value Trust
Robert J. Manning is Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS/Sun Life Series Trust
John D. McNeil, Chairman and Director of Sun Life Assurance
Company of Canada, is the Chairman, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is the
Assistant Secretary.
Money Market Variable Account
High Yield Variable Account
Capital Appreciation Variable Account
Government Securities Variable Account
Total Return Variable Account
World Governments Variable Account
Managed Sectors Variable Account
John D. McNeil is the Chairman, Stephen E. Cavan is the
Secretary, and James R. Bordewick, Jr. is the Assistant Secretary.
Vertex
Jeffrey L. Shames and Arnold D. Scott are the Directors, Jeffrey
L. Shames is the President, Kevin R. Parke and John W. Ballen are Executive
Vice Presidents, John F. Brennan, Jr., and John D. Laupheimer are Senior Vice
Presidents, Brian E. Stack is a 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.
MIL
Arnold D. Scott, Jeffrey L. Shames and Thomas J. Cashman, Jr. are
Directors, Stephen E. Cavan is a Director, Senior Vice President and the
Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo,
Executive Vice President and Chief Financial Officer of MFS, is the Treasurer
and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
Thomas J. Cashman, Jr. is President and a Director, Arnold D.
Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is a Director and
the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is
the Assistant Treasurer and Robert T. Burns is the Assistant Secretary.
<PAGE>
MFSI - Australia
Thomas J. Cashman, Jr. is President and a Director, Graham E.
Lenzer, John A. Gee and David Adiseshan are Directors, Stephen E. Cavan is
the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is
the Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.
MFS Holdings - Australia
Jeffrey L. Shames is the President and a Director, Arnold D.
Scott, Thomas J. Cashman, Jr., and Graham E. Lenzer are Directors, Stephen E.
Cavan is the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B.
Hastings is the Assistant Treasurer, and Robert T. Burns is the Assistant
Secretary.
MIL Funds
Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold
D. Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James
R. Bordewick, Jr. is the Assistant Secretary.
MFS Meridian Funds
Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold
D. Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James R.
Bordewick, Jr. is the Assistant Secretary and James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers.
MFD
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.
MFSC
Arnold D. Scott and Jeffrey L. Shames are Directors, Joseph A.
Recomendes, a Senior Vice President and Chief Information Officer of MFS, is
Vice Chairman and a Director, Janet A. Clifford is the 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.
MFSI
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, Kevin R. Parke is the
Executive Vice President and a Managing Director, George F. Bennett, Jr.,
John A. Gee, Brianne Grady, Joseph A. Kosciuszek and Joseph J. Trainor 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
Arnold D. Scott is the Chairman and a Director, Martin E.
Beaulieu is the President, William W. Scott, Jr. is a Director, 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.
In addition, the following persons, Directors or officers of MFS,
have the affiliations indicated:
Donald A. Stewart President and a Director, Sun Life
Assurance Company of Canada, Sun Life
Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. Stewart
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) The Registrant undertakes to furnish each person to whom a
prospectus of a series of the Registrant is delivered with a copy of that
series' 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 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 Stonington
and the State of Maine on the 10th day of August, 1998.
MFS INSTITUTIONAL TRUST
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 August 10, 1998.
SIGNATURE TITLE
--------- -----
STEPHEN E. CAVAN* Principal Executive Officer
- -------------------------------
Stephen E. Cavan
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- ------------------------------- and Principal Accounting Officer)
W. Thomas London
WILLIAM R. GUTOW* Trustee
- -------------------------------
William R. Gutow
NELSON J. DARLING, JR.* Trustee
- -------------------------------
Nelson J. Darling, Jr.
*By: JAMES R. BORDEWICK, JR.
-------------------------
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by Stephen E. Cavan on behalf
of those indicated pursuant to (i) a
Power of Attorney dated August 12,
1994; filed with Post-Effective
Amendment No. 9 on October 27, 1995
and (ii) a Power of Attorney dated
February 19, 1998; filed herewith.
<PAGE>
POWER OF ATTORNEY
MFS Institutional Trust
The undersigned officer of MFS Institutional Trust (the "Registrant")
hereby severally constitutes and appoints Jeffrey L. Shames, Arnold D. Scott, W.
