<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1997
1933 Act File No. 33-68310
1940 Act File No. 811-7992
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 5
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6
MFS UNION STANDARD 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)
/x/ on January 28, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on [DATE] pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on [DATE] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
STATEMENT PURSUANT TO RULE 24F-2
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest, without par value, under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice for its fiscal year ended
September 30, 1996 on November 25, 1996.
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- --------------------------------------------------------------------------------
<PAGE>
MFS UNION STANDARD TRUST
MFS UNION STANDARD EQUITY FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of
Form N-1A)
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------------------------ --------------------
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
3 (a) Condensed Financial Information *
(b) * *
(c), (d) Information Concerning Shares of *
the Fund - Performance Information
4 (a) The Trust and the Fund; Investment *
Objective and Policies; Investment
Techniques
(b), (c) Investment Objective and Policies; *
Investment Techniques
5 (a) The Trust and the Fund; Management *
of the Fund - Investment Adviser
(b) Front Cover Page; Management of *
the Fund - Investment Adviser; Back
Cover Page
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------------------------ --------------------
(c) Management of the Fund - Investment *
Adviser
(d) * *
(e) Management of the Fund - Shareholder *
Servicing Agent; Back Cover Page
(f) Expense Summary; Condensed Financial *
Information
(g) Investment Techniques - Portfolio *
Trading
(h) Information Concerning Shares of *
the Fund - Expenses
5A (a), (b), (c) ** **
6 (a) Information Concerning Shares of the *
Fund - Description of Shares, Voting
Rights and Liabilities; Information
Concerning Shares of the Fund -
Redemptions; Information Concerning
Shares of the Fund - Purchases;
Information Concerning Shares of the
Fund - Exchanges
(b), (c), (d) * *
(e) Shareholder Services *
(f) Information Concerning Shares of the *
Fund - Distributions; Shareholder
Services - Distribution Options
(g) Information Concerning Shares of the *
Fund - Tax Status; Information
Concerning Shares of the Fund -
Distributions
(h) * *
7 (a) Front Cover Page; Management of the *
Fund - Distributor; Back Cover Page
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------------------------ --------------------
(b) Information Concerning Shares of the *
Fund - Purchases; Information
Concerning Shares of the Fund -
Net Asset Value
(c) Information Concerning Shares of the *
Fund - Exchanges; Shareholder
Services
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases; Shareholder Services
(e) Information Concerning Shares of the *
Fund - Distribution Plan; Expense
Summary
(f) Information Concerning Shares of the *
Fund - Distribution Plan
(g) * *
8 (a), (b), Information Concerning Shares of the *
(c), (d) Fund - Redemptions
9 * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------------------------ --------------------
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 * *
13 (a) * Investment Objective
and Policies
(b), (c) * Investment Objective
and Policies;
Investment
Restrictions
(d) * *
14 (a), (b) * Management of the
Fund - Trustees;
Management of the
Fund -Officers
(c) * Management of the
Fund - Trustees;
Management of the
Fund - Officers
15 (a) * *
(b), (c) * Management of the
Fund - Trustee
Compensation Table
16 (a) Management of the Fund - Management of the
Investment Adviser Fund - Investment
Adviser; Management
of the Fund -
Trustees;
Management of the
Fund - Officers
(b) Management of the Fund - Management of the
Investment Adviser Fund - Investment
Adviser
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------------------------ --------------------
(c) * *
(d) * Management of the
Fund - Investment
Adviser
(e) * Portfolio
Transactions and
Brokerage
Commissions
(f) Information Concerning Shares Distribution Plan
of the Fund - Distribution Plan
(g) * *
(h) * Management of the
Fund - Custodian;
Independent
Auditors and
Financial
Statements; Back
Cover Page
(i) * Management of the
Fund - Shareholder
Servicing Agent
17 (a), (b), * Portfolio
(c), (d), (e) Transactions and
Brokerage
Commissions
18 (a) Information Concerning Shares of Description of
the Fund - Description of Shares, Shares, Voting
Voting Rights and Liabilities Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shares of *
the Fund - Purchases; Shareholder
Services
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------------------------ --------------------
(b) Information Concerning Shares of Determination of Net
the Fund - Net Asset Value; Asset Value;
Information Concerning Shares Performance
of the Fund - Purchases Information
(c) * *
20 * Tax Status
21 (a), (b) * Distribution Plan
(c) * *
22 (a) * *
(b) * Determination of Net
Asset Value;
Performance
Information
23 * Independent Auditors
and Financial
Statements
- ---------------
* Not Applicable
** Contained in Annual Report
<PAGE>
PROSPECTUS
MFS-REGISTERED TRADEMARK- UNION February 1, 1997
STANDARD-SM- EQUITY FUND Shares of Beneficial Interest
- --------------------------------------------------------------------------------
MFS UNION STANDARD-SM- TRUST
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
MFS Union Standard-SM- Equity Fund (the "Equity Fund" or the "Fund") is a series
of MFS Union Standard-SM- Trust (the "Trust"), a professionally managed no-load,
open-end, investment management company. The Fund is designed to permit
retirement plans to invest in companies which meet certain labor sensitivity
criteria selected for inclusion in the ACS Labor Sensitivity Index-SM- (the
"LSI-SM-") and to make economically targeted investments. The LSI is a common
stock index comprised of companies selected based on labor sensitivity criteria.
The Fund seeks long-term growth of capital that, net of Fund expenses, exceeds
the performance of the LSI primarily by investing in the equity securities of
companies included in the LSI and by investing in equity securities where such
investment is consistent with an economically targeted investment strategy.
Dividend and interest income, if any, is incidental to the Fund's objective of
long-term growth of capital.
The minimum initial investment generally is $3 million per account (see
"Purchases"). The Fund's investment adviser and distributor are Massachusetts
Financial Services Company ("MFS" or the "Adviser") and MFS Fund Distributors,
Inc. ("MFD"), respectively, both of which are located at 500 Boylston Street,
Boston, Massachusetts 02116.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information, dated February 1, 1997, as
amended or supplemented from time to time (the "SAI") which contains more
detailed information about the Trust and the Fund. The SAI is incorporated into
this Prospectus by reference. See page 17 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).
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.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<C> <S> <C>
1. Expense Summary............................................................................................ 3
2. Condensed Financial Information............................................................................ 4
3. The Trust and the Fund..................................................................................... 5
4. Labor Sensitivity Index.................................................................................... 5
5. Investment Objective and Policies.......................................................................... 6
6. Investment Techniques...................................................................................... 7
7. Management of the Fund..................................................................................... 11
8. Information Concerning Shares of the Fund.................................................................. 12
Purchases.............................................................................................. 12
Redemptions............................................................................................ 13
Distribution Plan...................................................................................... 14
Distributions.......................................................................................... 14
Tax Status............................................................................................. 15
Net Asset Value........................................................................................ 15
Description of Shares, Voting Rights and Liabilities................................................... 15
Performance Information................................................................................ 16
Expenses............................................................................................... 16
9. Shareholder Services....................................................................................... 17
</TABLE>
2
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as
a percentage of offering price).................................... NONE
Maximum Sales Load Imposed on Reinvested Dividends.................. NONE
Deferred Sales Load................................................. NONE
Redemption Fee...................................................... NONE
Exchange Fee........................................................ NONE
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees..................................................... 0.65%
Rule 12b-1 Fees(1).................................................. 0.15%
Other Expenses (after expense limitation)(2)........................ 0.20%
------
Total Operating Expenses (after expense limitation)(2).............. 1.00%
</TABLE>
- --------------
(1) The Fund has adopted a Distribution Plan in accordance with Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"), which
provides that it will pay distribution fees aggregating up to (but not
necessarily all of) 0.25% per annum of its average daily net assets. A
portion of the distribution fee equal to 0.15% per annum is currently being
paid by the Fund; payment of the remaining portion of the distribution fee
may become payable on such date as the Trustees of the Trust may determine.
(2) The Adviser has agreed to bear the Fund's expenses, subject to reimbursement
by the Fund, such that "Other Expenses" do not exceed 0.20% per annum of the
Fund's average daily net assets during the current fiscal year. Otherwise,
"Other Expenses" and "Total Operating Expenses" would be 0.23% and 1.03% per
annum, respectively. See "Information Concerning Shares of the Fund --
Expenses."
EXAMPLE OF EXPENSES
--------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated:
<TABLE>
<CAPTION>
PERIOD
------------------------------------------------------------------------
<S> <C>
1 year.................................................................. $ 10
3 years................................................................. 32
5 years................................................................. 55
10 years................................................................ 122
</TABLE>
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. The 5% annual return used in the example is only for
illustration. More complete descriptions of the following Fund expenses are set
forth in the following sections: (i) management fees -- "Management of the Fund
- -- Investment Adviser" and (ii) Rule 12b-1 (I.E., distribution plan) fees --
"Distribution Plan."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
3
<PAGE>
2. CONDENSED FINANCIAL INFORMATION
The following information has been audited since the inception of the Fund and
should be read in conjunction with the financial statements included in the
Fund's Annual Report to shareholders which are incorporated by reference into
the SAI in reliance upon the report of the Fund's independent auditors given
upon their authority, as experts in accounting and auditing. The Fund's current
independent auditors are Deloitte & Touche LLP.
FINANCIAL HIGHLIGHTS
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1994*
---------------- ---------------- ------------------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD):
Net asset value -- beginning of period.................... $ 11.85 $ 9.64 $ 10.00
------- ------- -------
Income from investment operations# --
Net investment incomeSection............................ $ 0.18 $ 0.17 $ 0.12
Net realized and unrealized gain (loss) on investments
and foreign currency transactions..................... 2.25 2.14 (0.48)
------- ------- -------
Total from investment operations...................... $ 2.43 $ 2.31 $ (0.36)
------- ------- -------
Less distributions declared to shareholders --
From net investment income.............................. $ (0.15) $ (0.10) $--
From net realized gain on investments................... (0.28) -- --
------- ------- -------
Total distributions declared to shareholders.......... $ (0.43) $ (0.10) $--
------- ------- -------
Net asset value -- end of period.......................... $ 13.85 $ 11.85 $ 9.64
------- ------- -------
------- ------- -------
Total return.............................................. 20.96% 24.21% (3.60)%
Average commission rate###................................ $0.0562 -- --
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATASECTION:
Expenses##.............................................. 1.00% 1.00% 1.00%+
Net investment income................................... 1.36% 1.58% 1.55%+
PORTFOLIO TURNOVER........................................ 81% 125% 48%
NET ASSETS AT END OF PERIOD (000 OMITTED)................. $ 49,318 $ 35,842 $ 22,184
</TABLE>
*For the period from the commencement of investment operations, January 14,
1994 to September 30, 1994.
+Annualized.
#Per share data is based on average shares outstanding.
##For fiscal years ended after September 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.
SectionThe investment adviser voluntarily agreed to maintain the expenses of
the Fund at not more than 1.00% of average daily net assets. If this
agreement had not been in effect, the net investment income per share
and the ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment income........................................... $0.18 $0.16 $0.07
RATIOS (TO AVERAGE NET ASSETS):
Expenses##.................................................... 1.03% 1.12% 1.64%+
Net investment income......................................... 1.33% 1.49% 0.91%+
</TABLE>
4
<PAGE>
3. THE TRUST AND THE FUND
The Fund is a diversified series of the Trust, a no-load, open-end, investment
management company. The Fund is designed to permit retirement plans to invest in
companies which meet certain labor sensitivity criteria selected for inclusion
in the LSI and to make economically targeted investments. The Trust was
organized as a business trust under the laws of The Commonwealth of
Massachusetts on September 1, 1993.
Shares of the Fund are continuously sold to the public and the Fund then uses
the proceeds to buy securities for its portfolio. One hundred percent of the
amount invested in the Fund is used to purchase shares without the deduction of
any sales charge. The Fund offers to buy back (redeem) its shares from its
shareholders at any time at net asset value without the deduction of any
redemption fee or sales charge. See "Information Concerning Shares of the Fund
- -- Purchases" and "--Redemptions" below.
The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. MFS is the Fund's investment adviser and is responsible for the management
of the Fund's assets, while the officers of the Trust are responsible for the
Fund's operations. MFS manages the Fund's portfolio from day to day in
accordance with its investment objective and policies. A majority of the Trust's
Trustees are not affiliated with MFS. American Capital Strategies Ltd. ("ACS")
administers the LSI for MFS but has no responsibility for rendering investment
advice to MFS or to the Fund.
4. LABOR SENSITIVITY INDEX
The LSI is a common stock index developed and maintained by ACS for use by the
Trust and represents the market weighted performance of common stocks of
companies which ACS and the Labor Advisory Board (as described below) determine
meet certain labor sensitivity criteria. The "Labor Sensitivity Index-SM-" and
the "LSI-SM-" are service marks of ACS. The LSI was established on the date the
Fund commenced investment operations (January 14, 1994) and, as of the date of
this Prospectus, is comprised of common stocks of approximately 570 companies
which meet certain quantitative and qualitative labor sensitivity criteria. The
criteria used in developing and maintaining the LSI involve the initial use of
quantitative guidelines and the subsequent use of qualitative guidelines applied
by ACS with the guidance of the Labor Advisory Board (the "Advisory Board"),
which is comprised of senior labor officials, senior managers of companies with
significant labor contracts, academics and other national labor leaders or
experts and has been established by ACS. The Advisory Board provides guidance to
ACS in the development, refinement and application of qualitative and
quantitative labor sensitivity criteria for the development and maintenance of
the LSI. MFS is not affiliated with ACS or the Advisory Board.
In selecting companies for inclusion in the LSI, ACS first compiles a list of
companies with labor agreements. The sources for this list include the research
departments of various international unions, publicly available documents, and
government reports. ACS then applies quantitative guidelines which, as of the
date of this Prospectus, measure the degree to which a company's workforce is
unionized. At its discretion, ACS may vary from time to time the labor
sensitivity factors it considers or change the emphasis it places on any
specific factor.
After ACS has applied the quantitative guidelines, the list is then reviewed by
the Advisory Board, which assists in the application of qualitative guidelines
which take into account a number of labor sensitivity criteria. The qualitative
factors considered include, as of the date of this Prospectus, whether the
company is manufacturing or has manufactured products on the boycott list of the
AFL-CIO or certain other unions, whether the company is or has been involved in
strikes or lock-outs, and whether the company has demonstrated patterns of
non-compliance with applicable labor or health and safety laws. The Advisory
Board also considers patterns of outsourcing and associated plant closings,
patterns of strikes or lockouts, the degree to which a company's labor relations
vary throughout different divisions, subsidiaries, or parts of their company and
the extent of foreign ownership of a company with a unionized workforce, and
will vary from time to time. This list and any subsequent updates are supplied
to MFS by ACS. MFS will purchase, for the Fund's portfolio, securities of
companies
5
<PAGE>
included in the LSI in accordance with its investment objective and policies,
but is under no obligation to purchase any securities of particular companies
included in the LSI. The LSI is updated at least quarterly by ACS. See
"Management of the Fund -- Index Manager" and "-- Advisory Board" below.
Like the Standard & Poor's 500 Index (the "S&P 500"), the LSI is a market
capitalization weighted index and reflects the reinvestment of dividends paid on
the common stocks that comprise the LSI. However, unlike certain other stock
indices, such as the S&P 500, the LSI is not a recognized yardstick or
measurement of investment performance. Because of the criteria applied in the
selection of companies to be included in the LSI, the LSI may exclude entirely
or under- or over-weight particular industry sectors relative to other stock
indices such as the S&P 500. The performance of the LSI may not correlate with
the performance of such other indices, such as the S&P 500.
On January 14, 1994, the date that the Fund commenced investment operations, the
unit value of the LSI was established at 100, and as of September 30, 1996, the
unit value of the LSI was 150.25. The unit value of the LSI will be determined
once monthly as of the last day of each month. As the investment objective of
the Fund is to provide long-term growth of capital that, net of Fund expenses,
exceeds the performance of the LSI, from time to time the Fund will compare its
total return for a given time period to the performance of the LSI for the same
time period. See "Investment Objective and Policies" and "Information Concerning
Shares of the Fund -- Performance Information" below. The performance of the LSI
shall be measured by comparing the unit value of the LSI at the end of the time
period to the unit value of the LSI at the beginning of the time period.
The Fund intends to readjust its securities holdings periodically so that those
holdings will not include, to the extent reasonably practicable, the securities
of any company which has been excluded from the LSI. The Fund is not required to
sell a security which ceases to be contained in the LSI. The timing and extent
of adjustments in the holdings of the Fund will reflect the judgment of MFS as
to the appropriate balance as among the goal of excluding from its portfolio the
securities of any company which was included in the LSI but which has
subsequently been excluded from the LSI, the goal of seeking to achieve the
Fund's investment objective and the goal of minimizing transaction costs. The
Fund is not managed by MFS with the objective of correlating its holdings with
the composition of the LSI, but rather of investing in the securities of those
companies contained in the LSI possessing the best prospects for achieving the
Fund's investment objective. The selection of a company for investment by the
Fund does not constitute an endorsement or validation by the Fund or MFS of the
criteria applied by ACS and the Advisory Board in the development or maintenance
of the LSI. ACS does not determine the investment policies of the Fund or decide
which securities of companies included in the LSI the Fund will buy and sell.
Pursuant to a Proxy Services Agreement between ACS and the Trust, acting on
behalf of the Fund, ACS shall vote all proxies of companies included in the
Fund's portfolio consistent with proxy voting guidelines established by the
AFL-CIO, unless the Board of Trustees of the Trust directs otherwise. These
guidelines obligate ACS to make voting decisions consistent with the economic
best interests of shareholders of the Fund, and set forth considerations to be
taken into account by ACS with respect to certain types of proxy proposals.
5. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The investment objective of the Fund is to provide
long-term growth of capital that, net of Fund expenses, exceeds the performance
of the LSI. Dividend and interest income from portfolio securities, if any, is
incidental to the Fund's investment objective of long-term growth of capital.
Any investment involves risk and there can be no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective by
investing, under normal market conditions, not less than 65% of its total assets
in equity securities (including preferred stock and securities convertible into
or exchangeable for common or preferred stock) of companies contained in the
LSI, and may invest up to 35% of its total assets in equity
6
<PAGE>
securities of companies which are not contained in the LSI. The Fund's policy is
to invest a substantial proportion of its assets in equity securities of
companies believed by the Adviser to possess opportunities for long-term capital
growth with emphasis on progressive, well-managed companies.
Up to 10% of the Fund's total assets may be invested in equity securities where
such investment is consistent with an economically targeted investment strategy.
An economically targeted investment ("ETI") is an investment designed to produce
a competitive return, as measured against the Fund's other investments, as well
as to create collateral economic benefits for a targeted geographical area,
group of people or sector of the economy. Such collateral economic benefits may
include, for example, expanding employment opportunities, increasing the
availability of affordable housing, building or improving schools, health care
facilities or infrastructure, assisting minority- or women-owned businesses,
developing alternative energy systems, reducing pollution and increasing the tax
base. The Fund's ETI strategy is subject to its limitation on investments in
restricted securities. See "Investment Techniques -- Restricted Securities"
below.
The Fund generally expects to be fully invested in equity securities of
companies contained in the LSI and ETI investments, except for cash and cash
equivalent investments and the investments and investment techniques described
below.
While it is not generally the Fund's policy to invest or trade for short-term
profits, the Fund may dispose of a portfolio security whenever MFS is of the
opinion that such security no longer has an appropriate appreciation potential
or when another security appears to offer relatively greater appreciation
potential. Subject to tax requirements, portfolio changes are made without
regard to the length of time a security has been held, or whether a sale would
result in a profit or loss. See "Investment Techniques -- Portfolio Trading"
below.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of shares of the Fund, such changes may not
affect the income received by the Fund from such securities. However, the
dividends paid by the Fund, if any, will increase or decrease in relation to the
income received by the Fund from its investments, which would in any case be
reduced by the Fund's expenses before it is distributed to shareholders.
In addition, the use of options, futures contracts and options on futures
contracts (see "Investment Techniques" below) may result in the loss of
principal, particularly where such instruments are traded for other than hedging
purposes.
6. INVESTMENT TECHNIQUES
SHORT-TERM INVESTMENTS: The Fund may invest in cash or cash equivalents
including, but not limited to, obligations of banks (including certificates of
deposit, bankers' acceptances and repurchase agreements) with assets of $1
billion or more, commercial paper, short-term notes, U.S. Government securities
and related repurchase agreements. U.S. Government securities also include
interests in trusts or other entities representing interests in obligations that
are issued or guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities. During periods of unusual market conditions when MFS believes
that investing for temporary defensive purposes is appropriate, or in order to
meet anticipated redemption requests, a large portion or all of the assets of
the Fund may be invested in cash or cash equivalents.
LENDING OF SECURITIES: The Fund may make loans of its portfolio securities. Such
loans will usually be made only to member banks of the Federal Reserve System
and member firms (and subsidiaries thereof) of the New York Stock Exchange (the
"Exchange") and would be required to be secured continuously by collateral in
cash, U.S. Government securities or an irrevocable letter of credit maintained
on a current basis at an amount at least equal to the market value of the
securities loaned. The Fund would continue to collect the equivalent of the
interest on the securities loaned and would also receive either interest
(through investment of cash collateral) or a fee (if the collateral is U.S.