Thomas London, and James R. Bordewick, Jr., and each of them singly, as true and
lawful attorneys, with full power to them and each of them to sign for the
undersigned, in the name of, and in the capacity indicated below, any
Registration Statement and any and all amendments thereto and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission for the purpose of registering the Registrant
as a management investment company under the Investment Company Act of 1940
and/or the shares issued by the Registrant under the Securities Act of 1933
granting unto my said attorneys, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
or desirable to be done in the premises, as fully to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys or any of them may lawfully do or cause to be done by virtue
thereof.
In WITNESS WHEREOF, the undersigned has hereunto set his hand on this 19th
day of February, 1998.
Signature Title
--------- -----
STEPHEN E. CAVAN Principal Executive Officer
---------------------
Stephen E. Cavan
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
1 (j) Form of Amendment to the Declaration of
Trust - Establishment and Designation of
Series.
5 (h) Form of Investment Advisory Agreement
between Registrant, on behalf of MFS
Institutional Core Equity Fund and
Massachusetts Financial Services Company,
as adviser, dated October 29, 1998.
(i) Form of Investment Advisory Agreement
between Registrant, on behalf of MFS
Institutional High Yield Fund and
Massachusetts Financial Services Company,
as adviser, dated October 29, 1998.
(j) Form of Investment Advisory Agreement
between Registrant, on behalf of MFS
Institutional Large Cap Aggressive Growth
Fund and Massachusetts Financial Services
Company, as adviser, dated October 29, 1998.
<PAGE>
EXHIBIT NO. 99.1(j)
MFS INSTITUTIONAL TRUST
FORM OF CERTIFICATION OF AMENDMENT
TO THE DECLARATION OF TRUST
ESTABLISHMENT AND DESIGNATION
OF SERIES
Pursuant to Section 6.9 of the Amended and Restated Declaration of Trust
dated January 24, 1996 (the "Declaration") of MFS Institutional Trust, a
business Trust organized under the laws of The Commonwealth of Massachusetts
(the "Trust"), the undersigned Trustees of the Trust, being a majority of the
Trustees of the Trust, hereby establish and designate three new series of Shares
(as defined in the Declaration), such series to have the following special and
relative rights:
1. The new series shall be designated:
- MFS Institutional Core Equity Fund;
- MFS Institutional Large Cap Aggressive Growth Fund; and
- MFS Institutional High Yield Fund.
2. The series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the
Trust's then currently effective registration statement under the
Securities Act of 1933, as amended, to the extent pertaining to the
offering of Shares of such series. Each Share of the series shall be
redeemable, shall be entitled to one vote or fraction thereof in
respect of a fractional share on matters on which Shares of the
series shall be entitled to vote, shall represent a pro rata
beneficial interest in the assets allocated or belonging to the
series, and shall be entitled to receive its pro rata share of the
net assets of the series upon liquidation of the series, all as
provided in Section 6.9 of the Declaration.
3. Shareholders of each series shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to
have been effectively acted upon with respect to the series as
provided in Rule 18f-2, as from time to time in effect, under the
Investment Company Act of 1940, as amended, or any successor rule,
and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
previously established and existing series of the Trust and such new
series as set forth in Section 6.9 of the Declaration.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate
assets and expenses or to change the designation of any series now
or hereafter created, or to otherwise change the special and
relative rights of any such establishment and designation of series
of Shares.
Pursuant to Section 6.9(h) of the Declaration, this instrument shall be
effective upon the execution by a majority of the Trustees of the Trust.
IN WITNESS WHEREOF, a majority of the Trustees of the Trust have
executed this amendment, in one or more counterparts, all constituting a single
instrument, as an instrument under seal in The Commonwealth of Massachusetts, as
of this _____ day of _______________, 1998 and further certify, as provided by
the provisions of Section 9.3(d) of the Declaration, that this amendment was
duly adopted by the undersigned in accordance with the second sentence of
Section 9.3(a) of the Declaration.
_________________________________
Jeffrey L. Shames
38 Lake Avenue
Newton, MA 02159
_________________________________
Nelson J. Darling, Jr.
74 Beach Bluff Avenue
Swampscott, MA 01907
_________________________________
William R. Gutow
3 Rue Dulac
Dallas, TX 75230
<PAGE>
EXHIBIT NO. 99.5(h)
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this 29th day of October, 1998, by and
between MFS INSTITUTIONAL TRUST, a Massachusetts business trust (the "Trust"),
on behalf of MFS INSTITUTIONAL CORE EQUITY FUND, a series of the Trust (the
"Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation
(the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business services to the Fund on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereto as herein set forth, the parties covenant and agree as follows:
ARTICLE 1. DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper supervision of its funds. The Adviser shall
act as adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of the Trust's Amended and
Restated Declaration of Trust, dated January 24, 1996, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company Act of 1940, as amended, and the
Rules, Regulations and orders thereunder and to the Fund's then-current
Prospectus and Statement of Additional Information, as amended or supplemented
from time to time. The Adviser shall also make recommendations as to the manner
in which voting rights, rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities shall be exercised. Should
the Trustees at any time, however, make any definite determination as to the
investment policy and notify the Adviser thereof in writing, the Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination shall be revoked. The
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers or dealers selected by it, and to that end,
the Adviser is authorized as the agent of the Fund to give instructions to the
Custodian of the Fund as to the deliveries of securities and payments of cash
for the account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders, the Adviser is directed to seek for the
Fund execution at the most reasonable price by responsible brokerage firms at
reasonably competitive commission rates. In fulfilling this requirement the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty, created by this Agreement or otherwise, solely by reason of its having
caused the Fund to pay a broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and to other clients
of the Adviser as to which the Adviser exercises investment discretion.
The Adviser may from time to time enter into sub-investment advisory agreements
with one or more investment advisers with such terms and conditions as the
Adviser may determine, provided that such sub-investment advisory agreements
have been approved in accordance with applicable provisions of the Investment
Company Act of 1940, as amended. Subject to the provisions of Article 6, the
Adviser shall not be liable for any error of judgment or mistake of law by any
sub-adviser or for any loss arising out of any investment made by any
sub-adviser or for any act or omission in the execution and management of the
Fund by any sub-adviser.
ARTICLE 2. ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall furnish
at its own expense investment advisory and administrative services, office
space, equipment and clerical personnel necessary for servicing the investments
of the Fund and maintaining its organization, and investment advisory facilities
and executive and supervisory personnel for managing the investments and
effecting the portfolio transactions of the Fund. The Adviser shall arrange, if
desired by the Trust, for Directors, officers and employees of the Adviser to
serve as Trustees, officers or agents of the Trust if duly elected or appointed
to such positions and subject to their individual consent and to any limitations
imposed by law. It is understood that the Fund will pay all of its own expenses
including, without limitation, compensation of Trustees not affiliated with the
Adviser; 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 stock certificates, shareholder reports, notices, proxy statements and
reports to governmental officers and commissions; brokerage and other expenses
connected with the execution, recording and settlement of portfolio security
transactions; insurance premiums; fees and expenses of the 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; expenses of shareholders' meetings; and expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes
(except to the extent that any Distribution Agreement to which the Trust is a
party on behalf of the Fund provides that another party is to pay some or all of
such expenses).
ARTICLE 3. COMPENSATION OF THE ADVISER. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee computed and paid monthly at a rate equal to 0.60% of the Fund's
average daily net assets on an annualized basis. If the Adviser shall serve for
less than the whole of any period specified in this Article 3, the compensation
payable to the Adviser with respect to the Fund will be prorated.
ARTICLE 4. SPECIAL SERVICES. Should the Trust have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the
Trust on behalf of the Fund upon request to the best of its ability, with
compensation for the Adviser's services to be agreed upon with respect to each
such occasion as it arises.
ARTICLE 5. COVENANTS OF THE ADVISER. The Adviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's distributor,
if any, as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the Investment
Company Act of 1940, as amended, and the Rules, Regulations or orders
thereunder, will not take a long or short position in the shares of the Fund
except as permitted by the Declaration and will comply with all other provisions
of the Declaration and the By-Laws and the then-current Prospectus and Statement
of Additional Information of the Fund relative to the Adviser and its Directors
and officers.
ARTICLE 6. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not
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 duties and obligations hereunder. As used in this Section
6, the term "Adviser" shall include Directors, officers and employees of the
Adviser as well as that corporation itself.