Government securities or a letter of credit). The value of securities loaned
will not exceed 30% of the value of the Fund's total assets.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, 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
7
<PAGE>
are otherwise subject to a stay order, the Fund's right to liquidate the
securities may be restricted (during which time the value of the securities
could decline). As discussed in the SAI, the Fund has adopted certain procedures
which are intended to minimize risk. See "Investment Objective and Policies" in
the SAI.
WHEN-ISSUED SECURITIES: In order to help ensure the availability of suitable
securities for its portfolio, the Fund may purchase securities on a
"when-issued" or on a "forward delivery" basis, which means that the obligations
will be delivered to the Fund at a future date usually beyond customary
settlement time. It is expected that, under normal circumstances, the Fund will
take delivery of such securities. In general, the Fund does not pay for the
securities until received and does not start earning interest on the obligations
until the contractual settlement date. While awaiting delivery of the
obligations purchased on such bases, the Fund will establish a segregated
account consisting of cash, short-term money market instruments or high quality
debt securities equal to the amount of the commitments to purchase "when-issued"
securities. See the SAI for further information.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). 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 the Fund's limitation on investing not more than
15% of its net assets in illiquid investments. The Board of Trustees has adopted
guidelines and delegated to MFS the daily function of determining and monitoring
the liquidity of Rule 144A securities. The Board, however, retains oversight,
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 the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing Rule 144A
securities held in the Fund's portfolio. Subject to the Fund's 15% limitation on
investments in illiquid investments, the Fund may also invest in restricted
securities that may not be sold under Rule 144A, which presents certain risks.
As a result, the Fund might not be able to sell those securities when the
Adviser wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment may
at times play a greater role in valuing these securities than in the case of
unrestricted securities.
TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS: The Fund may enter into
transactions in options and futures contracts on a variety of instruments and
indices, in order to protect against declines in the value of portfolio
securities or increases in the cost of securities or other assets to be acquired
and, subject to applicable law, to increase the Fund's gross income. The types
of instruments to be purchased and sold by the Fund are described in the SAI,
which should be read in conjunction with the following section. In addition, the
SAI contains a further discussion of the nature of the transactions which may be
entered into and the risks associated therewith.
OPTIONS
OPTIONS ON SECURITIES -- The Fund may write (sell) covered call and put options
and purchase call and put options on securities. The Fund will write options on
securities for the purpose of increasing its return on such securities and/or to
protect the value of its portfolio. In particular, where the Fund writes an
option which expires unexercised or is closed out by the Fund at a profit, it
will retain the premium paid for the option which will increase its gross income
and will offset in part the reduced value of the portfolio security underlying
the option, or the increased cost of portfolio securities to be acquired. In
contrast, however, if the price of the underlying security moves adversely to
the Fund's position, the option may be exercised and the Fund will be required
to purchase or sell the underlying security at a disadvantageous price,
resulting in losses which may only be partially offset by the amount of the
premium. The Fund may also write combinations of put and call options on the
same security, known as "straddles." Such transactions can generate additional
premium income but also present increased risk.
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By writing a call option on a security, the Fund limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Fund
retains the risk of depreciation in value of securities on which it has written
call options.
The Fund may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that the Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, the Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option, and, unless the price of the underlying
security changes sufficiently, the option may expire without value to the Fund.
OPTIONS ON STOCK INDICES -- The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. The Fund may write
options on stock indices for the purpose of increasing its gross income and to
protect its portfolio against declines in the value of securities it owns or
increases in the value of securities to be acquired. When the Fund writes an
option on a stock index, and the value of the index moves adversely to the
holder's position, the option will not be exercised, and the Fund will either
close out the option at a profit or allow it to expire unexercised. The Fund
will thereby retain the amount of the premium, less related transaction costs,
which will increase its gross income and offset part of the reduced value of
portfolio securities or the increased cost of securities to be acquired. Such
transactions, however, will constitute only partial hedges against adverse price
fluctuations, since any such fluctuations will be offset only to the extent of
the premium received by the Fund for the writing of the option, less related
transaction costs. In addition, if the value of an underlying index moves
adversely to the Fund's option position, the option may be exercised, and the
Fund will experience a loss which may only be partially offset by the amount of
the premium received.
The Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to attempt
to reduce the risk of missing a market or industry segment advance. The Fund's
possible loss in either case will be limited to the premium paid for the option,
plus related transaction costs.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS -- The Fund may purchase and sell futures contracts on stock
indices ("Futures Contracts"). The Fund will utilize Futures Contracts for
hedging and non-hedging purposes, subject to applicable law. For example,
purchases or sales of stock index futures contracts for hedging purposes are
used to attempt to protect the Fund's current or intended stock investments from
broad fluctuations in stock prices. In the event that an anticipated decrease in
the value of portfolio securities occurs as a result of a general stock market
decline or a general increase in interest rates, the adverse effects of such
changes may be offset, in whole or part, by gains on the sale of such Futures
Contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general rise in the stock market or a general decline in
interest rates may be offset, in whole or in part, by gains on stock index
futures contracts purchased by the Fund. The Fund will incur brokerage fees when
it purchases and sells Futures Contracts, and it will be required to make and
maintain margin deposits.
OPTIONS ON FUTURES CONTRACTS -- The Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts"). Such investment strategies
will be used for hedging and non-hedging purposes, subject to applicable law.
Put and call Options on Futures Contracts may be traded by the Fund in order to
protect against declines in the values of portfolio securities or against
increases in the cost of securities to be acquired. Purchases of Options on
Futures Contracts may present less risk in hedging the 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 plus related transaction
costs. The writing of such Options, however, does not present less risk than the
trading of Futures Contracts and will constitute only a partial hedge, up to the
amount of the premium received. In addition, if an option is exercised, the Fund
may suffer a loss on the transaction.
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RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS: Although the Fund will
enter into certain transactions in Futures Contracts, Options on Futures
Contracts and options for hedging purposes, such transactions do involve certain
risks. For example, a lack of correlation between the index or instrument
underlying an option or Futures Contract and the assets being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses. "Cross hedging" transactions may
involve greater correlation risks. In addition, there can be no assurance that a
liquid secondary market will exist for any contract purchased or sold, and the
Fund may be required to maintain a position until exercise or expiration, which
could result in losses. As noted, the Fund may also enter into transactions in
such instruments for other than hedging purposes (subject to applicable law),
including speculative transactions, which involve greater risk. In particular,
in entering into such transactions, the Fund may experience losses which are not
offset by gains on other portfolio positions, thereby reducing its gross income.
In addition, the markets for such instruments may be extremely volatile from
time to time, as discussed in the SAI, which could increase the risks incurred
by the Fund in entering into such transactions.
Transactions in options may be entered into on U.S. exchanges regulated by the
SEC and in the over-the-counter market. Futures Contracts and Options on Futures
Contracts may be entered into on U.S. exchanges regulated by the Commodity
Futures Trading Commission (the "CFTC").
Transactions in options, Futures Contracts and Options on Futures Contracts
entered into for non-hedging purposes involve greater risk and could result in
losses which are not offset by gains on other portfolio assets. For example, the
Fund may sell Futures Contracts on an index of securities in order to profit
from any anticipated decline in the value of the securities comprising the
underlying index. In such instances, any losses on the Futures Contract will not
be offset by gains on any portfolio securities comprising such index, as might
occur in connection with a hedging transaction. The risks related to
transactions in options, Futures Contracts and Options on Futures Contracts
entered into by the Fund are set forth in greater detail in the SAI, which
should be reviewed in conjunction with the foregoing discussion.
-------------------
PORTFOLIO TRADING
The Fund intends to manage its portfolio by buying and selling securities in
accordance with its investment objective and policies. The Fund will engage in
portfolio trading if it believes a transaction, net of costs (including
custodian charges), will help in attaining its investment objective. For a
description of the strategies which may be used by the Fund in trading portfolio
securities, see "Portfolio Transactions and Brokerage Commissions" in the SAI.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. 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, MFS may consider sales of shares of investment
company clients of MFD as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions. For a further discussion of portfolio
trading, see the SAI.
-------------------
The SAI includes a discussion of other investment policies and techniques and a
listing of specific investment restrictions which govern the Fund's investment
policies. Certain investment restrictions listed in the SAI may be changed
without shareholder approval unless indicated otherwise (see "Investment
Restrictions" in the SAI). The Fund's investment limitations 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.
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7. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- MFS manages the Fund pursuant to an Investment Advisory
Agreement dated December 8, 1993 (the "Advisory Agreement") with the Trust on
behalf of the Fund. MFS provides the Fund with overall investment advisory and
administrative services, as well as general office facilities. William S. Harris
is the portfolio manager of the Fund. Mr. Harris, an Executive Vice President of
the Adviser, has been employed as a portfolio manager with the Adviser since
June 1967. Subject to such policies as the Trustees may determine, MFS makes
investment decisions for the Fund. For its services and facilities, MFS receives
a management fee, computed and paid monthly, in an amount equal to 0.65% per
annum of the average daily net assets of the Fund. For the fiscal year ended
September 30, 1996, MFS received fees under the Advisory Agreement of $310,911.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (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
Institutional 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.) ("Sun Life of Canada
(U.S.)") in connection with the sale of various fixed/variable annuity
contracts. MFS and its wholly owned subsidiary, 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 United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $52.1 billion on behalf of approximately 2.2 million investor
accounts as of December 31, 1996. As of such date, the MFS organization managed
approximately $28.0 billion of assets invested in equity securities and
approximately $19.9 billion of assets invested in fixed income securities.
Approximately $3.9 billion of the assets managed by MFS are invested in
securities of foreign issuers and non-U.S. dollar denominated securities of U.S.
issuers. MFS is a subsidiary of Sun Life of Canada (U.S.), which in turn is a
wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott,
John D. McNeil and Donald A. Stewart. Mr. Brodkin is the Chairman, Mr. Shames is
the President and Mr. Scott is the Secretary and a Senior Executive Vice
President of MFS. Messrs. McNeil and 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
United States since 1895, establishing a headquarters office here in 1973. The
executive officers of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman, President
and a Trustee of the Trust. W. Thomas London, Stephen E. Cavan, James R.
Bordewick, Jr., and James O. Yost, all of whom are officers of MFS, are officers
of the Trust.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd.
("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's
oldest financial services institutions, the London-based Foreign & Colonial
Investment Trust PLC, which pioneered the idea of investment management in 1868,
and HYPO-BANK (Bayerische-Hypotheken-und Wechsel-Bank AG), the oldest publicly
listed bank in Germany, founded in 1835. As part of this alliance, the portfolio
managers and investment analysts of MFS and Foreign & Colonial share their views
on a variety of investment-related issues, such as the economy, securities
markets, portfolio securities and their issuers, investment recommendations,
strategies and techniques, risk analysis, trading strategies and other portfolio
management matters. MFS has access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial has access to
the extensive U.S. equity investment expertise of MFS. MFS and Foreign &
Colonial each have investment personnel working in each other's offices in
Boston and London, respectively.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive
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investment advice from MFS and Foreign & Colonial, particularly when the same
security is suitable for more than one client. While in some cases this
arrangement could have a detrimental effect on the price or availability of the
security as far as the Fund is concerned, in other cases, however, it may
produce increased investment opportunities for the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
INDEX MANAGER -- ACS, a Maryland corporation with offices at 3 Bethesda Metro
Center, Bethesda, Maryland 20814, develops, maintains and furnishes to MFS the
LSI pursuant to an agreement between MFS and ACS. Under this agreement, MFS pays
ACS a fee equal to 0.05% per annum, payable quarterly, of the aggregate average
daily net assets of the Fund, with a minimum quarterly fee of $82,500.
ADVISORY BOARD -- The Advisory Board, established by ACS, assists in the
development and maintenance of the LSI by applying qualitative labor sensitivity
criteria and assisting ACS in developing and refining quantitative labor
sensitivity criteria applied by ACS. The Advisory Board is comprised of senior
labor officials, senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
8. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased directly through MFD in cash or in-kind
without a sales charge at their net asset value next determined after acceptance
of the purchase order by the Fund's Shareholder Servicing Agent in Boston. The
minimum initial investment generally is $3 million. There is no minimum on
additional investments.
An order for the purchase of shares of the Fund is 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, a non-federal funds investment
will generally remain idle for one business day after receipt or until federal
funds otherwise become available for investment. All investments in the 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 Fund does not 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.
OPENING AN ACCOUNT: Payments by check should be made to the order of "MFS Union
Standard Trust-Equity Fund" and sent to the Trust as follows: MFS Service
Center, Inc., P.O. Box 1400, Boston, MA 02104-9985. Payments of federal funds
should be sent by wire to the custodian of the Fund as follows:
State Street Bank and Trust Company, Boston, MA 02101
ABA # 011000028
BNF = MFS Union Standard Trust-Equity Fund
Account # 99034795
OBI = (Your account as it will be registered)
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
must also mail the enclosed Account Application to the Shareholder Servicing
Agent.
A shareholder purchasing shares by wire must first telephone the Shareholder
Servicing Agent toll-free at (800) 637-8730 to advise of its intended action and
to obtain a wire order number.
IN-KIND PURCHASES OF SECURITIES: Shares of the Fund may be purchased by
exchanging securities acceptable to the Fund for Fund shares. The Fund need not
accept any security offered for exchange unless it is consistent with the Fund's
investment
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objective, policies and restrictions, and is otherwise acceptable to the Fund.
Securities accepted in exchange for shares will be valued in accordance with the
Fund's usual valuation procedures. Investors interested in making an in-kind
purchase of Fund shares must first telephone the Shareholder Servicing Agent
toll-free at (800) 637-8730 to advise of its intended action and obtain
instructions for an in-kind purchase.
REDEMPTIONS
A shareholder may withdraw all or any portion of the amount in its account on
any date on which the Fund is open for business by redeeming shares at their net
asset value. Since the net asset value of shares of the account fluctuates
redemptions, which are taxable transactions for non-exempt shareholders, are
likely to result in gains or losses to such shareholders. When a shareholder
withdraws an amount from its account, the shareholder is deemed to have tendered
for redemption a sufficient number of full and fractional shares in his account
to cover the amount withdrawn. The proceeds of a redemption or repurchase will
normally be available within seven days, except that for shares purchased, or
received in exchange for shares purchased, by check (including certified checks
or cashier's checks) payment of redemption proceeds may be delayed for 15 days
from the purchase date in an effort to assure that such check has cleared.
Payment of redemption proceeds may be delayed for up to seven days from the
redemption date if the Fund determines that such a delay would be in the best
interest of all its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder may redeem all or any portion of the
shares in its account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or a letter of instruction all in "good order" for transfer. Because
the shareholders of the Fund are pension plans, "good order" means that the
stock power, written request for redemption or letter of instruction must be
endorsed by a trustee or an authorized officer of the retirement plan or an
authorized officer of the retirement plan's custodian and the signature(s) must
be guaranteed in the manner set forth below under the caption "Signature
Guarantee" (unless the conditions set forth thereunder are satisfied). In
addition, in some cases "good order" requires that the retirement plan or its
custodian furnish evidence of authority that the individual signing on the
plan's behalf has authority to so act. The Shareholder Servicing Agent may make
certain DE MINIMIS exceptions to the above requirements for redemption (see
"Signature Guarantee" below). Within seven days after receipt of a redemption
request by the Shareholder Servicing Agent in "good order," the Fund will
normally make payment in cash of the net asset value of the shares next
determined after such redemption request was received, less the amount of any
income tax required to be withheld, except during any period in which the right
of redemption is suspended or date of payment is postponed because the Exchange
is closed or trading on such Exchange is restricted or to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
B. REDEMPTION BY TELEPHONE -- Each shareholder may redeem an amount from its
account by telephoning the Shareholder Servicing Agent toll-free at (800)
637-8730. Shareholders wishing to avail themselves of this telephone redemption
privilege must so elect on their Account Application, designate thereon a
commercial bank and account number to receive the proceeds of such redemption,
sign the Account Application Form with the signature(s) guaranteed in the manner
set forth below under the caption "Signature Guarantee" and furnish evidence of
authority that the individual signing on the pension plan's behalf has authority
to so act. The proceeds of such a redemption, less the amount of any income tax
required to be withheld, are wired in federal funds to the designated account.
If a telephone redemption request is received by the Shareholder Servicing Agent
by the close of regular trading on the Exchange on any business day, shares will
be redeemed at the closing net asset value of the Fund on that day. Subject to
the conditions described in this section, proceeds of a redemption are normally
wired on the next business day following the date of receipt of the order for
redemption. The Shareholder Servicing Agent will not be responsible for any
losses resulting from unauthorized telephone transactions if it follows
reasonable procedures designed to verify the identity of the caller. The
Shareholder Servicing Agent will request personal or other information from the
caller, and will normally also record calls. Shareholders should verify the
accuracy of confirmation statements immediately after their receipt.
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SIGNATURE GUARANTEE: In order to protect shareholders against fraud to the
greatest extent possible, the Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must be guaranteed by an eligible bank, broker, dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association. Signature guarantees shall be accepted
in accordance with policies established by the Shareholder Servicing Agent. With
respect to written requests for redemptions, no signature guarantee or evidence
that the individual executing the stock power, written request for redemption or
letter of instruction 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.
If MFS determines, in its sole discretion, that it would be detrimental to the
best interests of the remaining shareholders of the Fund or if requested by a
shareholder, the Fund may make payment of the redemption price, either totally
or partially, by a distribution in-kind of securities (instead of cash) from the
Fund's portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net asset
value for the shares being sold (see "Net Asset Value" below). Securities
distributed by the Fund will be selected by MFS 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, it
would incur brokerage charges when converting the securities to cash.
DISTRIBUTION PLAN
The Trustees have adopted a distribution plan (the "Distribution Plan" or the
"Plan") for the Fund pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Rule"), after having concluded that there is a reasonable
likelihood that the Plan would benefit the Fund and its shareholders.
The Distribution Plan provides that the Fund will pay MFD a distribution fee up
to (but not necessarily all of) 0.25% per annum of the Fund's average daily net
assets in order that MFD may pay expenses on behalf of the Fund related to the
distribution of shares. A portion of the distribution fee equal to 0.15% per
annum is currently being paid by the Fund; payment of the remaining portion of
the distribution fee will become payable on such date as the Trustees of the
Trust may determine. As contemplated by the Plan, MFD, as the Fund's
distributor, acts as an agent of the Fund in connection with the offering of
shares pursuant to the Distribution Agreement with the Trust on behalf of the
Fund. MFD receives such fee as partial consideration for services performed and
expenses incurred in the performance of MFD's obligations under the Distribution
Agreement.
The types of expenses for which MFD may be compensated under the Plan include
compensation to and expenses of employees of MFD who engage in or support the
distribution of shares or who service shareholder accounts, preparation,
printing and mailing of prospectuses and statements of additional information to
other than existing shareholders, reports to shareholders such as semiannual and
annual reports, performance reports and newsletters, sales literature and other
promotional material to prospective investors, direct mail solicitation,
advertising and public relations, compensation of sales personnel, office
expenses (including rent and overhead), equipment, travel and telephone expenses
and such other expenses as may be approved from time to time by the Trustees and
as may be permitted by applicable statute, rule or regulation. If the
distribution fee received by MFD exceeds its expenses, MFD may realize a profit
from these arrangements. Expenses under the Plan will be reviewed quarterly and
the Plan will be reviewed and is subject to approval annually by the Trustees.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on an annual basis. In determining the net investment
income available for distributions, the Fund may rely on projections of its
anticipated net investment income over a longer term, rather than its actual net
investment income for the period. The Fund may make one or more distributions
during the calendar year to its shareholders from any net realized long-term or
short-term capital gains. Shareholders may elect to receive dividends and
capital gain distributions in either cash or additional shares of the Fund. See
"Tax Status" and "Shareholder Services -- Distribution Options" below.
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TAX STATUS
In order to minimize the taxes the Fund would otherwise be required to pay, the
Fund has elected to be treated and intends to elect to be, and to qualify each
year as, a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). Because the Fund intends to
distribute all of its net investment income and net capital gains to its
shareholders in accordance with the timing requirements imposed by the Code, it
is expected that the Fund will not be required to pay any entity level federal
income or excise taxes.
The Fund's shareholders that are not liable for federal, state or local income
taxes, such as certain retirement plans, will generally not have to pay federal
income tax, or any state and local income taxes, on the dividends and capital
gain distributions they receive from the Fund, whether paid in cash or
additional shares. Shareholders who are not tax-exempt entities will normally
have to pay U.S. federal income taxes, and any state and local income taxes, on
the dividends and capital gain distributions from the Fund, whether paid in cash
or additional shares. Such shareholders should consult their tax advisers before
making an investment in the Fund.
The Fund intends to withhold U.S. federal income tax at a rate of 30% on
dividends and certain other payments that are subject to such withholding, and
that are made to non-exempt persons who are neither citizens nor residents of
the U.S., regardless of whether a lower rate may be permitted under an
applicable law or treaty. The Fund is also required in certain circumstances to
apply backup withholding of 31% on reportable dividends and redemption proceeds
paid to any shareholder (including a shareholder who is neither a citizen nor a
resident of the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to such shareholder payments which have
had 30% withholding taken. Prospective shareholders should read the Account
Application for information regarding backup withholding of federal income tax
and should consult their own tax advisers as to the tax consequences of an
investment in the Fund.
For individual shareholders a statement setting forth the federal income tax
status of all dividends and distributions for each calendar year will be sent
promptly after the end of such year.