ARTICLE 7. ACTIVITIES OF THE ADVISER. The services of the Adviser to the
Fund are not deemed to be exclusive, the Adviser being free to render investment
advisory and/or other services to others. The Adviser may permit other fund
clients to use the initials "MFS" in their names. The Fund agrees that if the
Adviser shall for any reason no longer serve as the Adviser to the Fund, the
Fund will change its name so as to delete the initials "MFS". It is understood
that the Trustees, officers and shareholders of the Trust are or may be or
become interested in the Adviser, as Directors, officers, employees, or
otherwise and that Directors, officers and employees of the Adviser are or may
become similarly interested in the Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
ARTICLE 8. DURATION, TERMINATION AND AMENDMENT OF THIS AGREEMENT. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 2000 on which date it will terminate unless its
continuance after August 1, 2000 is "specifically approved at least annually"
(i) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
This Agreement may be terminated at any time without the payment of any penalty
by the Trustees or by "vote of a majority of the outstanding voting securities"
of the Fund, or by the Adviser, in each case on not more than sixty days' nor
less than thirty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by "vote of a
majority of the outstanding voting securities" of the Fund.
ARTICLE 9. SCOPE OF TRUST'S OBLIGATIONS. A copy of the Trust's
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts. The Adviser acknowledges that the obligations of or arising
out of this Agreement are not binding upon any of the Trust's trustees,
officers, employees, agents or shareholders individually, but are binding solely
upon the assets and property of the Trust. If this Agreement is executed by the
Trust on behalf of one or more series of the Trust, the Adviser further
acknowledges that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
Agreement are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this Agreement.
ARTICLE 10. DEFINITIONS. The terms "specifically approved at least
annually," "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified, and shall be construed
in a manner consistent with, the Investment Company Act of 1940 and the Rules
and Regulations promulgated thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under said Act.
ARTICLE 11. RECORD KEEPING. The Adviser will maintain records in a form
acceptable to the Trust and in compliance with the rules and regulations of the
Securities and Exchange Commission, including but not limited to records
required to be maintained by Section 31(a) of the Investment Company Act of
1940, as amended, and the rules thereunder, which at all times will be the
property of the Trust and will be available for inspection and use by the Trust.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered in their names and on their behalf by the undersigned, thereunto duly
authorized, and their respective seals to be hereto affixed, all as of the day
and year first written above. The undersigned officers of the Trust and the
Adviser have executed this Agreement not individually, but as officers of the
Trust and the Adviser, respectively.
MFS INSTITUTIONAL TRUST
on behalf of MFS INSTITUTIONAL CORE
EQUITY FUND, one of its series
By:____________________________
Jeffrey L. Shames
Chairman, and not individually
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:_______________________________
Arnold D. Scott
Senior Executive Vice President,
and not individually
<PAGE>
EXHIBIT NO. 99.5(i)
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this 29th day of October, 1998, by and
between MFS INSTITUTIONAL TRUST, a Massachusetts business trust (the "Trust"),
on behalf of MFS INSTITUTIONAL HIGH YIELD FUND, a series of the Trust (the
"Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation
(the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business services to the Fund on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereto as herein set forth, the parties covenant and agree as follows:
ARTICLE 1. DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper supervision of its funds. The Adviser shall
act as adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of the Trust's Amended and
Restated Declaration of Trust, dated January 24, 1996, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company Act of 1940, as amended, and the
Rules, Regulations and orders thereunder and to the Fund's then-current
Prospectus and Statement of Additional Information, as amended or supplemented
from time to time. The Adviser shall also make recommendations as to the manner
in which voting rights, rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities shall be exercised. Should
the Trustees at any time, however, make any definite determination as to the
investment policy and notify the Adviser thereof in writing, the Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination shall be revoked. The
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers or dealers selected by it, and to that end,
the Adviser is authorized as the agent of the Fund to give instructions to the
Custodian of the Fund as to the deliveries of securities and payments of cash
for the account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders, the Adviser is directed to seek for the
Fund execution at the most reasonable price by responsible brokerage firms at
reasonably competitive commission rates. In fulfilling this requirement the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty, created by this Agreement or otherwise, solely by reason of its having
caused the Fund to pay a broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and to other clients
of the Adviser as to which the Adviser exercises investment discretion.