NET ASSET VALUE
The net asset value per share of the Fund is determined each day during which
the Exchange is open for trading. This determination is made once each day as of
the close of regular trading on the Exchange by deducting the amount of the
Fund's liabilities from the value of the Fund's assets and dividing the
difference by the number of shares outstanding. Assets in the Fund's portfolio
are valued on the basis of their current values or otherwise at their fair
values, as described in the SAI. The net asset value of shares is effective for
orders accepted by MFD prior to its calculation.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund currently has one class of shares, entitled Shares of Beneficial
Interest (without par value). The Trust has reserved the right to create and
issue additional classes and series of shares, in which case each class of
shares of a series would participate equally in the earnings, dividends and
assets attributable to that class of that particular series. Shareholders are
entitled to one vote for each share held and shares of each series would be
entitled to vote separately to approve investment advisory agreements or changes
in investment restrictions, but shares of all series would vote together in the
election of Trustees and selection of accountants. Additionally, each series
would vote separately on any material increases in the fees under its
Distribution Plan or on any other matter that affects solely that series, but
would otherwise vote together with all other series on all other matters. The
Trust does not intend to hold annual shareholder meetings. The Declaration of
Trust provides that a Trustee may be removed from office in certain instances.
See "Description of Shares, Voting Rights and Liabilities" in the SAI.
Each share of the Fund represents an equal proportionate interest in the Fund
with each other share, subject to the liabilities of the particular series.
Shares have no pre-emptive or conversion rights. Shares are fully paid and
non-assessable. Should the
15
<PAGE>
Fund be liquidated, shareholders are entitled to share pro rata in the net
assets available for distribution to shareholders. Shares will remain on deposit
with the Shareholder Servicing Agent and certificates will not be issued except
in connection with pledges and assignments and in certain other limited
circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed (E.G., fidelity bonding and omission insurance) and the Trust
itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide total rate of return quotations for its
shares and may also quote fund rankings in the relevant fund category from
various sources, such as the Lipper Analytical Services, Inc. and Wiesenberger
Investment Companies Service. From time to time the Fund may also compare its
performance to the LSI. Total rate of return quotations will reflect the average
annual percentage change over stated periods in the value of an investment in
shares of the Fund with all distributions reinvested. The Fund's total rate of
return quotations are based on historical performance and are not intended to
indicate future performance. Total rate of return reflects all components of
investment return over a stated period of time. The Fund's quotations may from
time to time be used in advertisements, shareholder reports or other
communications to shareholders. For a discussion of the manner in which the Fund
will calculate its total rate of return, see the SAI. For further information
about the Fund's performance for the fiscal year ended September 30, 1996,
please see the Fund's Annual Report. A copy of the Annual Report may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number). In addition to information provided in shareholder
reports, the Fund may, in its discretion, from time to time, make a list of all
or a portion of its holdings available to investors upon request.
EXPENSES
The Trust pays the compensation of the Trustees who are not officers of MFS and
all expenses of the Fund (other than those assumed by MFS or MFD) including but
not limited to: governmental fees; interest charges; taxes; membership dues in
the Investment Company Institute allocable to the Fund; fees and expenses of
independent auditors, of legal counsel, and of any transfer agent, registrar or
dividend disbursing agent of the Fund; expenses of 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 Fund's Custodian, for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing of
prospectuses are borne by the Fund except that the 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 between 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 Fund's expenses such that the Fund's "Other Expenses," which are
defined to include all Fund expenses except for management fees and Rule 12b-1
fees, do not exceed 0.20% per annum of its average daily net assets (the
"Maximum Percentage"). The obligation of MFS to bear these expenses terminates
on the last day of the Fund's fiscal year in which the Fund's "Other Expenses"
are less than or equal to the Maximum Percentage. The payments made by MFS on
behalf of the 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
16
<PAGE>
limitation that immediately after such payment the Fund's "Other Expenses" will
not exceed the Maximum Percentage. This expense reimbursement by the Fund 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, 1998.
9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund should contact the Shareholder Servicing
Agent.
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in its account.
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 the 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 distribution or redemption checks.
-------------------
The Fund's SAI, dated February 1, 1997, contains more detailed information about
the Trust and the Fund, including, but not limited to, information related to
(i) the investment objective, policies and restrictions, (ii) the Trustees,
officers and investment adviser, (iii) portfolio trading, (iv) the Fund's
shares, including rights and liabilities of shareholders, (v) the tax status of
dividends and distributions, (vi) the Distribution Plan and (vii) the method
used to calculate total rate of return quotations.
17
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: 800-637-8730
MAILING ADDRESS:
P.O. Box 1400, Boston, MA 02104-9985
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
[LOGO]
MFS-Registered Trademark-
Union Standard-SM- Equity Fund
500 Boylston Street, Boston, MA 02116
USTE-1 1/97/2.3M
<PAGE>
MFS-Registered Trademark-
Union Standard-SM-
Equity Fund
[LOGO]
PROSPECTUS
FEBRUARY 1, 1997
<PAGE>
MFS-REGISTERED TRADEMARK- UNION STATEMENT OF
STANDARD-SM- EQUITY FUND ADDITIONAL INFORMATION
FEBRUARY 1, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
1. General Information and Definitions.................................................. 2
2. Investment Objective and Policies.................................................... 2
3. Investment Restrictions.............................................................. 8
4. Management of the Fund............................................................... 9
Trustees............................................................................. 9
Officers............................................................................. 9
Trustee Compensation Table........................................................... 9
Investment Adviser................................................................... 10
Custodian............................................................................ 10
Shareholder Servicing Agent.......................................................... 10
Distributor.......................................................................... 11
5. Portfolio Transactions and Brokerage Commissions..................................... 11
6. Tax Status........................................................................... 12
7. Determination of Net Asset Value; Performance Information............................ 13
8. Distribution Plan.................................................................... 14
9. Description of Shares, Voting Rights and Liabilities................................. 15
10. Independent Auditors and Financial Statements........................................ 15
Appendix A........................................................................... A-1
</TABLE>
MFS UNION STANDARD-SM- EQUITY FUND
A Series of MFS Union Standard Trust
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
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 Fund's Prospectus, dated
February 1, 1997. 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.
UST-13 2/95/370
<PAGE>
1. GENERAL INFORMATION AND DEFINITIONS
MFS Union Standard-SM- Trust (the "Trust") is a professionally managed open-end,
management investment company (a "mutual fund"). The Trust currently consists of
one series or fund: MFS Union Standard-SM- Equity Fund (the "Equity Fund" or the
"Fund"). Additional funds may be created by the Trustees from time to time. The
Fund offers its shares pursuant to a prospectus dated February 1, 1997, as
supplemented or amended from time to time (the "Prospectus").
The Fund's investment adviser and distributor are, respectively, Massachusetts
Financial Services Company ("MFS" or the "Adviser") and MFS Fund Distributors,
Inc. ("MFD" or the "Distributor"), each a Delaware corporation.
2. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
growth of capital that, net of Fund expenses, exceeds the performance of the LSI
(as defined in the Prospectus). Any investment involves risk and there can be no
assurance that the Fund will achieve its objective.
INVESTMENT POLICIES. The investment policies of the Fund are described in the
Prospectus. In addition, certain of the Fund's investment policies are described
below.
LENDING OF SECURITIES
The Fund may seek to increase its income by lending portfolio securities. Such
loans will usually be made only to member banks of the Federal Reserve System
and to member firms (and subsidiaries thereof) of the New York Stock Exchange
(the "Exchange") and would be required to be secured continuously by collateral
in cash, U.S. Government securities or an irrevocable letter of credit
maintained on a current basis at an amount at least equal to the market value of
the securities loaned. The Fund would have the right to call a loan and obtain
the securities loaned at any time on customary industry settlement notice (which
will usually not exceed five business days). During the existence of a loan, the
Fund would continue to receive the equivalent of the interest or dividends paid
by the issuer on the securities loaned and would also receive compensation based
on investment of the collateral or a fee. The Fund would not, however, have the
right to vote any securities having voting rights during the existence of the
loan, but would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their consent
on a material matter affecting the investment. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to firms deemed by MFS to be of good standing, and when, in the
judgment of MFS, the consideration which could be earned currently from
securities loans of this type justifies the attendant risk. If MFS determines to
make securities loans, it is not intended that the value of the securities
loaned would exceed 30% of the value of the Fund's total assets.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward delivery"
basis. It is expected that, under normal circumstances, the Fund will take
delivery of such securities. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it will set up procedures
consistent with the General Statement of Policy of the Securities and Exchange
Commission (the "SEC") concerning such purchases. Since that policy currently
recommends that an amount of the Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, the
Fund will always have cash, short-term money market instruments or high quality
debt securities sufficient to cover any commitments or to limit any potential
risk. However, although each Fund does not intend to make such purchases for
speculative purposes and intends to adhere to the provisions of SEC policies,
purchases of securities on such bases may involve more risk than other types of
purchases. For example, the Fund may have to sell assets which have been set
aside in order to meet redemptions. Also, if the Fund determines it is necessary
to sell the "when-issued" or "forward delivery" securities before delivery, it
may incur a loss because of market fluctuations since the time the commitment to
purchase such securities was made. When the time comes to pay for "when-issued"
or "forward delivery" securities, the Fund will meet its obligations from the
then-available cash flow on the sale of securities, or, although it would not
normally expect to do so, from the sale of the "when-issued" or "forward
delivery" securities themselves (which may have a value greater or less than the
Fund's payment obligation).
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with sellers who are member firms
(or subsidiaries thereof) of the Exchange, members of the Federal Reserve
System, recognized primary U.S. Government securities dealers or institutions
which MFS has determined to be of comparable creditworthiness. The securities
that the Fund purchases and holds through its agent are U.S. Government
securities, the values, including accrued interest, of which are equal to or
greater than the repurchase price agreed to be paid by the seller. The
repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to the Fund together with the repurchase price
on repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after MFS has determined that the seller
is creditworthy, and MFS monitors the seller's creditworthiness on an ongoing
basis. Moreover, under such agreements, the value, including accrued interest,
of the securities (which are marked to market every business day) is required to
be greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
OPTIONS
OPTIONS ON SECURITIES--As noted in the Prospectus, the Fund may write covered
call and put options and purchase call and put options on securities. Call and
put options written by the Fund may be covered in the manner set forth below.
2
<PAGE>
A call option written by the Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. A put option written by
the Fund is "covered" if the Fund maintains cash, short-term money market
instruments or high quality debt securities with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options written by the Fund
may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counterparty with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash, short-term money market
instruments or high quality debt securities. Such transactions permit the Fund
to generate additional premium income, which will partially offset declines in
the value of portfolio securities or increases in the cost of securities to be
acquired. Also, effecting a closing transaction will permit the cash or proceeds
from the concurrent sale of any securities subject to the option to be used for
other investments of the Fund, provided that another option on such security is
not written. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction in connection with the option prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing transaction if the premium paid in
connection with the closing of an option written by the Fund is less than the
premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than the
premium paid for the original purchase. Conversely, the Fund will suffer a loss
if the premium paid or received in connection with a closing transaction is more
or less, respectively, than the premium received or paid in establishing the
option position. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option previously written by the
Fund is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at-the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will decline moderately during the option period. Buy-and-write
transactions using out-of-the-money call options may be used when it is expected
that the premiums received from writing the call option plus the appreciation in
the market price of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying security alone. If
the call options are exercised in such transactions, the Fund's maximum gain
will be the premium received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of the security
and the exercise price, less related transaction costs. If the options are not
exercised and the price of the underlying security declines, the amount of such
decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received, less related transaction costs. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may elect
to close the position or retain the option until it is exercised, at which time
the Fund will be required to take delivery of the security at the exercise
price; the Fund's return will be the premium received from the put option minus
the amount by which the market price of the security is below the exercise
price, which could result in a loss. Out-of-the-money, at-the-money and
in-the-money put options may be used by the Fund in the same market environments
that call options are used in equivalent buy-and-write transactions.
The Fund may also write combinations of put and call options on the same
security, known as "straddles," with the same exercise price and expiration
date. By writing a straddle, the Fund undertakes a simultaneous obligation to
sell and purchase the same security in the event that one of the options is
exercised. If the price of the security subsequently rises sufficiently above
the exercise price to cover the amount of the premium and transaction costs, the
call will likely be exercised and the Fund will be required to sell the
underlying security at a below market price. This loss may be offset, however,
in whole or part, by the premiums received on the writing of the two options.
Conversely, if the price of the security declines by a sufficient amount, the
put will likely be exercised. The writing of straddles will likely be effective,
therefore, only where the price of the security remains stable and neither the
call nor the put is exercised. In those instances where one of the options is
exercised, the loss on the purchase or sale of the underlying security may
exceed the amount of the premiums received.
By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price above its
then current market value, resulting in a
3
<PAGE>
capital loss unless the security subsequently appreciates in value. The writing
of options on securities will not be undertaken by the Fund solely for hedging
purposes, and could involve certain risks which are not present in the case of
hedging transactions. Moreover, even where options are written for hedging
purposes, such transactions constitute only a partial hedge against declines in
the value of portfolio securities or against increases in the value of
securities to be acquired, up to the amount of the premium.
The Fund may purchase options for hedging purposes or to increase its return.
Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit the
Fund to sell the securities at the exercise price, or to close out the options
at a profit. By using put options in this way, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing in the future. If such increase
occurs, the call option will permit the Fund to purchase the securities at the
exercise price, or to close out the options at a profit. The premium paid for
the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
OPTIONS ON STOCK INDICES--As noted in the Prospectus, the Fund may write (sell)
covered call and put options and purchase call and put options on stock indices.
In contrast to an option on a security, an option on a stock index provides the
holder with the right but not the obligation to make or receive a cash
settlement upon exercise of the option, rather than the right to purchase or
sell a security. The amount of this settlement is equal to (i) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
call) or is below (in the case of a put) the closing value of the underlying
index on the date of exercise, multiplied by (ii) a fixed "index multiplier."
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of MFS, are expected to be similar to those of the
underlying index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities in its portfolio. Where the Fund covers a call
option on a stock index through ownership of securities, such securities may not
match the composition of the index and, in that event, the Fund will not be
fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. The Fund may also cover call options on stock
indices by holding a call on the same index and in the same principal amount as
the call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, short-term money market instruments or high quality debt securities in
a segregated account with its custodian. The Fund may cover put options on stock
indices by maintaining cash, short-term money market instruments or high quality
debt securities with a value equal to the exercise price in a segregated account
with its custodian, or by holding a put on the same stock index and in the same
principal amount as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written or where the
exercise price of the put held is less than the exercise price of the put
written if the difference is maintained by the Fund in cash, short-term money
market instruments or high quality debt securities in a segregated account with
its custodian. Put and call options on stock indices may also be covered in such
other manner as may be in accordance with the rules of the exchange on which, or
the counterparty with which, the option is traded and applicable laws and
regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation in
the Fund's stock investments. By writing a put option, the Fund assumes the risk
of a decline in the index. To the extent that the price changes of securities
owned by the Fund correlate with changes in the value of the index, writing
covered put options on indices will increase the Fund's losses in the event of a
market decline, although such losses will be offset in part by the premium
received for writing the option.
The Fund may also purchase put options on stock indices to hedge its investments
against a decline in value. By purchasing a put option on a stock index, the
Fund will seek to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by the Fund to attempt
to reduce the risk of missing a broad market advance, or an advance in an
industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options for
this purpose, the Fund will also bear the risk of losing all or a portion of the
premium paid if the value of the index does not rise. The purchase of call
options on stock indices when the Fund is substantially fully invested is a form
of leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility similar to those involved in
purchasing calls on securities the Fund owns.
The index underlying a stock index option may be a "broad-based" index, such as
the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index,
the changes in value of which ordinarily will reflect movements in the stock
market in general. In contrast, certain options may be based on narrower market
indices, such as the Standard & Poor's 100 Index, or on indices of securities of
particular industry groups, such as those of oil and gas or technology
companies. A stock index assigns relative values to the stocks included in the
index and the index fluctuates with changes in the market values of the stocks
so included. The composition of the index is changed periodically.
4
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS--As noted in the Prospectus, the Fund may purchase and sell
futures contracts on stock indices ("Futures Contracts"). Such investment
strategies will be used for hedging purposes and for non-hedging purposes,
subject to applicable law.
A Futures Contract is a bilateral agreement providing for the purchase and sale
of a specified type and amount of a financial instrument, or for the making and
acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a Futures Contract provides for a specified settlement date
on which the difference between the price at which the contract was entered into
and the contract's closing value is settled between the purchaser and seller in
cash. Futures Contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures Contracts call for settlement only on the expiration
date and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale of
a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index
underlying the Futures Contract fluctuates, making positions in the Futures
Contract more or less valuable - a process known as "marking to the market."
Purchases or sales of stock index futures contracts are used to attempt to
protect the Fund's current or intended stock investments from broad fluctuations
in stock prices. For example, the Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of the Fund's securities portfolio that might otherwise result. If
such decline occurs, the loss in value of portfolio securities may be offset, in
whole or part, by gains on the futures position. When the Fund is not fully
invested in the securities market and anticipates a significant market advance,
it may purchase stock index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the cost of
securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in stock index futures contracts will be closed out. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position, but under unusual market
conditions, a long futures position may be terminated without a related purchase
of securities.
OPTIONS ON FUTURES CONTRACTS--As noted in the Prospectus, the Fund may purchase
and write options to buy or sell futures contracts in which it may invest
("Options on Futures Contracts"). Such investment strategies will be used for
hedging purposes and for non-hedging purposes, subject to applicable law.
An Option on a Futures Contract provides the holder with the right to enter into
a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an Option on a Futures Contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an Option on a Futures Contract may be terminated by the purchaser
or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (I.E., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
Options on Futures Contracts that are written or purchased by the Fund on U.S.
exchanges are traded on the same contract market as the underlying Futures
Contract, and, like Futures Contracts, are subject to regulation by the
Commodity Futures Trading Commission (the "CFTC") and the performance guarantee
of the exchange clearinghouse.
The Fund may cover the writing of call Options on Futures Contracts (a) through
purchases of the underlying Futures Contract, (b) through ownership of the
instrument, or instruments included in the index, underlying the Futures
Contract, or (c) through the holding of a call on the same Futures Contract and
in the same principal amount as the call written where the exercise price of the
call held (i) is equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or securities in a segregated account with its
custodian. The Fund may cover the writing of put Options on Futures Contracts
(a) through sales of the underlying Futures Contract, (b) through segregation of
cash, short-term money market instruments or high quality debt securities in an
amount equal to the value of the security or index underlying the Futures
Contract, or (c) through the holding of a put on the same Futures Contract and
in the same principal amount as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written or
where the exercise price of the put held is less than the exercise price of the
put written if the difference is maintained by the Fund in cash, short-term
money market instruments or high quality debt securities in a segregated account
with its custodian. Put and call Options on Futures Contracts may also be
covered in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations. Upon
the exercise of a call Option on a Futures Contract written by the Fund, the
Fund will be required to sell the underlying Futures Contract which, if the Fund
has covered its obligation through the purchase of such Contract, will serve to
liquidate its futures position. Similarly, where a put Option on a Futures
Contract written by the Fund is exercised, the Fund will be required to purchase
the underlying Futures Contract which, if the Fund has covered its obligation
through the sale of such Contract, will close out its futures position.
The writing of a call option on a Futures Contract for hedging purposes
constitutes a partial hedge against declining prices of the securities or other
instruments required to be delivered under the terms of the Futures Contract. If
the futures price at expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium, less related transaction
costs, which provides a partial hedge against any decline that may have occurred
in the Fund's portfolio
5
<PAGE>
holdings. The writing of a put option on a Futures Contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures Contract. If the futures
price at expiration of the option is higher than the exercise price, the Fund
will retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value of
its portfolio securities and the changes in the value of its futures positions,
the Fund's losses from existing Options on Futures Contracts may to some extent
be reduced or increased by changes in the value of portfolio securities.
The Fund may purchase Options on Futures Contracts for hedging purposes instead
of purchasing or selling the underlying Futures Contracts. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline the Fund could, in lieu of selling Futures
Contracts, purchase put options thereon. In the event that such decrease occurs,
it may be offset, in whole or part, by a profit on the option. Conversely, where
it is projected that the value of securities to be acquired by the Fund will
increase prior to acquisition, due to a market advance the Fund could purchase
call Options on Futures Contracts, rather than purchasing the underlying Futures
Contracts.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO. The Fund's abilities effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts and Options on
Futures Contracts depend on the degree to which price movements in the
underlying index or instrument correlate with price movements in the relevant
portion of the Fund's portfolio. In the case of futures and options based on an
index, the portfolio will not duplicate the components of the index. As a
result, the correlation probably will not be exact. Consequently, the Fund bears
the risk that the price of the portfolio securities being hedged will not move
in the same amount or direction as the underlying index or obligation.
For example, if the Fund purchases a put option on an index and the index
decreases less than the value of the hedged securities, the Fund would
experience a loss which is not completely offset by the put option. It is also
possible that there may be a negative correlation between the index or
obligation underlying an option or Futures Contract in which the Fund has a
position and the portfolio securities the Fund is attempting to hedge, which
could result in a loss on both the portfolio and the hedging instrument.
It should be noted that stock index futures contracts or options based upon a
narrower index of securities, such as those of a particular industry group, may
present greater risk than options or futures based on a broad market index. This
is due to the fact that a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a small number of
securities. Nevertheless, where the Fund enters into transactions in options or
futures on narrow-based indices for hedging purposes, movements in the value of
the index should, if the hedge is successful, correlate closely with the portion
of the Fund's portfolio or the intended acquisitions being hedged.
The trading of Futures Contracts and options for hedging purposes entails the
additional risk of imperfect correlation between movements in the futures or
option price and the price of the underlying index or obligation. The
anticipated spread between the prices may be distorted due to the differences in
the nature of the markets, such as differences in margin requirements, the
liquidity of such markets and the participation of speculators in the options
and futures markets. In this regard, trading by speculators in options and
Futures Contracts has in the past occasionally resulted in market distortions,
which may be difficult or impossible to predict, particularly near the
expiration of such Contracts.
The trading of Options on Futures Contracts also entails the risk that changes
in the value of the underlying Futures Contract will not be fully reflected in
the value of the option. The risk of imperfect correlation, however, generally
tends to diminish as the maturity date of the Futures Contract or expiration
date of the option approaches.
Further, with respect to options on securities, options on stock indices and
Options on Futures Contracts, the Fund is subject to the risk of market
movements between the time that the option is exercised and the time of
performance thereunder. This could increase the extent of any loss suffered by
the Fund in connection with such transactions.
In writing a covered call option on a security, index or Futures Contract, the
Fund also incurs the risk that changes in the value of the instruments used to
cover the position will not correlate closely with changes in the value of the
option or underlying index or instrument. For example, where the Fund covers a
call option written on a stock index through segregation of securities, such
securities may not match the composition of the index, and the Fund may not be
fully covered. As a result, the Fund could be subject to risk of loss in the
event of adverse market movements.
The writing of options on securities, options on stock indices or Options on
Futures Contracts constitutes only a partial hedge against fluctuations in the
value of the Fund's portfolio. When the Fund writes an option, it will receive
premium income in return for the holder's purchase of the right to acquire or
dispose of the underlying obligation. In the event that the price of such
obligation does not rise sufficiently above the exercise price of the option, in
the case of a call, or fall below the exercise price, in the case of a put, the
option will not be exercised and the Fund will retain the amount of the premium,
less related transaction costs, which will constitute a partial hedge against
any decline that may have occurred in the Fund's portfolio holdings or any
increase in the cost of the instruments to be acquired.
Where the price of the underlying obligation moves sufficiently in favor of the
holder to warrant exercise of the option, however, and the option is exercised,
the Fund will incur a loss which may only be partially offset by the amount of
the premium it received. Moreover, by writing an option, the Fund may be
required to forgo the benefits which might otherwise have been obtained from an
increase in the value of portfolio securities or other assets or a decline in
the value of securities or assets to be acquired.
In the event of the occurrence of any of the foregoing adverse market events,
the Fund's overall return may be lower than if it had not engaged in the hedging
transactions.
The Fund may enter into transactions in options, Futures Contracts and Options
on Futures Contracts not only for hedging purposes, but also for non-hedging
purposes intended to increase portfolio returns. Non-
6
<PAGE>
hedging transactions in such investments involve greater risks and may result in
losses which may not be offset by increases in the value of portfolio securities
or declines in the cost of securities to be acquired. The Fund will only write
covered options, such that cash or securities necessary to satisfy an option
exercise will be segregated at all times, unless the option is covered in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Nevertheless, the method
of covering an option employed by the Fund may not fully protect it against risk
of loss and, in any event, the Fund could suffer losses on the option position
which might not be offset by corresponding portfolio gains.
With respect to the writing of straddles on securities, the Fund incurs the risk
that the price of the underlying security will not remain stable, that one of
the options written will be exercised and that the resulting loss will not be
offset by the amount of the premiums received. Such transactions, therefore,
create an opportunity for increased return by providing the Fund with two
simultaneous premiums on the same security, but involve additional risk, since
the Fund may have an option exercised against it regardless of whether the price
of the security increases or decreases.
RISK OF A POTENTIAL LACK OF A LIQUID SECONDARY MARKET. Prior to exercise or
expiration, a futures or option position can only be terminated by entering into
a closing purchase or sale transaction. This requires a secondary market for
such instruments on the exchange on which the initial transaction was entered
into. While the Fund will enter into options or futures positions only if there
appears to be a liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular contracts at any specific time. In
that event, it may not be possible to close out a position held by the Fund, and
the Fund could be required to purchase or sell the instrument underlying an
option, make or receive a cash settlement or meet ongoing variation margin
requirements. Under such circumstances, if the Fund has insufficient cash
available to meet margin requirements, it will be necessary to liquidate
portfolio securities or other assets at a time when it is disadvantageous to do
so. The inability to close out options and futures positions, therefore, could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
and could result in trading losses.
The liquidity of a secondary market in a Futures Contract or option thereon may
be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures or option positions and requiring
traders to make additional margin deposits. Prices have in the past moved the
daily limit on a number of consecutive trading days.
The trading of Futures Contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse equipment failures,
government intervention, insolvency of a brokerage firm or clearinghouse or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
MARGIN. Because of low initial margin deposits made upon the opening of a
futures or forward position and the writing of an option, such transactions
involve substantial leverage. As a result, relatively small movements in the
price of the contract can result in substantial unrealized gains or losses.
Where the Fund enters into such transactions for hedging purposes, any losses
incurred in connection therewith should, if the hedging strategy is successful,
be offset, in whole or in part, by increases in the value of securities or other
assets held by the Fund or decreases in the prices of securities or other assets
the Fund intends to acquire. Where the Fund enters into such transactions for
other than hedging purposes, the margin requirements associated with such
transactions could expose the Fund to greater risk.
TRADING AND POSITION LIMITS. The exchanges on which futures and options are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). Further, the CFTC and the various contract markets have established
limits referred to as "speculative position limits" on the maximum net long or
net short position which any person may hold or control in a particular futures
or option contract. An exchange may order the liquidation of positions found to
be in violation of these limits and it may impose other sanctions or
restrictions. The Adviser does not believe that these trading and position
limits will have any adverse impact on the strategies for hedging the portfolio
of the Fund.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The amount of risk the Fund assumes when
it purchases an Option on a Futures Contract is the premium paid for the option,
plus related transaction costs. In order to profit from an option purchased,
however, it may be necessary to exercise the option and to liquidate the
underlying Futures Contract, subject to the risks of the availability of a
liquid offset market described herein. The writer of an Option on a Futures
Contract is subject to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate with movements
in the price of the underlying security, index or Futures Contract.
POLICIES ON THE USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS. In order to
assure that the Fund will not be deemed to be a "commodity pool" for purposes of
the Commodity Exchange Act, regulations of the CFTC require that the Fund enter
into transactions in Futures Contracts and Options on Futures Contracts only (i)
for BONA FIDE hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation value of the
Fund's assets. In addition, the Fund must comply with the requirements of
various state securities laws in connection with such transactions.
The Fund has adopted the additional restriction that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the value
of the Fund's total assets. Moreover, the Fund will not purchase put and call
options if as a result more than 5% of its total assets would be invested in
such options.
When the Fund purchases a Futures Contract, an amount of cash or securities will
be deposited in a segregated account with the Fund's
7
<PAGE>
custodian so that the amount so segregated will at all times equal the value of
the Futures Contract, thereby assuring that the leveraging effect of such
Futures Contract is minimized.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities held by a Fund, cannot
exceed 15% of the Fund's assets (the "SEC illiquidity ceiling"). Although MFS
disagrees with this position, the Adviser intends to limit the Fund's writing of
over-the-counter options in accordance with the following procedure. Except as
provided below, the Fund intends to write over-the-counter options only with
primary U.S. Government securities dealers recognized as such by the Federal
Reserve Bank of New York. Also, the contracts the Fund has in place with such
primary dealers provide that the Fund has the absolute right to repurchase an
option it writes at any time at a price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula in the
contract. Although the specific formula may vary between contracts with
different primary dealers, the formula generally is based on a multiple of the
premium received by the Fund for writing the option, plus the amount, if any of
the option's intrinsic value (I.E., the amount that the option is in-the-money).
The formula may also include a factor to account for the difference between the
price of the security and the strike price of the option if the option is
written out-of-the-money. The Fund will treat all or a portion of the formula as
illiquid for purposes of the SEC illiquidity ceiling test imposed by the SEC
staff. The Fund may also write over-the-counter options with non-primary dealers
and will treat the assets used to cover these options as illiquid for purposes
of such SEC illiquidity ceiling test.
-------------------
The Fund's limitations, policies and ratings restrictions are adhered to at the
time of purchase or utilization of assets; a subsequent change in circumstances
will not be considered to result in a violation of policy.
3. INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which cannot be changed without
the approval of the holders of a majority of the Fund's shares (which, as used
in this SAI, means the lesser of (i) more than 50% of the outstanding shares of
the Trust or the Fund, as applicable, or (ii) 67% or more of the outstanding
shares of the Trust or the Fund, as applicable, present at a meeting if holders
of more than 50% of the outstanding shares of the Trust or the Fund, as
applicable, are represented in person or by proxy). Except for Investment
Restriction (1), these investment restrictions and policies are adhered to at
the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
The Trust, on behalf of the Fund, 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 and any other type of option, and Futures
Contracts) in the ordinary course of its business. The 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 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 Investment
Company Act of 1940 (the "1940 Act"). For purposes of this restriction,
collateral arrangements with respect to any type of option (including Options
on Futures Contracts, Options and Options on Stock Indices), Forward Contracts
and 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 the
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, the Fund has adopted the following nonfundamental policies which
may be changed without shareholder approval. The Trust, on behalf of the 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 the Fund's limitation on investment in illiquid
securities. Securities that are not registered under the Securities Act of
1933, as amended, and sold in reliance on Rule 144A thereunder, but are
determined to be liquid by the Trust's Board of Trustees (or its delegee),
will not be subject to this 15% limitation;
(2) invest more than 5% of the value of the Fund's net assets, valued at
the lower of cost or market, in warrants. Included within such amount, but not
to exceed 2% of the value of the Fund's net assets, may be warrants which are
not listed on the New York or American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities may be deemed to be without value;
(3) purchase securities issued by any other investment company in excess of
the amount permitted by the 1940 Act, except
8
<PAGE>
when such purchase is part of a plan of merger or consolidation; currently,
the Fund does not intend to invest more than 5% of its net assets in such
securities;
(4) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund,
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;
(5) purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be necessary for
the clearance of any transaction and except that the Fund may make margin
deposits in connection with any type of option (including Options on Futures
Contracts, Options and Options on Stock Indices) and Futures Contracts;
(6) 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;
(7) 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;
(8) 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 Stock Indices), Futures Contracts and payments of initial and
variation margin in connection therewith, are not considered a pledge of
assets;
(9) purchase securities while borrowings from banks under a line of credit
or similar arrangement exceed 5% of the Fund's total assets;
(10) 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 on Futures Contracts or
(b) the purchase, ownership, holding or sale of contracts for the future
delivery of securities or currencies; or
(11) invest for the purpose of exercising control or management.
4. MANAGEMENT OF THE FUND
The Board of Trustees of the Trust provides broad supervision over the affairs
of the Fund. MFS is responsible for the investment management of the Fund's
assets and the officers of the Trust are responsible for its operations. The
Trustees and officers of the Trust are listed below, together with their
principal occupations during the past five years. (Their titles may have varied
during that period.)
TRUSTEES
A. KEITH BRODKIN* (born 8/4/35) -- Chairman and President
Massachusetts Financial Services Company, Chairman
NELSON J. DARLING, JR. (born 12/27/20)
Director or Trustee of several corporations or trusts, including Eastern
Enterprises (diversified holding company), Trustee
Address: 27 School Street, Boston, Massachusetts
WILLIAM R. GUTOW (born 9/27/41) -- Private Investor; Real Estate Consultant;
Capitol Entertainment (Blockbuster Video Franchise), Vice Chairman
Address: 3102 Maple Avenue, #100, Dallas, Texas
OFFICERS
W. THOMAS LONDON* (born 3/1/44) -- Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN* (born 11/6/53) -- Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary
JAMES R. BORDEWICK, JR.* (born 3/6/59) -- Assistant Secretary
Massachusetts Financial Services Company, Senior Vice President and Associate
General Counsel
JAMES O. YOST* (born 6/12/60) -- Assistant Treasurer
Massachusetts Financial Services Company, Vice President
- --------------
*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose address
is 500 Boylston Street, Boston, Massachusetts 02116.
Mr. Brodkin and each officer holds comparable positions with certain affiliates
of MFS or with certain other funds of which MFS or a subsidiary is the
investment adviser or distributor. Messrs. Brodkin and Cavan are the Chairman
and the Secretary, respectively, of MFD and hold similar positions with certain
other MFS affiliates.
TRUSTEE COMPENSATION TABLE
The Trust pays the compensation of the Trustees who are not officers of MFS (who
will each receive $1,300 annually plus $150 per meeting and $150 per committee
meeting attended). Set forth below is certain information concerning the cash
compensation paid to the Trustees.
<TABLE>
<CAPTION>
TOTAL TRUSTEE FEES
TRUSTEE FEES FROM THE FUND
NAME OF TRUSTEE FROM FUND(1) COMPLEX (2)
- -------------------------------------------------- ------------ ------------------
<S> <C> <C>
A. Keith Brodkin.................................. $ 0 $ 0
Nelson J. Darling................................. 2,800 25,133
William R. Gutow.................................. 2,800 25,133
</TABLE>
NOTES:
(1) For fiscal year ended September 30, 1996.
(2) For calendar year 1996. All Trustees receiving compensation served as
Trustees of 18 funds within the MFS Fund Complex (having aggregate net
assets at December 31, 1996, of approximately $696,475,584 million).
As of December 31, 1996, the Trustees and officers, as a group, owned less than
1% of the Fund's shares outstanding on that date.
As of December 31, 1996, U F C W Participating Food Ind. Employers Tri-State
Pension Fund, Pennsakauken, NJ, 08109-3377 was the record
9
<PAGE>
owner of 29.04% of the outstanding shares of the Fund. As of December 31, 1996,
C W A Pension & Death Benefit Trust, Washington, D.C., 10001-2760 was the record
owner of 14.19% of the outstanding shares of the Fund. As of December 31, 1996,
Equity League Pension Trust Fund Amivest Corp Discretionary Investment Manager,
New York, New York 10005-2501 was the record owner of 6.02% of the outstanding
shares of the Fund. As of December 31, 1996, Savannah ILA Employers Pension Plan
was the record owner of approximately 12.03% of the outstanding shares of the
Fund. As of December 31, 1996, International Longshoremens Assoc., Southeast
Florida Ports Employers Pension Fund, Miami, Florida 33132-1959 was the record
owner of approximately 12.17% of the outstanding shares of the Fund. As of
December 31, 1996, American Federation of Musicians and Employers Pension Fund
Amivest Discretionary Investment Manager, New York, New York 10005-2501 was the
record owner of approximately 5.82% of the outstanding shares of the Fund.
The Declaration of Trust provides that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless,
as to liabilities of the Trust or its shareholders, it is finally adjudicated
that they engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices, or with respect to
any matter, unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined pursuant to the Declaration of Trust, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) which in turn is a
wholly owned subsidiary of Sun Life Assurance Company of Canada.
MFS manages the assets of the Fund pursuant to an Investment Advisory Agreement
with the Trust dated as of December 8, 1993 (the "Advisory Agreement"). MFS
provides the Fund with overall investment advisory and administrative services,
as well as general office facilities. Subject to such policies as the Trustees
may determine, MFS makes investment decisions for the Fund. For these services
and facilities, the Adviser receives a management fee, computed and paid
monthly, in an amount equal to 0.65% per annum of the average daily net assets
of the Fund.
For the period from the commencement of investment operations on January 14,
1994 to September 30, 1994 and for each of the fiscal years ended September 30,
1995 and 1996, MFS received advisory fees under the Advisory Agreement of
$64,457, $193,107 and $310,911, respectively.
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. MFS also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting its portfolio
transactions and, in general, administering its affairs.
The Advisory Agreement with the Fund will remain in effect until August 1, 1997,
and will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the Fund's shares (as defined in "Investment Restrictions") and, in either case,
by a majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party. The Advisory Agreement terminates
automatically if it is assigned and may be terminated without penalty by vote of
a majority of the Fund's shares (as defined in "Investment Restrictions") or by
either party on not more than 60 days' nor less than 30 days' written notice.
The Advisory Agreement for the Fund provides that if MFS ceases to serve as the
investment adviser to the Fund, the Fund will change its name so as to delete
the term "MFS" and that MFS may render services to others and may permit other
fund clients to use the term "MFS" in their names. The Advisory Agreement also
provides that neither MFS nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution and management of the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its or
their duties or by reason of reckless disregard of its or their obligations and
duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Trust's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of shares of the Fund. The Custodian does not determine the
investment policies of the Fund or decide which securities the Fund will buy or
sell. The Fund may, however, invest in securities of the Custodian and may deal
with the Custodian as principal in securities transactions. The Custodian also
serves as the dividend and distribution disbursing agent of the Fund. The
Custodian has contracted with MFS for MFS to perform certain accounting
functions related to certain transactions for which the Adviser receives
remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to an
Amended and Restated Shareholder Servicing Agent Agreement with the Trust on
behalf of the Fund, dated as of November 17, 1995 (the "Agency Agreement"). The
Shareholder Servicing Agent's responsibilities under the Agency Agreement
include administering and performing transfer agent functions and the keeping of
records in connection with the issuance, transfer and redemption of shares of
the Fund. For these services, the Shareholder Servicing Agent will receive a fee
calculated as a percentage of the average daily net assets of the Fund at an
effective annual rate of 0.0075%, computed and paid monthly. In addition, the
Shareholder Servicing Agent will be reimbursed by the Fund for certain expenses
incurred by the Shareholder Servicing Agent on behalf of the Fund. State Street
Bank and Trust Company, the dividend and distribution disbursing agent for the
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Fund, has contracted with the Shareholder Servicing Agent to administer and
perform certain dividend and distribution disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as the distributor for the
continuous offering of shares of the Fund pursuant to a Distribution Agreement
dated as of December 8, 1993 (the "Distribution Agreement").
The Distribution Agreement will remain in effect until August 1, 1997 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.
5. PORTFOLIO TRANSACTIONS AND BROKERAGE
COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by
employees of MFS, who are appointed and supervised by its senior officers.
Changes in the Fund's investments are reviewed by the Board of Trustees. The
Fund's portfolio manager may serve other clients of MFS or any subsidiary of MFS
in a similar capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. MFS has complete freedom as to the markets in and the broker-dealers
through which it seeks this result. MFS attempts to achieve this result by
selecting broker-dealers to execute portfolio transactions on behalf of the Fund
and other clients of MFS on the basis of their professional capability, the
value and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities, which are principally traded in the
over-the-counter market on a net basis through dealers acting for their own
account and not as brokers (where no stated commissions are paid but the prices
include a dealer's markup or markdown), MFS normally seeks to deal directly with
the primary market makers, unless in its opinion, better prices are available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. Securities firms or futures commission merchants may receive
brokerage commissions on transactions involving options, Futures Contracts and
Options on Futures Contracts and the purchase and sale of underlying securities
upon exercise of options. The brokerage commissions associated with buying and
selling options may be proportionately higher than those associated with general
securities transactions. From time to time, soliciting dealer fees are available
to MFS on the tender of the Fund's portfolio securities in so-called tender or
exchange offers. Such soliciting dealer fees are in effect recaptured for the
Fund by MFS. At present no other recapture arrangements are in effect.
Under the Advisory Agreements and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, MFS may cause the Fund to pay a broker-dealer
which provides brokerage and research services to MFS 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 MFS 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 MFS's overall
responsibilities to the Fund or to its other clients. Not all of such services
are useful or of value in advising the Fund.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of purchasing or selling securities, and the
availability of purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; and effecting securities
transactions and performing functions incidental thereto such as clearance and
settlement.
Although commissions paid on every transaction will, in the judgment of MFS, be
reasonable in relation to the value of the brokerage services provided,
commissions exceeding those which another broker might charge may be paid to
broker-dealers who were selected to execute transactions on behalf of the Fund
and MFS's other clients in part for providing advice as to the availability of
purchasers or sellers of securities and services in effecting securities
transactions and performing functions incidental thereto such as clearance and
settlement.
Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") to MFS for no consideration other than
brokerage or underwriting commissions. Securities may be bought or sold from
time to time through such broker-dealers on behalf of the Fund. The Trustees
(together with the Trustees of the other MFS Funds) have directed MFS to
allocate a total of $39,100 of commission business from the various MFS Funds to
the Pershing Division of Donaldson, Lufkin & Jenrette as consideration for the
annual renewal of the certain publications provided by Lipper Analytical
Securities Corporation (which provides information useful to the Trustees in
reviewing the relationship between the Fund and MFS).
The investment management personnel of MFS attempt to evaluate the quality of
Research provided by brokers. Results of this effort are sometimes used by MFS
as a consideration in the selection of brokers to execute portfolio
transactions. However, MFS is unable to quantify the amount of commissions which
will be paid as a result of such Research because a substantial number of
transactions will be effected through brokers which provide Research but which
were selected principally because of their execution capabilities.