The Adviser may from time to time enter into sub-investment advisory agreements
with one or more investment advisers with such terms and conditions as the
Adviser may determine, provided that such sub-investment advisory agreements
have been approved in accordance with applicable provisions of the Investment
Company Act of 1940, as amended. Subject to the provisions of Article 6, the
Adviser shall not be liable for any error of judgment or mistake of law by any
sub-adviser or for any loss arising out of any investment made by any
sub-adviser or for any act or omission in the execution and management of the
Fund by any sub-adviser.
ARTICLE 2. ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall furnish
at its own expense investment advisory and administrative services, office
space, equipment and clerical personnel necessary for servicing the investments
of the Fund and maintaining its organization, and investment advisory facilities
and executive and supervisory personnel for managing the investments and
effecting the portfolio transactions of the Fund. The Adviser shall arrange, if
desired by the Trust, for Directors, officers and employees of the Adviser to
serve as Trustees, officers or agents of the Trust if duly elected or appointed
to such positions and subject to their individual consent and to any limitations
imposed by law. It is understood that the Fund will pay all of its own expenses
including, without limitation, compensation of Trustees not affiliated with the
Adviser; 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 stock certificates, shareholder reports, notices, proxy statements and
reports to governmental officers and commissions; brokerage and other expenses
connected with the execution, recording and settlement of portfolio security
transactions; insurance premiums; fees and expenses of the 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; expenses of shareholders' meetings; and expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes
(except to the extent that any Distribution Agreement to which the Trust is a
party on behalf of the Fund provides that another party is to pay some or all of
such expenses).
ARTICLE 3. COMPENSATION OF THE ADVISER. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee computed and paid monthly at a rate equal to 0.50% of the Fund's
average daily net assets on an annualized basis. If the Adviser shall serve for
less than the whole of any period specified in this Article 3, the compensation
payable to the Adviser with respect to the Fund will be prorated.
ARTICLE 4. SPECIAL SERVICES. Should the Trust have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the
Trust on behalf of the Fund upon request to the best of its ability, with
compensation for the Adviser's services to be agreed upon with respect to each
such occasion as it arises.
ARTICLE 5. COVENANTS OF THE ADVISER. The Adviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's distributor,
if any, as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the Investment
Company Act of 1940, as amended, and the Rules, Regulations or orders
thereunder, will not take a long or short position in the shares of the Fund
except as permitted by the Declaration and will comply with all other provisions
of the Declaration and the By-Laws and the then-current Prospectus and Statement
of Additional Information of the Fund relative to the Adviser and its Directors
and officers.
ARTICLE 6. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not
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 duties and obligations hereunder. As used in this Section
6, the term "Adviser" shall include Directors, officers and employees of the
Adviser as well as that corporation itself.
ARTICLE 7. ACTIVITIES OF THE ADVISER. The services of the Adviser to the
Fund are not deemed to be exclusive, the Adviser being free to render investment
advisory and/or other services to others. The Adviser may permit other fund
clients to use the initials "MFS" in their names. The Fund agrees that if the
Adviser shall for any reason no longer serve as the Adviser to the Fund, the
Fund will change its name so as to delete the initials "MFS". It is understood
that the Trustees, officers and shareholders of the Trust are or may be or
become interested in the Adviser, as Directors, officers, employees, or
otherwise and that Directors, officers and employees of the Adviser are or may
become similarly interested in the Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
ARTICLE 8. DURATION, TERMINATION AND AMENDMENT OF THIS AGREEMENT. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 2000 on which date it will terminate unless its
continuance after August 1, 2000 is "specifically approved at least annually"
(i) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
This Agreement may be terminated at any time without the payment of any penalty
by the Trustees or by "vote of a majority of the outstanding voting securities"
of the Fund, or by the Adviser, in each case on not more than sixty days' nor
less than thirty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by "vote of a
majority of the outstanding voting securities" of the Fund.
ARTICLE 9. SCOPE OF TRUST'S OBLIGATIONS. A copy of the Trust's
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts. The Adviser acknowledges that the obligations of or arising
out of this Agreement are not binding upon any of the Trust's trustees,
officers, employees, agents or shareholders individually, but are binding solely
upon the assets and property of the Trust. If this Agreement is executed by the
Trust on behalf of one or more series of the Trust, the Adviser further
acknowledges that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
Agreement are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this Agreement.