The management fee that the Fund pays to MFS will not be reduced as a
consequence of the receipt of brokerage and research services by MFS. To the
extent the Fund's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid, by an amount which cannot be presently determined. Such services would be
useful and of value to MFS in serving both the Fund and other clients and,
conversely, such services obtained by the placement of brokerage business of
other clients would be useful to MFS in carrying out its obligations to the
Fund. While such services are not expected to reduce the expenses of MFS, MFS
would, through use of the services, avoid the additional expenses which would be
incurred if it should attempt to develop comparable information through its own
staff.
In certain instances there may be securities which are suitable for a Fund's
portfolio as well as for that of one or more of the other clients of
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MFS. Investment decisions for the Fund and for such other clients are made with
a view to achieving their respective investment objectives. It may develop that
a particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed by the Adviser to be equitable to each. It is
recognized that in some cases this system could have a detrimental effect on the
price or volume of the security as far as the Fund is concerned. In other cases,
however, it is believed that a Fund's ability to participate in volume
transactions will produce better executions for the Fund.
For each of the fiscal years ended September 30, 1996 and 1995, the Fund paid
total brokerage commissions of $78,481 and $115,591, respectively on total
transactions of $61,985,397 and $73,027,727, respectively. For the period from
commencement of investment operations on January 14, 1994 to September 30, 1994,
the Fund paid total brokerage commissions of $39,724 on total transactions of
$34,413,987.
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the 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 and holding period
of the Fund's portfolio assets. Because the Fund intends to distribute all of
its net investment income and net realized capital gains to shareholders in
accordance with the timing and certain other requirements imposed by the Code,
it is not expected that the Fund will be required to pay any federal income or
excise taxes. If the Fund should fail to qualify for treatment as a "regulated
investment company" in any year, the Fund would incur regular corporate federal
income tax upon its taxable income and Fund distributions would generally be
taxable as ordinary dividend income to non-exempt shareholders. The Fund will be
subject to a nondeductible 4% excise tax ("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 and capital gain net income for the one-year period ending
on October 31 of that year, plus certain other amounts. As long as the Fund
qualifies for treatment as a regulated investment company under the Code, it
will not be subject to any Massachusetts excise or income taxes.
Shareholders of the Fund who 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, whether paid to
shareholders who are non tax-exempt entities in cash or additional shares, are
taxable to these shareholders as ordinary income for federal income tax
purposes. A portion of the Fund's ordinary income dividends (but none of its
capital gains) is normally eligible for the dividends-received deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of the Fund's shares. Availability of the deduction to
particular corporate shareholders is subject to certain limitations and deducted
amounts may be subject to the alternative minimum tax or result in certain basis
adjustments. Distributions of net capital gains (I.E., the excess of the net
long-term capital gains over short-term capital losses), whether received in
cash or reinvested in additional shares, if designated as such by the Fund, are
taxable to non-exempt shareholders as long-term capital gains for federal income
tax purposes without regard to the length of time the shareholders have held
their shares. Fund dividends which are declared in October, November, or
December, and paid the following January will be taxable to non-tax-exempt
shareholders as if received on December 31 of the year in which they are
declared.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares in the Fund shortly before the record date of any taxable
dividend or other distribution may thus pay the full price for the shares and
then effectively receive a portion of the purchase price back as a taxable
distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as long-term capital gain or loss if the shares have been held for more
than twelve months and otherwise as short-term capital gain or loss. However,
any loss realized upon a disposition of shares in the 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.
The Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders.
The Fund's transactions in options and Futures Contracts will be subject to
special tax rules that may affect the amount, timing and character of Fund
income and distributions to shareholders. For example, certain positions held by
the Fund on the last business day of each taxable year will be marked to market
(I.E., treated as if closed out) on such day, and any gain or loss associated
with the positions will be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by the Fund that substantially diminish its
risk of loss with respect to other positions in its portfolio will constitute
"straddles," and may be subject to special tax rules that could cause deferral
of Fund losses, adjustments in the holding periods of Fund securities and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Fund will
limit its activities in options and Futures Contracts to the extent necessary to
meet the requirements of Subchapter M of the Code.
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%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on any taxable dividends
or other payments made to Non-U.S. Persons that are subject to such withholding
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund with
the
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U.S. Internal Revenue Service within the time period applicable to such claims.
Distributions received from the Fund by Non-U.S. Persons also may be subject to
tax under the laws of their jurisdiction. The Fund is also required in certain
circumstances to apply backup withholding of 31% of taxable dividends, and
redemption proceeds paid to any individual or certain other noncorporate
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. However, backup withholding will not be applied to payments which
have been subject to 30% withholding.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local income taxes. The Fund intends to advise
non-tax-exempt 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 other consequences of an
investment in the Fund.
7. DETERMINATION OF NET ASSET VALUE;
PERFORMANCE INFORMATION
NET ASSET VALUE
The net asset value per share of the Fund is determined each day during which
the Exchange is open for trading. As of the date of this SAI, the Exchange is
open for trading every weekday except for the following holidays (or the days on
which they are observed): New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day). This
determination is made once during each such day as of the close of regular
trading on the Exchange by deducting the amount of the Fund's liabilities from
the value of its assets and dividing the difference by the number of shares of
the Fund outstanding. Securities, Futures Contracts and options in a Fund's
portfolio (other than short-term obligations) for which the principal market is
one or more securities or commodities exchanges will be valued at the last
reported sale price or at the settlement price prior to the determination (or if
there has been no current sale, at the closing bid price) on the primary
exchange on which such securities, Futures Contracts or options are traded; but
if a securities exchange is not the principal market for securities, such
securities will, if market quotations are readily available, be valued at
current bid prices, unless such securities are reported on the NASDAQ system, in
which case they are valued at the last sale price or, if no sales occurred
during the day, at the last quoted bid price. Debt securities (other than
short-term obligations but including listed issues) in the Fund's portfolio are
valued on the basis of valuations furnished by a pricing service which utilizes
both dealer-supplied valuations and electronic data processing techniques which
take into account appropriate factors such as institutional-sized trading in
similar groups of securities, yields, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive reliance
upon quoted prices or exchange or over-the-counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities.
Short-term obligations, if any, in the Fund's portfolio are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Short-term securities with a remaining maturity in excess of 60 days will be
valued based upon dealer supplied valuations. Portfolio securities and over-
the-counter options, for which there are no quotations or valuations are valued
at fair value as determined in good faith by or at the direction of the Board of
Trustees. A share's net asset value is effective for orders accepted by MFD, in
its capacity as the Fund's distributor, prior to its calculation.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The 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 with all
distributions reinvested) to reach the value of that investment at the end of
the periods. The Fund may also calculate total rates of return which represent
aggregate performance over a period or year-by-year performance. The Fund's
average annual total rate of return for the one-year period ended September 30,
1996 and for the period from January 14, 1994 (commencement of investment
operations) to September 30, 1996 was 20.96% and 14.63%, respectively. The
average annual total rate of return for the LSI for the one-year period ended
September 30, 1996 and for the period from January 14, 1994 to September 30,
1996 was 19.7% and 16.0%, respectively.
GENERAL
From time to time, the Fund may quote, and compare its performance to, the LSI.
In addition, from time to time the Fund may, as appropriate, quote Fund rankings
or reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to the
following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal
Finance, The Wall Street Journal, Barron's, Investors Business Daily, Newsweek,
Financial World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, THE 100 BEST MUTUAL FUNDS YOU CAN BUY by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals. The Fund may also
quote evaluations mentioned in independent radio or television broadcasts and
may use charts and graphs to illustrate the past performance of various indices
such as those mentioned above and illustrations using hypothetical rates of
return to illustrate the effects of compounding and tax-deferral. The Fund may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not assure a profit or guard against a loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
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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.
MFS FIRSTS: MFS has a long history of innovations.
- -- 1924 -- Massachusetts Investors Trust is established as the first open-end
mutual fund in America.
- -- 1924 -- Massachusetts Investors Trust is the first mutual fund to make full
public disclosure of its operations in shareholder reports.
- -- 1932 -- One of the first internal research departments is established to
provide in-house analytical capability for an investment management firm.
- -- 1933 -- Massachusetts Investors Trust is the first mutual fund to register
under the Securities Act of 1933 ("Truth in Securities Act" or "Full
Disclosure Act").
- -- 1936 -- Massachusetts Investors Trust is the first mutual fund to allow
shareholders to take capital gain distributions either in additional shares
or in cash.
- -- 1976 -- MFS 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 World Governments Fund is established as America's first globally
diversified fixed income mutual fund.
- -- 1984 -- MFS Municipal High Income Fund is the first open-end mutual fund to
seek high tax-free income from lower-rated municipal securities.
- -- 1986 -- MFS Managed Sectors Fund becomes the first mutual fund to target and
shift investments among industry sectors for shareholders.
- -- 1986 -- MFS Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.
- -- 1987 -- MFS 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 World Total Return Fund is the first global balanced fund.
- -- 1993 -- MFS World Growth Fund is the first global emerging markets fund to
offer the expertise of two sub-advisers.
- -- 1993 -- MFS becomes money manager of MFS Union Standard Trust, the first
Trust to invest 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 or
experts.
8. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for the Fund (the "Distribution
Plan") pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") after having concluded that there is a reasonable likelihood that the
Distribution Plan would benefit the Fund and its shareholders. The Distribution
Plan is designed to promote sales, thereby increasing the net assets of the
Fund. Such an increase may reduce the expense ratio to the extent the Fund's
fixed costs are spread over a larger net asset base. Also, an increase in net
assets may lessen the adverse effects that could result were the Fund required
to liquidate portfolio securities to meet redemptions.
The Distribution Plan provides that the Fund will pay MFD a distribution fee up
to (but not necessarily all of) 0.25% per annum of the Fund's average daily net
assets. A portion of the distribution fee equal to 0.15% per annum is currently
being paid by the Fund; payment of the remaining portion of the distribution fee
will become payable on such date as the Trustees of the Trust may determine.
The Distribution Plan will remain in effect from year to year only if its
continuance is specifically approved at least annually by vote of both the
Trustees and a majority of the Trustees who are not "interested persons" or
financially interested parties to the Plan ("Distribution Plan Qualified
Trustees"). The Distribution Plan requires that the Fund and MFD each shall
provide to the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under such Plan.
The Distribution Plan may be terminated at any time by vote of a majority of the
Distribution Plan Qualified Trustees or by vote of the holders of a majority of
the Fund's shares (as defined in "Investment Restrictions"). Agreements under
the Distribution Plan must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the Fund's shares. The Distribution Plan may not be
amended to increase materially the amount of permitted distribution expenses
without the approval of a majority of the Fund's shares (as defined in
"Investment Restrictions") and may not be materially amended in any case without
a vote of the Trustees and a majority of the Distribution Plan Qualified
Trustees. No Trustee who is not an "interested person" has any financial
interest in the Distribution Plan or in any related agreement.
For each of the fiscal years ended September 30, 1996 and 1995, the Fund
incurred expenses under the Distribution Plan of $71,836 and $44,473 ,
respectively (equal to 0.15% per annum of its average daily net assets), all of
which MFD retained. For the period from commencement of investment operations on
January 14, 1994 to September 30, 1994, the Fund incurred expenses under the
Distribution Plan of $14,882 (equal to 0.15% per annum of its average daily net
assets) all of which MFD retained.
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9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one or
more separate series and to divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in that series. The Trustees have currently authorized
shares of one series, the Equity Fund. The Declaration of Trust further
authorizes the Trustees to classify or reclassify any series of shares into one
or more classes. The Trustees have no current intention to classify more than
one class of shares. Each share of the Fund represents an equal proportionate
interest in the assets of the Fund. Upon liquidation of the Fund, shareholders
of the Fund are entitled to share PRO RATA in the net assets of the Fund
available for distribution to shareholders. The Trust reserves the right to
create and issue additional series or classes of shares, in which case the
shares of each class would participate equally in the earnings, dividends and
assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have under certain circumstances the right to remove one or more Trustees in
accordance with the provisions of Section 16(c) of the 1940 Act. No material
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of the Trust's shares. Shares have no pre-emptive or conversion
rights. Shares are fully paid and non-assessable. The Trust may enter into a
merger or consolidation, or sell all or substantially all of its assets (or all
or substantially all of the assets belonging to any series of the Trust), if
approved by the vote of the holders of two-thirds of the Trust's outstanding
shares voting as a single class, or of the affected series of the Trust, as the
case may be, except that if the Trustees of the Trust recommend such merger,
consolidation or sale, the approval by vote of the holders of a majority of the
Trust's or the affected series' outstanding shares (as defined in "Investment
Restrictions") will be sufficient. The Trust or any series of the Trust may also
be terminated (i) upon liquidation and distribution of its assets, if approved
by the vote of the holders of two-thirds of its outstanding shares, or (ii) by
the Trustees by written notice to the shareholders of the Trust of the affected
series. If not so terminated, the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of Trust property for any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that it shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, Trustees, officers, employees and agents covering
possible tort or other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
10. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Trust's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at September 30, 1996, the Statement of Assets and
Liabilities at September 30, 1996, the Statement of Operations for the year
ended September 30, 1996, the Statement of Changes in Net Assets for the two
years ended September 30, 1996 and September 30, 1995, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this SAI and have been so incorporated in reliance upon the report of
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. A copy of the Annual Report accompanies this SAI.
15
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 637-8730
MAILING ADDRESS
P.O. Box 1400, Boston, MA 02104-9985
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS-REGISTERED TRADEMARK- UNION
STANDARD-SM- EQUITY FUND
500 Boylston Street
Boston, MA 02116
<PAGE>
Annual Report
[LOGO] Year Ended
INVESTMENT MANAGEMENT September 30, 1996
MFS(R) UNION STANDARD(SM) EQUITY FUND
[GRAPHIC OMITTED]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman ................................................... 1
Fund Manager's Overview .................................................... 2
Fund Manager's Profile ..................................................... 3
Fund Facts ................................................................. 3
Performance Summary ........................................................ 4
Portfolio Concentration .................................................... 5
Portfolio of Investments ................................................... 6
Financial Statements ....................................................... 9
Notes to Financial Statements .............................................. 13
Independent Auditors' Report ............................................... 16
Trustees and Officers ...................................................... 17
HIGHLIGHTS
* FOR THE PAST 12 MONTHS, THE FUND PROVIDED A TOTAL RETURN OF 20.96%,
COMPARED WITH A RETURN OF 19.82% FOR THE ACS LABOR SENSITIVITY INDEX.
* WE CONTINUE TO EMPHASIZE HIGH-QUALITY COMPANIES WITH STRONG OR
IMPROVING BALANCE SHEETS THAT HAVE THE ABILITY TO INCREASE EARNINGS
AND DIVIDENDS, EVEN IN A SLOWER ECONOMIC ENVIRONMENT.
* THE FUND'S LARGEST HOLDINGS ARE IN INDUSTRIAL GOODS AND SERVICES,
UTILITIES, CONSUMER STAPLES, ENERGY, AND RETAILING.
* WE BELIEVE THE CONSUMER STAPLES SECTOR, WITH COMPANIES SUCH AS COCA-
COLA, PHILIP MORRIS, ANHEUSER BUSCH, AND CAMPBELL SOUP, WILL SEE
STEADY, PREDICTABLE GROWTH.
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
[Photo of A. Keith Brodkin]
As we enter the last quarter of 1996, the U.S. economy appears to have settled
into a pattern of moderate growth and inflation -- two factors that we think
can be important contributors to a favorable long-term investment climate.
During the first quarter of 1996, real (inflation-adjusted) economic growth
was 2.3% on an annualized basis, followed by a rate of 4.7% in the second
quarter. Real growth in gross domestic product has surpassed our expectations
this year, and we now expect that growth for all of 1996 could exceed 2.5%.
Although individual consumers appear to be carrying an excessive debt load,
the consumer sector itself, which represents two-thirds of the economy,
continues to be impressive in its support of the automobile and housing
markets. Consumer spending has also been positively impacted by widespread job
growth and, more recently, rising wages. However, recent statistics appear to
be showing signs of a slowdown in consumer spending. This is particularly true
when considering overall retail sales, which have been flat for several
months. Furthermore, the economies of Europe and Japan continue to be in the
doldrums, weakening U.S. export markets while subduing the capital spending
plans of American corporations. Thus, while economic growth should continue,
we expect some slackening toward the end of the year.
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in corporate earnings growth and interest rate
increases earlier in the year have raised some near-term concerns, as was seen
in July's stock market correction. Further increases in interest rates, and an
acceleration of inflation coupled with an additional slowdown in corporate
earnings growth, could have a negative effect on the stock market in the near
term. However, to the extent that some earnings disappointments are taken as a
sign that the economy is not overheating, this may prove beneficial for the
equity market's longer-term health. We continue to believe that many of the
technology-driven productivity gains that U.S. companies have made in recent
years will continue to enhance corporate America's competitiveness and
profitability. Therefore, while we have some near-term concerns, we remain
quite constructive on the long-term viability of the equity market.
Finally, as you may notice, this report to shareholders incorporates a
number of changes which we hope you will find informative and useful.
Following the Fund Manager's Overview, we have added new information on the
Fund's holdings, including charts illustrating the portfolio's concentration
in the types of investments that meet its criteria. Near the back of the
report, telephone numbers and addresses are listed if you would like to
contact MFS.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
October 10, 1996
<PAGE>
FUND MANAGER'S OVERVIEW
Dear Shareholders:
[Photo of William F. Harris]
The stock market, as measured by the Standard & Poor's 500 Composite Index, a
popular, unmanaged index of common stock performance, and by the Dow Jones
Industrial Average, an unmanaged index of the performance of 30 large-company
stocks, posted gains of 13.49% and 16.95%, respectively, for the first nine
months of 1996. These results are particularly noteworthy in light of the 37%
increase for both of these indices in 1995.
For the 12 months ended September 30, 1996, the Fund provided a total
return of 20.96%, compared with a return of 19.82% for the ACS Labor
Sensitivity Index (the LSI), an unmanaged index of companies selected on the
basis of labor-sensitive criteria.
As we have reported to you, we believe the stock market will continue to
respond favorably as long as the economy grows slowly, inflation remains
relatively low, and interest rates are flat to down. Recently, interest rates,
as measured by the benchmark 30-year Treasury bond, rose back over the 7%
level due to investors' fears that the economy was growing too fast and that
inflation would soon begin to rise. As long as this economic tug-of-war
between growth that is seen as too fast or too slow continues, we can expect
volatility in the financial markets. However, in our judgment, because the
consumer is so highly leveraged (as evidenced by rising credit card
delinquencies and personal bankruptcies), there does not appear to be enough
strength to create more than modest economic growth over the next several
quarters. Our portfolio strategy continues to emphasize high-quality companies
with strong or improving balance sheets that have the ability to increase both
earnings and dividends, even in a slower economic environment.
The Fund's largest holdings are in industrial goods and services,
utilities, consumer staples, energy, and retailing. The industrial goods and
services group is made up of four subsections: aerospace, agriculture,
pollution control, and large electrical equipment companies such as General
Electric, Emerson Electric, and Honeywell. The aerospace industry has
undergone a massive consolidation. The remaining large companies dominate
their markets and generate large free cash flows to enhance shareholder value
through increased dividends and share repurchases. Agriculture has its own
economic cycle and is currently enjoying strong growth which appears
sustainable for several years. The pollution control industry has suffered
from poor pricing and unsuccessful ventures into other businesses. The better
companies, such as USA Waste Services and WMX Technologies, have reversed
these trends. The three large electrical companies are, in our judgment, among
the best-managed companies we follow. The utilities, like the aerospace
industry, have undergone a large consolidation. Even the very large regional
Bell operating companies are merging. The electric utilities are not only
merging with other electric utilities, but with other producers of energy,
such as natural gas companies.
We believe the consumer staples sector, with companies such as Coca-Cola,
Philip Morris, Anheuser Busch, and Campbell Soup, will see steady, predictable
growth, even if the economy should weaken over the next several quarters. The
energy companies, such as Mobil and Exxon, are undergoing substantial
restructuring which we expect to lower costs and provide them with funds to
increase shareholder value. In retail, the supermarket chains, such as Safeway
and Kroger, have provided the Fund with excellent results over the past two
years. Additionally, we have taken positions in retailers that have grown
through acquisitions, namely Federated Department Stores and TJX Companies.
Respectfully,
/s/ William S. Harris
William S. Harris
Fund Manager
<PAGE>
FUND MANAGER'S PROFILE
WILLIAM HARRIS JOINED THE MFS RESEARCH DEPARTMENT IN 1967 AS AN INDUSTRY
SPECIALIST. A GRADUATE OF THE UNIVERSITY OF VIRGINIA, HE WAS NAMED
INVESTMENT OFFICER IN 1969, VICE PRESIDENT - INVESTMENTS IN 1970, SENIOR
VICE PRESIDENT IN 1979 AND EXECUTIVE VICE PRESIDENT IN 1982. A MEMBER OF
THE BOSTON SECURITY ANALYSTS SOCIETY, INC., MR. HARRIS HAS MANAGED MFS
UNION STANDARD TRUST SINCE ITS INCEPTION IN 1994.
LARGEST INDUSTRIES
Retailing ......................... 10.4%
Energy ............................ 12.7%
Utilities & Communications ........ 15.6%
Consumer Staples .................. 16.5%
Industrial Goods & Services ....... 20.2%
Other ............................. 24.6%
FUND FACTS
STRATEGY: THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE LONG-TERM
GROWTH OF CAPITAL THAT, NET OF FUND EXPENSES, EXCEEDS
THE PERFORMANCE OF THE ACS LABOR SENSITIVITY INDEX (THE
LSI). SHARES OF THE FUND ARE PURCHASED AT NET ASSET
VALUE. THE MINIMUM INITIAL INVESTMENT GENERALLY IS $3
MILLION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 14, 1994
SIZE: $49.3 MILLION NET ASSETS AS OF SEPTEMBER 30, 1996
<PAGE>
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Union
Standard Equity Fund in comparison to various market indicators. Benchmark
comparisons are unmanaged and do not reflect any fees or expenses. You cannot
invest in an index. All results reflect the reinvestment of all dividends and
capital gains.
GROWTH OF A HYPOTHETICAL $5,000,000 INVESTMENT
(For the period from February 1, 1994 to September 30, 1996)
PLOT POINTS -- MFS Union Standard Equity Fund
UNE - Net performance
Starting with $5 MM on 2/1/94
Start 5,000
Feb 1994 4,907
Mar 1994 4,627
Apr 1994 4,642
May 1994 4,632
Jun 1994 4,525
Jul 1994 4,686
Aug 1994 4,912
Sep 1994 4,721
Oct 1994 4,770
Nov 1994 4,535
Dec 1994 4,612
Jan 1995 4,720
Feb 1995 4,894
Mar 1995 5,007
Apr 1995 5,141
May 1995 5,334
Jun 1995 5,468
Jul 1995 5,656
Aug 1995 5,646
Sep 1995 5,864
Oct 1995 5,878
Nov 1995 6,136
Dec 1995 6,376
Jan 1996 6,585
Feb 1996 6,626
Mar 1996 6,729
Apr 1996 6,770
May 1996 6,995
Jun 1996 7,072
Jul 1996 6,673
Aug 1996 6,786
Sep 1996 7,093
AVERAGE ANNUAL TOTAL RETURNS
1/14/94+ -
1 Year 9/30/96
- -------------------------------------------------------------------------------
MFS Union Standard Equity Fund +20.96% +14.63%
- -------------------------------------------------------------------------------
ACS Labor Sensitivity Index (LSI) +19.82% +15.79%
- -------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +20.24% +17.19%
- -------------------------------------------------------------------------------
Consumer Price Index* + 2.87% + 2.86%
- -------------------------------------------------------------------------------
+ Commencement of investment operations. Benchmark comparisons begin on February
1, 1994 except for the ACS LSI, which is from January 14, 1994.
*The Consumer Price Index is a popular measure of change in prices.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost. Shares of the Fund have no
initial sales charge or contingent deferred sales charge but have annual fees
and expenses. All Fund results reflect the applicable expense subsidy which is
explained in the Notes to Financial Statements. Had the subsidy not been in
effect, the results would have been less favorable. The subsidy may be
rescinded at the earlier of repayment of reimbursement in its entirety, or
until December 31, 1998.
<PAGE>
PORTFOLIO CONCENTRATION AS OF SEPTEMBER 30, 1996
TOP TEN HOLDINGS
GENERAL ELECTRIC CO. AT&T CORP.
Diversified manufacturing and services Telecommunications and services
conglomerate company
COCA-COLA CO. JOHNSON & JOHNSON
International soft drink company Health care and pharmaceutical
products company
EXXON CORP.
International oil and gas company DU PONT (E.I.) DE NEMOURS & CO.
Diversified chemical company
PHILIP MORRIS COS., INC.
Tobacco, food, and beverage conglomerate BRISTOL-MYERS SQUIBB CO.
Pharmaceutical products company
MERCK & CO., INC.
Pharmaceutical products company BOEING CO.
Aircraft manufacturer
TAX FORM SUMMARY
IN JANUARY 1997, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1996.
DIVIDENDS-RECEIVED DEDUCTION
FOR THE YEAR ENDED SEPTEMBER 30, 1996, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS
CAME TO 63.36%.
<PAGE>
PORTFOLIO OF INVESTMENTS - September 30, 1996
Common Stocks - 97.5%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
Aerospace - 6.1%
Allied Signal, Inc. 8,700 $ 573,112
Boeing Co. 10,000 945,000
Lockheed-Martin Corp. 6,100 549,762
McDonnell Douglas Corp. 10,400 546,000
United Technologies Corp. 3,500 420,438
------------
$ 3,034,312
- -----------------------------------------------------------------------------
Agricultural Products - 1.3%
Case Corp. 13,000 $ 633,750
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.5%
Hartmarx Corp.* 51,700 $ 252,038
- -----------------------------------------------------------------------------
Automotive - 0.9%
Goodrich (B.F.) Co. 10,000 $ 451,250
- -----------------------------------------------------------------------------
Banks and Credit Companies - 2.3%
BankAmerica Corp. 8,700 $ 714,488
Firstar Corp. 8,700 419,775
------------
$ 1,134,263
- -----------------------------------------------------------------------------
Beverages - 1.3%
Anheuser Busch Cos., Inc. 17,200 $ 647,150
- -----------------------------------------------------------------------------
Chemicals - 3.3%
du Pont (E.I.) de Nemours & Co., Inc. 11,200 $ 988,400
Monsanto Co. 17,400 635,100
------------
$ 1,623,500
- -----------------------------------------------------------------------------
Consumer Goods and Services - 6.4%
Colgate-Palmolive Co. 7,600 $ 660,250
Heinz (H.J.) Co. 14,000 472,500
Philip Morris Cos., Inc. 15,000 1,346,250
Tyco International Ltd. 15,500 668,437
------------
$ 3,147,437
- -----------------------------------------------------------------------------
Electrical Equipment - 9.4%
Emerson Electric 50,000 $ 450,625
General Electric Co. 30,000 2,730,000
Honeywell, Inc. 13,000 820,625
Westinghouse Electric Corp. 35,600 663,050
------------
$ 4,664,300
- -----------------------------------------------------------------------------
Entertainment - 3.2%
Circus Circus Enterprises, Inc.* 19,000 $ 672,125
Harrah's Entertainment, Inc.* 13,700 255,163
Mirage Resorts, Inc.* 25,000 640,625
------------
$ 1,567,913
- -----------------------------------------------------------------------------
Food and Beverage Products - 8.7%
Campbell Soup Co. 6,500 $ 507,000
Coca-Cola Co. 44,500 2,263,937
Interstate Bakeries Corp. 21,600 788,400
PepsiCo, Inc. 25,900 731,675
------------
$ 4,291,012
- -----------------------------------------------------------------------------
Forest and Paper Products - 1.1%
Kimberly-Clark Corp. 6,000 $ 528,750
- -----------------------------------------------------------------------------
Machinery - 0.9%
Deere & Co., Inc. 10,400 $ 436,800
- -----------------------------------------------------------------------------
Medical and Health Products - 8.4%
American Home Products Corp. 13,900 $ 886,125
Bristol-Myers Squibb Co. 10,200 983,025
Johnson & Johnson 21,000 1,076,250
Merck & Co., Inc. 17,300 1,217,487
------------
$ 4,162,887
- -----------------------------------------------------------------------------
Oil Services - 1.0%
Pennzoil Co. 9,000 $ 475,875
- -----------------------------------------------------------------------------
Oils - 8.2%
Chevron Corp. 12,600 $ 789,075
Exxon Corp. 20,000 1,665,000
Mobil Corp. 7,000 810,250
Texaco, Inc. 8,700 800,400
------------
$ 4,064,725
- -----------------------------------------------------------------------------
Pollution Control - 2.2%
USA Waste Services, Inc.* 21,600 $ 680,400
WMX Technologies, Inc. 12,100 397,788
------------
$ 1,078,188
- -----------------------------------------------------------------------------
Printing and Publishing - 2.0%
Gannett Co., Inc. 6,800 $ 478,550
Pulitzer Publishing Co. 8,700 496,987
------------
$ 975,537
- -----------------------------------------------------------------------------
Restaurants and Lodging - 2.2%
Hilton Hotels Corp. 20,000 $ 567,500
Promus Hotel Corp.* 17,900 505,675
------------
$ 1,073,175
- -----------------------------------------------------------------------------
Stores - 4.2%
Federated Department Stores, Inc.* 8,700 $ 291,450
Penney (J.C.), Inc. 9,000 487,125
Sears, Roebuck & Co. 8,700 389,325
TJX Cos., Inc. 25,900 929,162
------------
$ 2,097,062
- -----------------------------------------------------------------------------
Supermarkets - 5.4%
Albertsons, Inc. 11,000 $ 463,375
Kroger Co.* 13,000 581,750
Safeway, Inc.* 20,700 882,337
Vons Cos., Inc.* 17,300 741,738
------------
$ 2,669,200
- -----------------------------------------------------------------------------
Utilities - Electric - 8.9%
Central & South West Corp. 17,000 $ 442,000
Cinergy Corp. 19,000 586,625
CMS Energy Corp. 15,500 466,937
FPL Group, Inc. 8,700 376,275
General Public Utilities Corp. 13,000 399,750
Illinova Corp. 28,600 757,900
Nipsco Industries, Inc. 13,800 493,350
Pinnacle West Capital Corp. 15,500 459,188
Texas Utilities Co. 10,000 396,250
------------
$ 4,378,275
- -----------------------------------------------------------------------------
Utilities - Gas - 3.2%
Columbia Gas Systems, Inc. 9,000 $ 504,000
Consolidated Natural Gas Co. 8,700 466,538
PanEnergy Corp. 17,300 599,013
------------
$ 1,569,551
- -----------------------------------------------------------------------------
Utilities - Telephone - 6.4%
Ameritech Corp. 8,700 $ 457,837
AT&T Corp. 21,600 1,128,600
BellSouth Corp. 17,300 640,100
GTE Corp. 13,000 500,500
SBC Communications, Inc. 8,700 418,688
------------
$ 3,145,725
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $39,431,328) $ 48,102,675
- -----------------------------------------------------------------------------
Short-Term Obligations - 2.3%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 10/03/96 $950 $ 949,720
Federal Home Loan Mortgage Assn., due
10/01/96 180 180,000
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 1,129,720
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $40,561,048) $ 49,232,395
Other Assets, Less Liabilities - 0.2% 85,369
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 49,317,764
- -----------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
September 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $40,561,048) $49,232,395
Cash 4,767
Dividends receivable 84,315
Deferred organization expenses 11,517
Other assets 479
-----------
Total assets $49,333,473
-----------
Liabilities:
Payable to affiliates -
Management fee $ 2,634
Distribution fee 608
Accrued expenses and other liabilities 12,467
-----------
Total liabilities $ 15,709
-----------
Net assets $49,317,764
===========
Net assets consist of:
Paid-in capital $34,895,564
Unrealized appreciation on investments 8,671,347
Accumulated undistributed net realized gain on investments 5,240,664
Accumulated undistributed net investment income 510,189
-----------
Total $49,317,764
===========
Shares of beneficial interest outstanding 3,559,938
===========
Net asset value, offering price, and redemption price per share
(net assets of $49,317,764 / 3,559,938 shares of beneficial
interest outstanding) $13.85
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended September 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $1,041,048
Interest 88,613
----------
Total investment income $1,129,661
----------
Expenses -
Management fee $ 310,911
Trustees' compensation 5,600
Shareholder servicing agent fee 3,576
Distribution and service fee 71,836
Auditing fees 33,620
Printing 26,434
Custodian fee 20,641
Amortization of organization expenses 4,963
Legal fees 4,601
Miscellaneous 10,766
----------
Total expenses $ 492,948
Reduction of expenses by investment adviser (9,315)
Fees paid indirectly (4,725)
----------
Net expenses $ 478,908
----------
Net investment income $ 650,753
----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on investment
transactions $5,562,093
Change in unrealized appreciation on investments 2,783,940
----------
Net realized and unrealized gain on investments $8,346,033
----------
Increase in net assets from operations $8,996,786
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Year Ended September 30, 1996 1995
- -------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 650,753 $ 466,025
Net realized gain on investments 5,562,093 806,897
Net unrealized gain on investments 2,783,940 5,900,373
----------- -----------
Increase in net assets from operations $ 8,996,786 $ 7,173,295
----------- -----------
Distributions declared to shareholders -
From net investment income $ (535,470) $ (224,465)
From net realized gain on investments (957,583) --
----------- -----------
Total distributions declared to shareholders $(1,493,053) $ (224,465)
----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $20,580,394 $ 9,572,700
Net asset value of shares issued to shareholders
in reinvestment of distributions 1,449,495 224,465
Cost of shares reacquired (16,057,770) (3,088,531)
----------- -----------
Increase in net assets from Fund share
transactions $ 5,972,119 $ 6,708,634
----------- -----------
Total increase in net assets $13,475,852 $13,657,464
Net assets:
At beginning of period 35,841,912 22,184,448
----------- -----------
At end of period (including accumulated
undistributed net investment income
of $510,189 and $394,906, respectively) $49,317,764 $35,841,912
=========== ===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
Year Ended September 30, Period Ended
------------------------ September 30,
1996 1995 1994*
- ------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $11.85 $ 9.64 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.18 $ 0.17 $ 0.12
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 2.25 2.14 (0.48)
------ ------ ------
Total from investment operations $ 2.43 $ 2.31 $(0.36)
------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.15) $(0.10) $ --
From net realized gain on investments (0.28) -- --
------ ------ ------
Total distributions declared to
shareholders $(0.43) $(0.10) $ --
------ ------ ------
Net asset value - end of period $13.85 $11.85 $ 9.64
====== ====== ======
Total return 20.96% 24.21% (3.60)%
Average commission rate### $0.0562 -- --
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.00% 1.00% 1.00%+
Net investment income 1.36% 1.58% 1.55%+
Portfolio turnover 81% 125% 48%
Net assets at end of period (000
omitted) $49,318 $35,842 $22,184
* For the period from the commencement of investment operations, January 14,
1994 through September 30, 1994.
+ Annualized.
# Per share data is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The investment adviser voluntarily agreed to maintain the expenses of the
Fund at not more than 1.00% of the Fund's average daily net assets. To the
extent actual expenses were over/under this limitation, the net investment
income per share and the ratios would have been:
Net investment income $ 0.18 $ 0.16 $ 0.07
Ratios (to average net assets):
Expenses## 1.03% 1.12% 1.64%+
Net investment income 1.33% 1.49% 0.91%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Union Standard Equity Fund (the Fund) is a diversified series of MFS Union
Standard Trust (the Trust). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Short-term obligations,
which mature in 60 days or less, are valued at amortized cost, which
approximates market value. Securities for which there are no such quotations
or valuations are valued at fair value as determined in good faith by or at
the direction of the Trustees.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of
operations of the Fund.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return and,
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. This change had no effect on the net assets or net asset value
per share.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.65%
of average daily net assets. Under a temporary expense reimbursement agreement
with MFS, MFS has voluntarily agreed to pay all of the Fund's operating
expenses until December 31, 1998. The Fund in turn will pay MFS an expense
reimbursement fee not greater than 1.00% of average daily net assets. To the
extent that the expense reimbursement fee exceeds the Fund's actual expenses,
the excess will be applied to amounts paid by MFS in prior years. At September
30, 1996, the aggregate unreimbursed expenses owed to MFS by the Fund amounted
to $97,355, including $9,315 incurred in the current period.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC).
Distributor - MFD, a wholly owned subsidiary of MFS, is distributor of the
Fund. The Trustees have adopted a distribution plan pursuant to Rule 12b-1 of
the Investment Company Act of 1940 as follows:
The distribution plan provides that the Fund will pay MFD up to 0.25% per
annum of the Fund's average daily net assets in order that MFD may pay
expenses on behalf of the Fund related to the distribution of shares. This
rate has been set at 0.15% for an indefinite period.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated
based on the number of shareholder accounts in the Fund.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, aggregated $40,908,985 and $36,344,979,
respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $40,561,048
===========
Gross unrealized appreciation $ 9,208,535
Gross unrealized depreciation (537,188)
-----------
Net unrealized appreciation $ 8,671,347
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Year Ended September 30, 1996 1995
-------------------------- -----------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
Shares sold 1,592,667 $20,580,394 983,045 $9,572,700
Shares issued to shareholders
in reinvestment of
distributions 116,989 1,449,494 24,033 224,465
Shares reacquired (1,173,568) (16,057,770) (284,399) (3,088,531)
--------- ----------- ------- ----------
Net increase 536,088 $ 5,972,118 722,679 $6,708,634
========= =========== ======= ==========
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended September
30, 1996 was $613.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Union Standard Trust and Shareholders of MFS Union
Standard Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Union Standard Equity Fund (one
of the series constituting MFS Union Standard Trust) as of September 30, 1996,
the related statement of operations for the year then ended, and the statement
of changes in net assets and financial highlights for the year ended September
30, 1996, September 30, 1995 and for the financial highlights for the period
from January 14, 1994 (the commencement of investment operations) through
September 30, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at September 30, 1996 by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Union Standard
Equity Fund at September 30, 1996, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 1, 1996
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS UNION STANDARD(SM) EQUITY FUND
TRUSTEES ASSISTANT SECRETARY
A. Keith Brodkin* James R. Bordewick, Jr.*
Chairman and President
CUSTODIAN
Nelson J. Darling, Jr. State Street Bank and Trust Company
Trustee, Eastern Enterprises
AUDITOR
William R. Gutow Deloitte & Touche LLP
Private Investor;
Senior Vice President, Capitol INVESTOR INFORMATION
Entertainment For MFS stock and bond market
outlooks, call toll free:
INVESTMENT ADVISER 1-800-637-4458 anytime from a touch-tone
Massachusetts Financial Services telephone.
Company
500 Boylston Street For information on MFS mutual funds,
Boston, MA 02116-3741 call your financial adviser or, for
an information kit, call toll free:
DISTRIBUTOR 1-800-637-2929 any business day from
MFS Fund Distributors, Inc. 9 a.m. to 5 p.m. Eastern time (or
500 Boylston Street leave a message anytime).
Boston, MA 02116-3741
INVESTOR SERVICE
FUND MANAGER MFS Service Center, Inc.
William S. Harris* P.O. Box 2281
Boston, MA 02107-9906
TREASURER
W. Thomas London* For general information, call toll free:
1-800-225-2606 any business day from
ASSISTANT TREASURER 8 a.m. to 8 p.m. Eastern time.
James O. Yost*
SECRETARY For service to speech- or hearing-
Stephen E. Cavan* impaired, call toll free: 1-800-637-6576
any business day from 9 a.m. to 5 p.m.
Eastern time. (To use this service, your
phone must be equipped with a
Telecommunications Device for the Deaf.)
For share prices, account balances
and exchanges, call toll free: 1-800-
MFS-TALK
(1-800-637-8255) anytime from a
touch-tone telephone.
WEB SITE
http://www.mfs.com
TOP RATED SERVICE
For the third year in a row,
[DALBAR MFS earned a #1 ranking in
LOGO] DALBAR, Inc.'s Broker/Dealer
Survey, Main Office Operations
Service Quality Category. The
firm achieved a 3.48 overall score - on a
scale of 1 to 4 in the 1996 survey. A total
of 110 firms responded, offering input on the
quality of service they received from 29
mutual fund companies nationwide. The survey
contained questions about service quality in
15 categories, including "knowledge of phone
service contracts," "accuracy of transaction
processing," and "overall ease of doing
business with the firm."
*Affiliated with the Investment Adviser
<PAGE>
MFS UNION STANDARD(SM)
EQUITY FUND [DALBAR LOGO]
TOP-RATED SERVICE
500 Boylston Street
Boston, MA 02116
[LOGO]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
(C)1996 MFS Fund Distributors, Inc., 11/96
500 Boylston Street Boston, MA 02116
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the period from the commencement of investment of operations,
January 14, 1994 to September 30, 1994 and for the years ended
September 30, 1995 and September 30, 1996:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At September 30, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended September 30, 1996:
Statement of Operations*
For the years ended September 30, 1995 and September 30, 1996:
Statement of Changes in Net Assets*
- ---------------
* Incorporated by reference to the Fund's Annual Report to Shareholders dated
September 30, 1996 filed with the SEC via EDGAR on December 5, 1996.
(b) EXHIBITS
1 (a) Amended and Restated Declaration of Trust, dated January 24,
1996; filed herewith.
(b) Form of Amendment to the Amended and Restated Declaration of
Trust - Abolishment of MFS Union Standard Research Fund, a
series of MFS Union Standard Trust; filed herewith.
2 By-Laws, dated September 1, 1993. (4)
3 Not Applicable.
4 Form of Share Certificate. (3)
5 (a) Investment Advisory Agreement by and between MFS Union
Standard Trust on behalf of MFS Union Standard Equity Fund
and Massachusetts Financial Services Company, dated
December 8, 1993. (4)
<PAGE>
(b) Investment Advisory Agreement by and between MFS Union
Standard Trust on behalf of MFS Union Standard Research Fund
and Massachusetts Financial Services Company, dated
November 17, 1995. (5)
6 Distribution Agreement, dated December 8, 1993. (4)
7 Not Applicable.
8 (a) Custodian Agreement between Registrant and State Street
Bank and Trust Company, dated December 8, 1993. (5)
(b) Amendment to the Custodian Agreement, dated December 8,
1993. (4)
(c) Amendment to Custodian Contract, dated November 17, 1995.
(5)
9 (a) Amended and Restated Shareholder Servicing Agent Agreement
between Registrant and MFS Service Center, Inc., dated
November 17, 1995. (5)
(b) Proxy Services Agreement between MFS Union Standard Trust
and American Capital Strategies Ltd., dated December 8,
1993. (5)
(c) Dividend Disbursing Agency Agreement between Registrant and
State Street Bank and Trust Company, dated December 8, 1993.