ARTICLE 10. DEFINITIONS. The terms "specifically approved at least
annually," "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified, and shall be construed
in a manner consistent with, the Investment Company Act of 1940 and the Rules
and Regulations promulgated thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under said Act.
ARTICLE 11. RECORD KEEPING. The Adviser will maintain records in a form
acceptable to the Trust and in compliance with the rules and regulations of the
Securities and Exchange Commission, including but not limited to records
required to be maintained by Section 31(a) of the Investment Company Act of
1940, as amended, and the rules thereunder, which at all times will be the
property of the Trust and will be available for inspection and use by the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered in their names and on their behalf by the undersigned, thereunto duly
authorized, and their respective seals to be hereto affixed, all as of the day
and year first written above. The undersigned officers of the Trust and the
Adviser have executed this Agreement not individually, but as officers of the
Trust and the Adviser, respectively.
MFS INSTITUTIONAL TRUST
on behalf of MFS INSTITUTIONAL HIGH
YIELD FUND, one of its series
By:____________________________
Jeffrey L. Shames
Chairman, and not individually
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:_______________________________
Arnold D. Scott
Senior Executive Vice President,
and not individually
<PAGE>
EXHIBIT NO. 99.5(j)
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this 29th day of October, 1998, by and
between MFS INSTITUTIONAL TRUST, a Massachusetts business trust (the "Trust"),
on behalf of MFS INSTITUTIONAL LARGE CAP AGGRESSIVE GROWTH FUND, a series of the
Trust (the "Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware
corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business services to the Fund on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereto as herein set forth, the parties covenant and agree as follows:
ARTICLE 1. DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper supervision of its funds. The Adviser shall
act as adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of the Trust's Amended and
Restated Declaration of Trust, dated January 24, 1996, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company Act of 1940, as amended, and the
Rules, Regulations and orders thereunder and to the Fund's then-current
Prospectus and Statement of Additional Information, as amended or supplemented
from time to time. The Adviser shall also make recommendations as to the manner
in which voting rights, rights to consent to corporate action and any other
rights pertaining to the Fund's portfolio securities shall be exercised. Should
the Trustees at any time, however, make any definite determination as to the
investment policy and notify the Adviser thereof in writing, the Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination shall be revoked. The
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers or dealers selected by it, and to that end,
the Adviser is authorized as the agent of the Fund to give instructions to the
Custodian of the Fund as to the deliveries of securities and payments of cash
for the account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders, the Adviser is directed to seek for the
Fund execution at the most reasonable price by responsible brokerage firms at
reasonably competitive commission rates. In fulfilling this requirement the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty, created by this Agreement or otherwise, solely by reason of its having
caused the Fund to pay a broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and to other clients
of the Adviser as to which the Adviser exercises investment discretion.
The Adviser may from time to time enter into sub-investment advisory agreements
with one or more investment advisers with such terms and conditions as the
Adviser may determine, provided that such sub-investment advisory agreements
have been approved in accordance with applicable provisions of the Investment
Company Act of 1940, as amended. Subject to the provisions of Article 6, the
Adviser shall not be liable for any error of judgment or mistake of law by any
sub-adviser or for any loss arising out of any investment made by any
sub-adviser or for any act or omission in the execution and management of the
Fund by any sub-adviser.
ARTICLE 2. ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall furnish
at its own expense investment advisory and administrative services, office
space, equipment and clerical personnel necessary for servicing the investments
of the Fund and maintaining its organization, and investment advisory facilities
and executive and supervisory personnel for managing the investments and
effecting the portfolio transactions of the Fund. The Adviser shall arrange, if
desired by the Trust, for Directors, officers and employees of the Adviser to
serve as Trustees, officers or agents of the Trust if duly elected or appointed
to such positions and subject to their individual consent and to any limitations
imposed by law. It is understood that the Fund will pay all of its own expenses
including, without limitation, compensation of Trustees not affiliated with the
Adviser; 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 stock certificates, shareholder reports, notices, proxy statements and
reports to governmental officers and commissions; brokerage and other expenses
connected with the execution, recording and settlement of portfolio security
transactions; insurance premiums; fees and expenses of the 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; expenses of shareholders' meetings; and expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes
(except to the extent that any Distribution Agreement to which the Trust is a
party on behalf of the Fund provides that another party is to pay some or all of
such expenses).