(4)
(d) Loan Agreement by and among the Banks named therein, the MFS
Funds named therein, and The First National Bank of Boston
dated as of February 21, 1995. (2)
10 24f-2 Opinion and Consent of Counsel was filed with the
Securities and Exchange Commission on November 16, 1996.
11 Consent of Deloitte & Touche; filed herewith.
12 Not Applicable.
13 Investment Representation Letter, dated November 19, 1993.
(4)
14 Not Applicable.
15 (a) Distribution Plan for MFS Union Standard Equity Fund, dated
December 8, 1993. (4)
(b) Distribution Plan for MFS Union Standard Research Fund,
dated November 17, 1995. (5)
16 Schedule of Computation for Performance Quotations - Total
Return. (1)
<PAGE>
17 Financial Data Schedule on behalf of MFS Union Standard
Equity Fund; filed herewith.
18 Not Applicable.
Power of Attorney dated August 12, 1994. (4)
- ---------------
(1) 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.
(2) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS Municipal
Income Trust (File No. 811-4841) filed with the SEC via EDGAR on
February 28, 1995.
(3) 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.
(4) Incorporated by reference to Registrant's Post-Effective Amendment No. 3
filed with the SEC via EDGAR on September 1, 1995.
(5) Incorporated by reference to Registrant's Post-Effective Amendment No. 4
filed with the SEC via EDGAR on January 26, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
MFS UNION STANDARD EQUITY FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest 41
(without part value) (as of December 30, 1996)
ITEM 27. INDEMNIFICATION
Section 5.3 of the Registrant's Amended and Restated Declaration of
Trust provides that every person who is or has been a Trustee or officer of the
Registrant shall be indemnified by the Registrant against all liability and
against all expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof. However, Section 5.3
further provides that no indemnification shall be provided to a Trustee or
officer:
(i) against any liability to the Registrant or the shareholders of
the Registrant by reason of a final adjudication by the court or
other body before which the proceeding was brought that he
engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office;
<PAGE>
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the
Registrant; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication
as provided in paragraph (i) or (ii) above resulting in a payment
by a Trustee or officer, unless there has been either a
determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office by
the court or other body approving the settlement or other
disposition or by a reasonable determination, based upon a review
of readily available facts (as opposed to a full trial-type
inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees (as
defined below) acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on
the matter); or
(B) by written opinion of independent legal counsel.
The term "Disinterested Trustee" is defined as one who is not an
interested person of the Registrant and against whom none of such actions, suits
or other proceedings or another action, suit or other proceeding on the same or
similar grounds is then or had been pending.
Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in Section 5.3 of the
Registrant's Declaration of Trust shall be advanced by the Registrant prior to
final disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Registrant shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in
office act on the matter) or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient ultimately will be
found entitled to indemnification.
Section 9 of the Amended and Restated Shareholder Servicing Agent
Agreement between the Registrant and MFS Service Center, Inc. ("MFSC") specifies
that the Registrant will indemnify MFSC against and hold MFSC harmless from any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit not
resulting from MFSC's bad faith or negligence, and arising out of, or in
connection with, MFSC's duties on behalf of the Registrant under such Agreement.
In addition, Section 9 provides that the Registrant will indemnify MFSC against
and hold MFSC harmless from any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
<PAGE>
claim, demand, action or suit as a result of MFSC acting in accordance with any
instructions reasonably believed by MFSC to have been executed or orally
communicated by any person duly authorized by the Registrant or its principal
underwriter, or as a result of acting in accordance with written or oral advice
reasonably believed by MFSC to have been given by counsel for the Registrant, or
as a result of acting in accordance with any instrument or share certificate
reasonably believed by MFSC to have been genuine and signed, countersigned or
executed by any person or persons authorized to sign, countersign or execute the
same (unless contributed to by MFSC's gross negligence or bad faith).
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser and distributor will be insured as of the
effective date of this Registration Statement under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds: Massachusetts Investors Trust,
Massachusetts Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS
Government Securities Fund, MFS Government Limited Maturity Fund, MFS Series
Trust I (which has thirteen series: MFS Managed Sectors Fund, MFS Cash Reserve
Fund, MFS World Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research
Growth and Income Fund, MFS Core Growth Fund, MFS Equity Income Fund, 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 four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 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 no-load, open-
end Funds: MFS Institutional Trust ("MFSIT") (which has seven series), MFS
Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union
Standard Trust ("UST"). The principal
<PAGE>
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"), Money Market Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities Variable Account, World
Governments Variable Account, Total Return Variable Account and Managed Sectors
Variable Account. The principal business address of each of the aforementioned
funds is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
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 Fund (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 Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund and MFS
Emerging Markets Debt Fund (collectively the "MFS Meridian Funds"). Each of the
MFS Meridian Funds is organized as an exempt company under the laws of the
Cayman Islands. The principal business address of each of the MFS Meridian
Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary
of MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT, MVI and UST.
<PAGE>
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 A. Keith Brodkin, Jeffrey L. Shames, Arnold
D. Scott, Donald A. Stewart and John D. McNeil. Mr. Brodkin is the Chairman,
Mr. Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a Senior
Vice President, General Counsel and an Assistant Secretary, 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.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS GOVERNMENT LIMITED MATURITY FUND
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Senior Vice
President and Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
<PAGE>
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila Burns-
Magnan, 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 is the Assistant Treasurer, and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Vice President of MFS, is an Assistant Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
<PAGE>
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
James T. Swanson are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Vice President of MFS, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, and James O. Yost, is the Assistant Treasurer
and James R. Bordewick, Jr., is the Assistant Secretary.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo,
Senior Vice President and Chief Financial Officer of MFS, is the Treasurer and
Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, Ziad Malek is the President, James E. Russell
is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker and William F. Waters are
Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the
Assistant Secretary, and Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott, 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, James O. Yost is the Assistant Treasurer, and Ziad Malek is a Senior
Vice President.
<PAGE>
MFD
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
Thomas B. Hastings is the Assistant Treasurer.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings
is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
MFSI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and
a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director
and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady
and Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer and
Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr. and Bruce C. Avery are Directors, Arnold D.
Scott is the Chairman and a Director, Joseph W. Dello Russo is the Treasurer,
Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is the
Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli and
Martin E. Beaulieu are Senior Vice Presidents.
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive Park,
Wellesley Hills, Massachusetts
Director, Sun Life Insurance and Annuity
Company of New York, 67 Broad Street, New
York, New York
<PAGE>
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 500 Boylston Street
Services Company Boston, MA 02116
MFS Fund Distributors, Inc. 500 Boylston Street
Boston, MA 02116
State Street Bank and State Street South
Trust Company 5-West
North Quincy, MA 02171
MFS Service Center, Inc. 500 Boylston Street
Boston, MA 02116
The Registrant's corporate documents are kept by the Registrant at its
offices. Portfolio brokerage orders, other purchase orders, reasons for
brokerage allocation and lists of persons authorized to transact business for
the Registrant are kept by Massachusetts Financial Services Company at 500
Boylston Street, Boston, Massachusetts 02116. Shareholder account records are
kept by MFS Service
<PAGE>
Center, Inc. at 500 Boylston Street, Boston, Massachusetts 02116. Transaction
journals, receipts for the acceptance and delivery of securities and cash,
ledgers and trial balances are kept by State Street Bank and Trust Company at
State Street South, 5-West, North Quincy, Massachusetts 02171.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment, in
order to file financial statements on behalf of the MFS Union Standard Research
Fund (the "Research Fund"), which need not be certified, within four to six
months from the effective date of the commencement of investment operations of
the Research Fund.
(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts on the 24th day of January, 1997.
MFS UNION STANDARD 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 January 24, 1997.
SIGNATURE TITLE
--------- -----
A. KEITH BRODKIN* Chairman, President (Principal
- ------------------------- Executive Officer) and Trustee
A. Keith Brodkin
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- ------------------------- and Principal Accounting Officer)
W. Thomas London
WILLIAM R. GUTOW* Trustee
- -------------------------
William R. Gutow
<PAGE>
NELSON J. DARLING, JR.* Trustee
- -------------------------
Nelson J. Darling, Jr.
*By: JAME R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr. on
behalf of those indicated pursuant to a
Power of Attorney dated August 12, 1994,
incorporated by reference to the
Registrant's Post-Effective Amendment
No. 3 filed electronically with the
Securities and Exchange Commission on
September 1, 1995.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
1 (a) Amended and Restated Declaration of Trust, dated January 24,
1996.
(b) Form of Amendment to the Amended and Restated Declaration of
Trust - Abolishment of MFS Union Standard Research Fund, a series
of MFS Union Standard Trust.
11 Consent of Deloitte & Touche.
17 Financial Data Schedule on behalf of MFS Union Standard Equity
Fund.
<PAGE>
EXHIBIT NO. 99.1(a)
MFS UNION STANDARD TRUST
--------------------
AMENDED AND RESTATED
DECLARATION OF TRUST
JANUARY 24, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I - NAME AND DEFINITIONS
Section 1.1 Name 1
Section 1.2 Definitions 2
ARTICLE II - TRUSTEES
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 4
Section 2.4 Vacancies 5
Section 2.5 Delegation of Power to Other Trustees 5
ARTICLE III - POWERS OF TRUSTEES
Section 3.1 General 5
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Issuance and Repurchase of Securities 7
Section 3.5 Borrowing Money; Lending Trust Property 7
Section 3.6 Delegation; Committees 7
Section 3.7 Collection and Payment 8
Section 3.8 Expenses 8
Section 3.9 Manner of Acting; By-Laws 8
Section 3.10 Miscellaneous Powers 8
Section 3.11 Principal Transactions 9
Section 3.12 Trustees and Officers as Shareholders 9
ARTICLE IV - INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1 Investment Adviser 10
Section 4.2 Distributor 11
Section 4.3 Transfer Agent 11
Section 4.4 Parties to Contract 11
II
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE V - LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 5.1 No Personal Liability of Shareholders, Trustees, etc. 12
Section 5.2 Non-Liability of Trustees, etc. 12
Section 5.3 Mandatory Indemnification 12
Section 5.4 No Bond Required of Trustees 14
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 14
Section 5.6 Reliance on Experts, etc. 15
ARTICLE VI - SHARES OF BENEFICIAL INTEREST
Section 6.1 Beneficial Interest 15
Section 6.2 Rights of Shareholders 15
Section 6.3 Trust Only 16
Section 6.4 Issuance of Shares 16
Section 6.5 Register of Shares 16
Section 6.6 Transfer of Shares 17
Section 6.7 Notices 17
Section 6.8 Voting Powers 17
Section 6.9 Series Designation 18
Section 6.10 Class Designation 20
ARTICLE VII - REDEMPTIONS
Section 7.1 Redemption of Shares 21
Section 7.2 Price 21
Section 7.3 Payment 21
Section 7.4 Effect of Suspension of Determination of Net Asset
Value 21
Section 7.5 Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding 22
Section 7.6 Suspension of Right to Redemption 22
ARTICLE VIII - DETERMINATION OF NET ASSET VALUE, NET INCOME
AND DISTRIBUTIONS 23
III
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE IX - DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1 Duration 23
Section 9.2 Termination of Trust 23
Section 9.3 Amendment Procedure 24
Section 9.4 Merger, Consolidation and Sale of Assets 25
Section 9.5 Incorporation, Reorganization 26
Section 9.6 Incorporation or Reorganization of Series 26
ARTICLE X - REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 27
ARTICLE XI - MISCELLANEOUS
Section 11.1 Filing 28
Section 11.2 Governing Law 28
Section 11.3 Counterparts 28
Section 11.4 Reliance by Third Parties 28
Section 11.5 Provisions in Conflict with Law or Regulations 29
ANNEX A 30
SIGNATURE PAGE 31
IV
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
MFS UNION STANDARD TRUST
500 Boylston Street
Boston, Massachusetts 02116
AMENDED AND RESTATED DECLARATION OF TRUST, made this 24th day of January,
1996, by the Trustees hereunder.
WHEREAS, the Trust was established pursuant to a Declaration of Trust dated
September 1, 1993, for the investment and reinvestment of funds contributed
thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets continue to be divided into transferable Shares of Beneficial Interest
(without par value) issued in one or more series, as hereinafter provided; and
WHEREAS, the Declaration of Trust has been, from time to time, amended in
accordance with the provisions of the Declaration; and
WHEREAS, the Trustees now desire further to amend and to restate the
Declaration of Trust and hereby certify, as provided in Section 11.1 of the
Declaration, that this Amended and Restated Declaration of Trust has been
further amended and restated in accordance with the provisions of the
Declaration;
NOW THEREFORE, the Trustees hereby confirm that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of Beneficial
Interest (without par value) issued hereunder and subject to the provisions
hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1 - NAME. The name of the Trust created hereby is the "MFS Union
Standard Trust," the current address of which is 500 Boylston Street, Boston,
Massachusetts 02116.
1
<PAGE>
SECTION 1.2 - DEFINITIONS: Wherever they are used herein, the following
terms have the following respective meanings:
(a) "BY-LAWS" means the By-laws referred to in Section 3.9 hereof, as from
time to time amended.
(b) "COMMISSION" has the meaning given that term in the 1940 Act.
(c) "DECLARATION" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "DECLARATION," "HEREOF,"
"HEREIN," and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(d) "DISTRIBUTOR" means the party, other than the Trust, to the contract
described in Section 4.2 hereof.
(e) "INTERESTED PERSON" has the meaning given that term in the 1940 Act.
(f) "INVESTMENT ADVISER" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(g) "MAJORITY SHAREHOLDER VOTE" has the same meaning as the phrase "vote
of a majority of the outstanding voting securities" as defined in the 1940 Act,
except that such term may be used herein with respect to the Shares of the Trust
as a whole or the Shares of any particular series or class, as the context may
require.
(h) "1940 ACT" means the Investment Company Act of 1940 and the Rules and
Regulation thereunder, as amended from time to time.
(i) "PERSON" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign.
(j) "SHAREHOLDER" means a record owner of outstanding Shares.
(k) "SHARES" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series or
2
<PAGE>
class of Shares established by the Trustees pursuant to Section 6.9 or Section
6.10 hereof, respectively, equal proportionate transferable units into which
such series or class of Shares shall be divided from time to time. The term
"Shares" includes fractions of Shares as well as whole Shares.
(l) "TRANSFER AGENT" means the party, other than the Trust, to a contract
described in Section 4.3 hereof.
(m) "TRUST" means the trust created hereby.
(n) "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees, including, without limitation, any and all property
allocated or belonging to any series of Shares pursuant to Section 6.9 hereof.
(o) "TRUSTEES" means the persons who have signed the Declaration, so long
as they shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly elected or appointed, qualified
and serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
SECTION 2.1 - NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three.
SECTION 2.2 - TERM OF OFFICE OF TRUSTEES. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided;
except:
(a) that any Trustee may resign his trust (without need for prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein;
3
<PAGE>
(b) that any Trustee may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) with cause, at any time by written instrument, signed by at
least two-thirds of the remaining Trustees, specifying the date when such
removal shall become effective;
(c) that any Trustee who requests in writing to be retired or who has
become incapacitated by illness or injury may be retired by written instrument
signed by a majority of the other Trustees, specifying the date of his
retirement; and
(d) a Trustee may be removed at any meeting of Shareholders by a vote of
two-thirds of the outstanding Shares of the Trust.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to
be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
SECTION 2.3 - RESIGNATION AND APPOINTMENT OF TRUSTEES. In case of the
declination, death, resignation, retirement, removal or incapacity of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office. Any such appointment shall not become effective,
however, until the person named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be bound by
the terms of the Declaration. An appointment of a Trustee may be made by the
Trustees then in office in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. The power of appointment is subject to the provisions of Section
16(a) of the 1940 Act.
SECTION 2.4 - VACANCIES. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.3, the
4
<PAGE>
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by the Declaration. A written instrument certifying the existence of
such vacancy signed by a majority of the Trustees shall be conclusive evidence
of the existence of such vacancy.
SECTION 2.5 - DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other Trustee or Trustees; provided that in no case shall
less than two Trustees personally exercise the powers granted to the Trustees
under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without the order of or resort to any court.
SECTION 3.2 - INVESTMENTS.
(a) The Trustees shall have the power:
5
<PAGE>
(i) to conduct, operate and carry on the business of an investment
company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of U.S. and foreign currencies, any form of gold
and other precious metals, commodity contracts, options, contracts for the
future acquisition or delivery of fixed income or other securities, and
securities of every nature and kind, including, without limitation, all types of
bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, bankers' acceptances, and other
securities of any kind, issued, created, guaranteed or sponsored by any and all
Persons, including, without limitation, states, territories and possessions of
the United States and the District of Columbia and any political subdivision,
agency or instrumentality of any such Person, or by the U.S. Government, any
foreign government, any political subdivision or any agency or instrumentality
of the U.S. Government, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory or possession thereof, or by any corporation or organization organized
under any foreign law, or in "when issued" contracts for any such securities, to
retain Trust assets in cash and from time to time change the investments of the
assets of the Trust; and to exercise any and all rights, powers and privileges
of ownership or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more persons,
firms, associations or corporations to exercise any of said rights, powers and
privileges in respect of any of said instruments; and
(iii) to carry on any other business in connection with or incidental
to any of the foregoing powers, to do everything necessary, suitable or proper
for the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3 - LEGAL TITLE. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust
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Property to be held by or in the name of one or more of the Trustees, or in the
name of the Trust, or in the name of any other Person or nominee, on such terms
as the Trustees may determine. The right, title and interest of the Trustees in
the Trust Property shall vest automatically in each Person who may hereafter
become a Trustee. Upon the resignation, removal or death of a Trustee he shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
SECTION 3.4 - ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds of the Trust or other Trust Property whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by laws of The Commonwealth of Massachusetts governing business corporations.
SECTION 3.5 - BORROWING MONEY; LENDING TRUST PROPERTY. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the Trust Property, to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust Property.
SECTION 3.6 - DELEGATION; COMMITTEES. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
SECTION 3.7 - COLLECTION AND PAYMENT. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
SECTION 3.8 - EXPENSES. Subject to Section 6.9 hereof, the Trustees shall
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the
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funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees.
SECTION 3.9 - MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of all the Trustees.
The Trustees may adopt By-Laws not inconsistent with the Declaration to provide
for the conduct of the business of the Trust and may amend or repeal such By-
Laws to the extent such power is not reserved to the Shareholders.
SECTION 3.10 - MISCELLANEOUS POWERS. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust;
(b) enter into joint ventures, partnerships and any other combinations or
associations;
(c) remove Trustees or fill vacancies in or add to their number, elect and
remove such officers and appoint and terminate such agents or employees as they
consider appropriate, and appoint from their own number, and terminate, any one
or more committees which may exercise some or all of the power and authority of
the Trustees as the Trustees may determine;
(d) purchase, and pay for out of Trust Property, insurance policies
insuring the Shareholders, Trustees, officers, employees, agents, investment
advisers, distributors, selected dealers or independent contractors of the Trust
against all claims arising by reason of holding any such position or by reason
of any action taken or omitted by any such Person in such capacity, whether or
not constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability;
(e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust;
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(f) to the extent permitted by law, indemnify any person with whom the
Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent, and any dealer, to such extent as the Trustees shall determine;
(g) determine and change the fiscal year of the Trust and the method by
which its accounts shall be kept; and
(h) adopt a seal for the Trust, provided, that the absence of such seal
shall not impair the validity of any instrument executed on behalf of the Trust.
SECTION 3.11 - PRINCIPAL TRANSACTIONS. Except in transactions permitted by
the 1940 Act, or any order of exemption issued by the Commission, the Trustees
shall not, on behalf of the Trust, buy any securities (other than Shares) from
or sell any securities (other than Shares) to, or lend any assets of the Trust
to, any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with the
Investment Adviser, Distributor, or Transfer Agent or with any Interested Person
of such Person; but the Trust may employ any such Person, or firm or company in
which such Person is an Interested Person, as broker, legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian upon customary terms.
SECTION 3.12 - TRUSTEES AND OFFICERS AS SHAREHOLDERS. Except as
hereinafter provided, no officer, Trustee or member of the Advisory Board of the
Trust, and no member, partner, officer, employee, director or trustee of the
Investment Adviser or of the Distributor and no Investment Adviser or
Distributor of the Trust, shall take long or short positions in the securities
issued by the Trust. The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for Shares received by the Distributor and
provided that orders to purchase from the Trust are entered with the Trust or
the Custodian promptly upon receipt by the Distributor of purchase orders for
Shares, unless the Distributor is otherwise instructed by its customers;
(b) The Distributor from purchasing Shares as agent for the account of the
Trust;
(c) The purchase from the Trust or from the Distributor of Shares by any
officer, Trustee or member of the Advisory Board of the Trust or by any member,
partner, officer,
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employee, director or trustee of the Investment Adviser or of the Distributor at
a price not lower than the net asset value of the Shares next determined after
acceptance of the order by the Trust, provided that any such sales are only to
be made pursuant to a uniform offer described in the Trust's current prospectus;
or
(d) The Investment Adviser, the Distributor or any of their officers,
employees, partners, directors or trustees from purchasing Shares prior to the
effective date of the Registration Statement relating to the Shares under the
Securities Act of 1933, as amended.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
SECTION 4.1 - INVESTMENT ADVISER. Subject to a Majority Shareholder Vote
of the Shares of each series affected thereby, the Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts whereby a party to such contract shall undertake or furnish
the Trust such management, investment advisory, statistical and research
facilities and services, promotional activities, and such other facilities and
services, if any, with respect to one or more series of Shares, as the Trustees
shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provision of the Declaration, the Trustees may delegate to the Investment
Adviser authority (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of assets of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Investment Adviser (and all without further
action by the Trustees). Any such purchases, sales, loans or exchanges shall be
deemed to have been authorized by all the Trustees.