ARTICLE 3. COMPENSATION OF THE ADVISER. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee computed and paid monthly at a rate equal to 0.75% of the Fund's
average daily net assets on an annualized basis. If the Adviser shall serve for
less than the whole of any period specified in this Article 3, the compensation
payable to the Adviser with respect to the Fund will be prorated.
ARTICLE 4. SPECIAL SERVICES. Should the Trust have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the
Trust on behalf of the Fund upon request to the best of its ability, with
compensation for the Adviser's services to be agreed upon with respect to each
such occasion as it arises.
ARTICLE 5. COVENANTS OF THE ADVISER. The Adviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's distributor,
if any, as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the Investment
Company Act of 1940, as amended, and the Rules, Regulations or orders
thereunder, will not take a long or short position in the shares of the Fund
except as permitted by the Declaration and will comply with all other provisions
of the Declaration and the By-Laws and the then-current Prospectus and Statement
of Additional Information of the Fund relative to the Adviser and its Directors
and officers.
ARTICLE 6. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not
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 duties and obligations hereunder. As used in this Section
6, the term "Adviser" shall include Directors, officers and employees of the
Adviser as well as that corporation itself.
ARTICLE 7. ACTIVITIES OF THE ADVISER. The services of the Adviser to the
Fund are not deemed to be exclusive, the Adviser being free to render investment
advisory and/or other services to others. The Adviser may permit other fund
clients to use the initials "MFS" in their names. The Fund agrees that if the
Adviser shall for any reason no longer serve as the Adviser to the Fund, the
Fund will change its name so as to delete the initials "MFS". It is understood
that the Trustees, officers and shareholders of the Trust are or may be or
become interested in the Adviser, as Directors, officers, employees, or
otherwise and that Directors, officers and employees of the Adviser are or may
become similarly interested in the Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
ARTICLE 8. DURATION, TERMINATION AND AMENDMENT OF THIS AGREEMENT. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 2000 on which date it will terminate unless its
continuance after August 1, 2000 is "specifically approved at least annually"
(i) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
This Agreement may be terminated at any time without the payment of any penalty
by the Trustees or by "vote of a majority of the outstanding voting securities"
of the Fund, or by the Adviser, in each case on not more than sixty days' nor
less than thirty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by "vote of a
majority of the outstanding voting securities" of the Fund.
ARTICLE 9. SCOPE OF TRUST'S OBLIGATIONS. A copy of the Trust's
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts. The Adviser acknowledges that the obligations of or arising
out of this Agreement are not binding upon any of the Trust's trustees,
officers, employees, agents or shareholders individually, but are binding solely
upon the assets and property of the Trust. If this Agreement is executed by the
Trust on behalf of one or more series of the Trust, the Adviser further
acknowledges that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
Agreement are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this Agreement.
ARTICLE 10. DEFINITIONS. The terms "specifically approved at least
annually," "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified, and shall be construed
in a manner consistent with, the Investment Company Act of 1940 and the Rules
and Regulations promulgated thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under said Act.
ARTICLE 11. RECORD KEEPING. The Adviser will maintain records in a form
acceptable to the Trust and in compliance with the rules and regulations of the
Securities and Exchange Commission, including but not limited to records
required to be maintained by Section 31(a) of the Investment Company Act of
1940, as amended, and the rules thereunder, which at all times will be the
property of the Trust and will be available for inspection and use by the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered in their names and on their behalf by the undersigned, thereunto duly
authorized, and their respective seals to be hereto affixed, all as of the day
and year first written above. The undersigned officers of the Trust and the
Adviser have executed this Agreement not individually, but as officers of the
Trust and the Adviser, respectively.
MFS INSTITUTIONAL TRUST
on behalf of MFS INSTITUTIONAL LARGE
CAP AGGRESSIVE GROWTH FUND, one of
its series
By:____________________________
Jeffrey L. Shames
Chairman, and not individually
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:_______________________________
Arnold D. Scott
Senior Executive Vice President,
and not individually