SECTION 4.2 - DISTRIBUTOR. The Trustees may in their discretion from time
to time enter into a contract, providing for the sale of Shares whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers and other financial intermediaries to further the purpose of
the distribution or repurchase of the Shares.
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SECTION 4.3 - TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract or
contracts whereby the other party or parties to such contract or contracts shall
undertake to furnish transfer agency and/or shareholder services. The contract
or contracts shall have such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the Declaration or the By-Laws. Such
services may be provided by one or more Persons.
SECTION 4.4 - PARTIES TO CONTRACT. Any contract of the character described
in Section 4.1, 4.2 or 4.3 of this Article IV or any custodian contract, as
described in the By-Laws, may be entered into with any Person, although one or
more of the Trustees or officers of the Trust may be an officer, partner,
director, trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship; nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article IV or
the By-Laws. The same Person may be the other party to contracts entered into
pursuant to Sections 4.1, 4.2 and 4.3 above or custodian contracts, and any
individual may be financially interested or otherwise affiliated with Persons
who are parties to any or all of the contracts mentioned in this Section 4.4.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 5.1 - NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The
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Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities to which such Shareholder may become subject by reason of
his being or having been a Shareholder, and shall reimburse such Shareholder for
all legal and other expenses reasonably incurred by him in connection with any
such claim or liability. The rights accruing to a Shareholder under this
Section 5.1 shall not exclude any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein. Notwithstanding any other provision of
this Declaration to the contrary, no Trust Property shall be used to indemnify
or reimburse any Shareholder of any Shares of any series other than Trust
Property allocated or belonging to such series.
SECTION 5.2 - NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties.
SECTION 5.3 - MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason
of a final adjudication by the court or other body before which the proceeding
was brought that he engaged
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in willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or by a
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a Person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such
Person. Nothing contained herein shall affect any rights to indemnification to
which personnel other than Trustees and officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
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(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who
is not an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order of
the Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
SECTION 5.4 - NO BOND REQUIRED OF TRUSTEES. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
SECTION 5.5 - NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC.
No purchaser, lender, Transfer Agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under the Declaration or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking made
or issued by the Trustees shall recite that the same is executed or made by them
not individually, but as Trustees under the Declaration, and that the
obligations of any such instrument are not binding upon any of the Trustees or
Shareholders individually, but bind only the trust estate, and may contain any
further recital which they or he may deem appropriate, but the omission of such
recital shall not operate to bind any of the Trustees or Shareholders
individually. The Trustees shall at all times maintain insurance for the
protection of the Trust Property, the Trust's Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
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SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust, upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by the
Investment Adviser, the Distributor, Transfer Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1 - BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of Beneficial Interest
(without par value) which shall be divided into one or more series as provided
in Section 6.9 hereof. The number of Shares authorized hereunder is unlimited.
All Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
SECTION 6.2 - RIGHTS OF SHAREHOLDERS. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any series
of or class Shares.
SECTION 6.3 TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
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SECTION 6.4 - ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times, and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. The Trustees may from time to time divide or combine the
Shares of any series into a greater or lesser number without thereby changing
their proportionate beneficial interests in Trust Property allocated or
belonging to such series. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a Share or
integral multiples thereof.
SECTION 6.5 - REGISTER OF SHARES. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-Laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
SECTION 6.6 - TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with any certificate or
certificates (if issued) for such Shares and such evidence of the genuineness of
each such execution and authorization and of other matters as may reasonably be
required. Upon such delivery the transfer shall be recorded on the register of
the Trust. Until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer, employee or agent
of the Trust shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to
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the Trustees or the Transfer Agent; but until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent or registrar
nor any officer or agent of the Trust shall be affected by any notice of such
death, bankruptcy or incompetence, or other operation of law.
SECTION 6.7 - NOTICES. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.8 - VOTING POWERS. The Shareholders shall have power to vote
only (i) for the removal of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to any amendment of this Declaration to
the extent and as provided in Section 9.3 hereof, (v) with respect to any
merger, consolidation or sale of assets as provided in Sections 9.4 and 9.6
hereof, (vi) with respect to incorporation of the Trust or any series to the
extent and as provided in Sections 9.5 and 9.6 hereof, (vii) to the same extent
as the stockholders of a Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to the
Trust as may be required by the Declaration, the By-Laws or any registration of
the Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that Shares held in the treasury of the Trust shall not be voted. There shall
be no cumulative voting in the election of Trustees. Until Shares are issued
and during any period when no Shares are outstanding, the Trustees may exercise
all rights of Shareholders and may take any action required by law, the
Declaration or the By-Laws to be taken by Shareholders. The By-Laws may
include further provisions for Shareholder votes and meetings and related
matters.
SECTION 6.9 - SERIES DESIGNATION. Shares of the Trust may be divided into
series, the number and relative rights, privileges and preferences of which
shall be established and designated by the Trustees, in their discretion, in
accordance with the terms of this Section 6.9. The Trustees may from time to
time exercise their power to authorize the division of Shares into one or more
series by establishing and designating one or more series of Shares upon and
subject to the following provisions:
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(a) All Shares shall be identical except that there may be such variations
as shall be fixed and determined by the Trustees between different series as to
purchase price, right of redemption and the price, terms and manner of
redemption, and special and relative rights as to dividends and on liquidation.
(b) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more of the series established and designated from time to
time in such a manner and on such basis as they, in their sole discretion, deem
fair and equitable. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all series for all purposes. No holder of
Shares of any particular series shall have any claim on or right to any assets
allocated or belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall
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have full discretion to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders. Under no circumstances shall the assets allocated or belonging to
any particular series be charged with liabilities attributable to any other
series. All Persons who have extended credit which has been allocated to a
particular series, or who have a claim or contract which has been allocated to
any particular series, shall look only to the assets of that particular series
for payment of such credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section
3.2 hereof unless otherwise provided in the instrument of the Trustees
establishing such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the
net assets allocated or belonging to such series only, and such interest shall
not extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series may be paid with such frequency as the Trustees
may determine, which may be daily or otherwise, pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that series, only from such
of the income and capital gains, accrued or realized, from the assets belonging
to that series, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that series. All dividends and distributions
on Shares of a particular series shall be distributed pro rata to the holders of
that series in proportion to the number of Shares of that series held by such
holders at the date and time of record established for the payment of such
dividends or distributions. Shares of any particular series of the Trust may be
redeemed solely out of Trust Property allocated or belonging to that series.
Upon liquidation or termination of a series of the Trust, Shareholders of such
series shall be entitled to receive a pro rata share of the net assets of such
series only. A Shareholder of a particular series of the Trust shall not be
entitled to participate in a derivative or class action on behalf of any other
series or the Shareholders of any other series of the Trust.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders of the Trust, all Shares then entitled
to vote shall be voted in the aggregate, except that (i) when required by the
1940 Act to be voted by individual series or class, Shares shall not be voted in
the aggregate, and (ii) when the Trustees have determined that the matter
affects only the interests of Shareholders of one or more series or class, only
Shareholders of such series or class shall be entitled to vote thereon.
19
<PAGE>
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument. At any
time that there are no Shares outstanding of any particular series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
The series of Shares established and designated pursuant to this Section
6.9 and existing as of the date hereof are set forth in Annex A hereto.
SECTION 6.10 - CLASS DESIGNATION. The Trustees may, in their discretion,
authorize the division of Shares of the Trust (or any series of the Trust) into
one or more classes. All Shares of a class shall be identical with each other
and with the Shares of each other class of the Trust or the same series of the
Trust (as applicable), except for such variations between classes as may be
approved by the Board of Trustees and permitted by the 1940 Act or pursuant to
any exemptive order issued by the Commission.
ARTICLE VII
REDEMPTIONS
SECTION 7.1 - REDEMPTION OF SHARES. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed Shares may be resold by the Trust.
The Trust shall redeem the Shares at the price determined as hereinafter
set forth, upon acceptance of the appropriately verified written application of
the record holder thereof (or upon such other form of request as the Trustees
may determine) at such office or agency as may be designated from time to time
for that purpose in the Trust's then effective prospectus under the Securities
Act of 1933. The Trustees may from time to time specify additional conditions,
not inconsistent with the 1940 Act, regarding the redemption of Shares in the
Trust's then effective prospectus under the Securities Act of 1933.
SECTION 7.2 - PRICE. Shares shall be redeemed at their net asset value
determined as set forth in Article VIII hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be
20
<PAGE>
the net asset value of such Shares next determined as set forth in Article VIII
hereof after acceptance of such application.
SECTION 7.3 - PAYMENT. Payment of the redemption price of Shares of any
series shall be made in cash or in property out of the assets of such series to
the Shareholder of record at such time and in the manner, not inconsistent with
the 1940 Act or other applicable laws, as may be specified from time to time in
the Trust's then effective prospectus under the Securities Act of 1933, subject
to the provisions of Section 7.4 hereof.
SECTION 7.4 - EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET VALUE.
If, pursuant to Section 7.6 hereof, the Trustees shall declare a suspension of
the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 7.1 hereof but
who shall not yet have received payment) to have Shares redeemed and paid for by
the Trust shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on
deposits. The redemption price of Shares for which redemption applications have
not been revoked shall be the net asset value of such Shares next determined as
set forth in Article VIII after the termination of such suspension, and payment
shall be made within seven days after the date upon which the application was
made plus the period after such applications during which the determination of
net asset value was suspended.
SECTION 7.5 - REDEMPTION OF SHARES IN ORDER TO QUALIFY AS REGULATED
INVESTMENT COMPANY; DISCLOSURE OF HOLDING. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify the Trust or any series of the Trust as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption by any such Person a number, or
principal amount, of Shares or other securities of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would result in such disqualification. The redemption shall be
effected at the redemption price and in the manner provided in Section 7.1.
21
<PAGE>
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code of
1986, as amended, or to comply with the requirements of any other taxing
authority.
SECTION 7.6 - SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings,
(ii) during which trading on the New York Stock Exchange is restricted, (iii)
during which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
security holders of the Trust by order permit suspension of the right of
redemption or postponement of the date of payment or redemption; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment on redemption
until the Trust shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which said stock
exchange shall have reopened or the period specified in (ii) or (iii) shall have
expired (as to which in the absence of an official ruling by the Commission, the
determination of the Trust shall be conclusive). In the case of a suspension of
the right of redemption a Shareholder may either withdraw his request for
redemption or receive payment based on the net asset value existing after the
termination of the suspension as provided in Section 7.4 hereof.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Subject to Section 6.9 hereof, the Trustees, in their absolute discretion,
may prescribe and shall set forth in the By-Laws or in a duly adopted vote of
the Trustees such bases and times for determining the per Share net asset value
of the Shares of any series or net income attributable to the Shares of any
series, or the declaration and payment of dividends and distributions on the
Shares of any series, as they may deem necessary or desirable.
22
<PAGE>
ARTICLE IX
DURATION, TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC
SECTION 9.1 - DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2 - TERMINATION OF TRUST.
(a) The Trust may be terminated (i) by the affirmative vote of the holders
of not less than two-thirds of the Shares outstanding and entitled to vote its
Shares, or (ii) by the Trustees by written notice to the Shareholders. Any
series of the Trust may be terminated (i) by the affirmative vote of the holders
of not less than two-thirds of the Shares outstanding and entitled to vote of
that series, or (ii) by the Trustees by written notice to the Shareholders of
that series. Upon the termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business
except for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust or series of the Trust, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property or Trust Property of the series to one or more persons at public
or private sale for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its liabilities, and
to do all other acts appropriate to liquidate its business; provided, that any
sale, conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof, and any sale, conveyance, assignment,
exchange, transfer or other disposition of all or substantially all of the Trust
Property allocated or belonging to any series shall require the approval of the
Shareholders of such series as provided in Section 9.6 hereof; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or Trust Property of the
23
<PAGE>
series, in cash or in kind or partly in cash and partly in kind, among the
Shareholders of the Trust or the series according to their respective rights.
(b) After termination of the Trust or series and distribution to the
Shareholders of the Trust or series as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder with
respect to the Trust or series, and the rights and interests of all Shareholders
of the Trust or series shall thereupon cease.
SECTION 9.3 - AMENDMENT PROCEDURE.
(a) This Declaration may be amended by a Majority Shareholder Vote of the
Shareholders of the Trust or by any instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the holders of not less
than a majority of the Shares of the Trust. The Trustees may also amend this
Declaration without the vote or consent of Shareholders to designate series in
accordance with Section 6.9 hereof, to change the name of the Trust, to supply
any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary or advisable to
conform this Declaration to the requirements of applicable federal laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code of 1986, as amended, but the Trustees shall not be
liable for failing so to do.
(b) No amendment which the Trustees shall have determined shall affect the
rights, privileges or interests of holders of a particular series of Shares, but
not the rights, privileges or interests of holders of Shares of the Trust
generally, may be made except with the vote or consent by a Majority Shareholder
Vote of such series.
(c) Notwithstanding any other provision hereof, no amendment may be made
under this Section 9.3 which would change any rights with respect to the Shares,
or any series of Shares, by reducing the amount payable thereon upon liquidation
of the Trust or by diminishing or eliminating any voting rights pertaining
thereto, except with a Majority Shareholder Vote of Shares or series of Shares.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
24
<PAGE>
(d) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
(e) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be amended in any respect by the affirmative
vote of majority of the Trustees or by instrument signed by a majority of the
Trustees.
SECTION 9.4 - MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for such purpose by the holders of not less than two-thirds of the Shares
outstanding and entitled to vote of the Trust, or such other vote as may be
established by the Trustees with respect to any series of Shares, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote of the Trust; provided, however that if such merger, consolidation, sale,
lease or exchange is recommended by the Trustees, the vote of the holders of a
majority of the Shares outstanding and entitled to vote, or such other vote as
may be established by the Trustees with respect to any series of Shares, shall
be sufficient authorization; and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to the statutes of The Commonwealth of Massachusetts. Nothing
contained herein shall be construed as requiring approval of shareholders for
any sale of assets in the ordinary course of the business of the Trust.
SECTION 9.5 - INCORPORATION AND REORGANIZATION. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the
25
<PAGE>
Trust holds or is about to acquire shares or any other interest. Subject to
Section 9.4 hereof, the Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted by
law. Nothing contained in this Section 9.5 shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organization or entities.
SECTION 9.6 - INCORPORATION OR REORGANIZATION OF SERIES. With the approval
of a Majority Shareholder Vote of any series, the Trustees may sell, lease or
exchange all of the Trust Property allocated or belonging to that series, or
cause to be organized or assist in organizing a corporation or corporations
under the laws of any other jurisdiction, or any other trust, unit investment
trust, partnership, association or other organization, to take over all of the
Trust Property allocated or belonging to that series and to sell, convey and
transfer such Trust Property to any such corporation, trust, unit investment
trust, partnership, association, or other organization in exchange for the
shares or securities thereof or otherwise.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
Whenever ten or more Shareholders of record who have been such for at least
six months preceding the date of application, and who hold in the aggregate
either Shares having a net asset value of at least $25,000 or at least l% of the
Shares outstanding, whichever is less, shall apply to the Trustees in writing,
stating that they wish to communicate with other Shareholders with a view to
obtaining signatures to a request for a meeting of Shareholders for the purpose
of removing one or more Trustees pursuant to Section 2.2 hereof and accompany
such application with a form of communication and request which they wish to
transmit, the Trustees shall within five business days after receipt of such
application either:
(a) afford to such applicants access to a list of the names and addresses
of all Shareholders as recorded on the books of the Trust; or
26
<PAGE>
(b) inform such applicants as to the approximate number of Shareholders of
record, and the approximate cost of mailing to them the proposed communication
and form of request. If the Trustees elect to follow the course specified in
(b) above, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be mailed and of the reasonable
expenses of mailing, shall, with reasonable promptness, mail such material to
all Shareholders of record, unless within five business days after such tender
the Trustees mail to such applicants and file with the Commission, together with
a copy of the material to be mailed, a written statement signed by at least a
majority of the Trustees to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be in violation
of applicable law, and specifying the basis of such opinion.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 - FILING. This Declaration, as amended, and any subsequent
amendment hereto shall be filed in the office of the Secretary of The
Commonwealth of Massachusetts and in such other place or places as may be
required under the laws of The Commonwealth of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowledged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment or such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, integrating into a single instrument all of
the provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of The Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
SECTION 11.2 - GOVERNING LAW. This Declaration is executed by the Trustees
and delivered in The Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
27
<PAGE>
SECTION 11.3 - COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 11.4 - RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (i) the number or identity of Trustees or
Shareholders, (ii) the due authorization of the execution of any instrument or
writing, (iii) the form of any vote passed at a meeting of Trustees or
Shareholders, (iv) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (v) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (vi) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
SECTION 11.5 - PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of the Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986, as amended, or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of the Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of the Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
28
<PAGE>
ANNEX A
Pursuant to Section 6.9 of the Declaration, the Trustees of the Trust have
established and designated two series of Shares (as defined in the Declaration),
such series having the following special and relative rights:
1. The series are designated:
-MFS Union Standard Equity Fund
-MFS Union Standard Research Fund
2. Each series is 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 to the extent pertaining to the offering of Shares of such
series. Each Share of the series is redeemable, is entitled to one
vote or fraction thereof in respect of a fractional share on matters
on which Shares of each series are entitled to vote, represents a pro
rata beneficial interest in the assets allocated or belonging to the
series, and is 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 of Trust.
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 of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
established and existing series of the Trust as set forth in Section
6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, 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
created, or to otherwise change the special and relative rights of any
such series.
29
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument this 24th
day of January, 1996.
A. KEITH BRODKIN
- -------------------------
A. Keith Brodkin
76 Farm Road
Sherborn, MA 01770
NELSON J. DARLING, JR.
- -------------------------
Nelson J. Darling, Jr.
74 Beach Bluff Avenue
Swampscott, MA 01907
WILLIAM R. GUTOW
- -------------------------
William R. Gutow
3 Rue Du Lac Road
Dallas, Texas 75230
30
<PAGE>
EXHIBIT NO. 99.1(b)
[FORM OF]
MFS UNION STANDARD TRUST
ON BEHALF OF:
MFS UNION STANDARD RESEARCH FUND
Pursuant to Section 9.2(b) of the Amended and Restated Declaration of
Trust, dated January 24, 1996 (the "Declaration"), of MFS Union Standard Trust
(the "Trust"), the undersigned, constituting a majority of the Trustees of the
Trust, do hereby certify that MFS Union Standard Fund, a series of the Trust,
has been terminated.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 29th
day of January, 1997.
- -------------------------
A. Keith Brodkin
76 Farm Road
Sherborn, MA 01770
- -------------------------
Nelson J. Darling, Jr.
74 Beach Bluff Avenue
Swampscott, MA 01907
- -------------------------
William R. Gutow
3 Rue Du Lac Road
Dallas, Texas 75230
<PAGE>
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 5 to Registration Statement No. 33-68310 of MFS Union Standard
Trust on behalf of MFS Union Standard Equity Fund of our report dated November
1, 1996 appearing in the annual report to shareholders for the year ended
September 30, 1996 of MFS Union Standard Equity Fund, and to the references to
us under the headings "Condensed Financial Information" in the Prospectus and
"Independent Auditors and Financial Statements" in the Statement of Additional
Information, both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000911637
<NAME> MFS UNION STANDARD TRUST
<SERIES>
<NUMBER> 01
<NAME> MFS UNION STANDARD EQUITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 40561048
<INVESTMENTS-AT-VALUE> 49232395
<RECEIVABLES> 84315
<ASSETS-OTHER> 11996
<OTHER-ITEMS-ASSETS> 4767
<TOTAL-ASSETS> 49333473
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<OTHER-ITEMS-LIABILITIES> 15709
<TOTAL-LIABILITIES> 15709
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<PAID-IN-CAPITAL-COMMON> 34895564
<SHARES-COMMON-STOCK> 3559938
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<ACCUMULATED-NII-CURRENT> 510189
<OVERDISTRIBUTION-NII> 0
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<DIVIDEND-INCOME> 1041048
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<EXPENSES-NET> (478908)
<NET-INVESTMENT-INCOME> 650753
<REALIZED-GAINS-CURRENT> 5562093
<APPREC-INCREASE-CURRENT> 2783940
<NET-CHANGE-FROM-OPS> 8996786
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (535470)
<DISTRIBUTIONS-OF-GAINS> (957583)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1592667
<NUMBER-OF-SHARES-REDEEMED> (1173568)
<SHARES-REINVESTED> 116989
<NET-CHANGE-IN-ASSETS> 13475852
<ACCUMULATED-NII-PRIOR> 161085
<ACCUMULATED-GAINS-PRIOR> 2018078
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 310911
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 492948
<AVERAGE-NET-ASSETS> 47758823
<PER-SHARE-NAV-BEGIN> 11.85
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 2.25
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.85
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
