As filed with the Securities and Exchange Commission
on February 21, 1995
1933 Act File No. 33-74668
1940 Act File No. 811-8326
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 2
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
MFS VARIABLE INSURANCE TRUST
(Exact name of registrant as specified in its charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
617-954-5000
Stephen E. Cavan, Massachusetts Financial Services
Company,
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective
(check appropriate box)
* immediately upon filing pursuant to paragraph
(b)
* on [date] pursuant to paragraph (b)
* 60 days after filing pursuant to paragraph
(a)(i)
* on [date] pursuant to paragraph (a)(i)
* 75 days after filing pursuant to paragraph
(a)(ii)
* on [date] pursuant to paragraph (a)(ii) of
rule 485.
If appropriate, check the following box:
* this post-effective amendment designates a
new effective date for a previously filed post-
effective amendment
Pursuant to Rule 24f-2, the Registrant has registered
an indefinite number of its Shares of Beneficial
Interest, without par value, under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice for
its first fiscal year ended December 31, 1994 on
February 28, 1995.
MFS VARIABLE INSURANCE TRUST
MFS OTC Series
MFS Growth Series
MFS Research Series
MFS Growth With Income Series
MFS Total Return Series
MFS Utilities Series
MFS High Income Series
MFS World Governments Series
MFS Strategic Fixed Income Series
MFS Bond Series
MFS Limited Maturity Series
MFS Money Market Series
Cross Reference Sheet
(Pursuant to Rule 404 showing location in
Prospectus and/or Statement of Additional
Information of the responses to the Items in
Parts A and B of Form N-1A)
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
3 (a) Condensed Financial
Information *
(b) * *
(c) Information Concerning
Shares *
of Each Series -
Performance
Information
(d) Condensed Financial
Information *
4 (a) Investment Concept of the
Trust; *
Investment Objectives
and
Policies; Investment
Techniques
(b) Investment Objectives and
Policies; *
Investment Techniques
(c) Investment Techniques;
Additional *
Risk Factors
5 (a) Investment Concept of the
Trust; *
Management of the Series
- -
Investment Adviser
(b) Front Cover Page;
Management of *
the Series; Investment
Adviser;
Back Cover Page
(c), (d) * *
(e) Information Concerning
Shares *
of Each Series -
Expenses
(f), (g) Expense Summary *
5A (a), (b), (c) ** **
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
6 (a) Information Concerning
Shares *
of Each Series -
Description of
Shares, Voting Rights
and Liabilities;
Information Concerning
Shares of
Each Series - Purchases
and
Redemptions; Information
Concerning Shares of
Each
Series - Purchases and
Redemptions
(b), (c), (d) * *
(e) Shareholder Communication *
(f) Information Concerning
Shares *
of Each Series -
Distributions
(g) Information Concerning
Shares *
of Each Series - Tax
Status;
Information Concerning
Shares
of Each Series -
Distributions
7 (a) Front Cover Page;
Management *
of the Series -
Distributor; Back
Cover Page
(b) Information Concerning
Shares *
of Each Series -
Purchases and
Redemptions; Information
Concerning Shares of
Each
Series - Net Asset Value
(c) * *
(d) Front Cover Page;
Information *
Concerning Shares of
Each Series -
Purchases and
Redemptions
(e), (f) * *
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
8 (a), (b) Information Concerning
Shares *
of Each Series -
Purchases and
Redemptions
(c) * *
(d) Information Concerning
Shares *
of Each Series -
Purchases and
Redemptions
9 * *
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 * *
13 (a) * Investment Techniques
(b), (c) * Investment Techniques;
Investment Restrictions
(d) * Investment Techniques
14 (a), (b) * Management of the Trust
(c) * *
15 (a), (b), (c) * *
16 (a) * Management of the Trust -
Investment Adviser;
Management of the Trust -
Trustees and Officers
(b) * Management of the Trust -
Investment Adviser
(c), (d) * *
(e) * Portfolio Transactions and
Brokerage Commissions
(f), (g) * *
(h) * Management of the Trust -
Custodian; Independent
Accountants and Financial
Statements; Back Cover Page
(i) * Management of the Trust -
Shareholder Servicing Agent
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
17 (a) * Portfolio Transactions
and Brokerage Commissions
(b) * *
(c) * Portfolio Transactions and
Brokerage Commissions
(d), (e) * *
18 (a) * Description of Shares Voting
Rights and Liabilities
(b) * *
19 (a) * *
(b) * Determination of Net Asset
Value and Performance - Net
Asset Value
(c) * *
20 * Tax Status
21 (a), (b) * Management of the Trust -
Distributor
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value; Performance Information
23 * Independent Accountants and
Financial Statements
___________________________
* Not Applicable
** Will be contained in Annual Report
MFS_ VARIABLE INSURANCE TRUST
PROSPECTUS
May 1, 1995
MFS_ VARIABLE INSURANCE TRUSTSM
MFS Variable Insurance Trust (the "Trust") is an open-end
management investment company offering insurance company
separate accounts a selection of investment vehicles for
variable annuity and variable life insurance contracts (the
"Contracts"). Currently the Trust offers shares of beneficial
interest of 12 separate mutual fund series (individually or
collectively hereinafter referred to as a "Series" or the
"Series"):
_ MFS Emerging Growth Series (formerly known as MFS OTC
Series) (the "Emerging
Growth Series"), which seeks to provide long-term
growth of capital;
_ MFS Growth Series (the "Growth Series"), which seeks
to provide long-term growth of
capital and future income rather than current income;
_ MFS Research Series (the "Research Series"), which
seeks to provide long-term growth
of capital and future income;
_ MFS Growth With Income Series (the "Growth With Income
Series"), which seeks to
provide reasonable current income and long-term growth of
capital and income;
_ MFS Total Return Series (the "Total Return Series"),
which seeks primarily to
provide above-average income (compared to a portfolio
entirely invested in equity securities) consistent
with the prudent employment of capital and secondarily
to provide a reasonable opportunity for growth of
capital and income;
_ MFS Utilities Series (the "Utilities Series"), which
seeks capital growth and
current income (income above that available from a
portfolio invested entirely in equity securities);
_ MFS High Income Series (the "High Income Series"),
which seeks high current income
by investing primarily in a professionally managed
portfolio of fixed income securities, some of which
may involve equity features;
_ MFS World Governments Series (the "World Governments
Series"), which seeks
preservation and growth of capital, together with moderate
current income;
_ MFS Strategic Fixed Income Series (the "Strategic
Fixed Income Series"), which seeks
to maximize current income.
_ MFS Bond Series (the "Bond Series"), which seeks
primarily to provide as high a
level of current income as is believed consistent with
prudent investment risk and secondarily to protect
shareholders' capital;
_ MFS Limited Maturity Series (the "Limited Maturity
Series"), which seeks primarily
to provide as high a level of current income as is
believed to be consistent with prudent investment risk
and secondarily to protect shareholders' capital; and
_ MFS Money Market Series (the "Money Market Series"),
which seeks as high a level of
current income as is considered consistent with the
preservation of capital and liquidity.
_________
THE HIGH INCOME SERIES AND THE STRATEGIC FIXED INCOME SERIES
MAY INVEST UP TO 80% AND 50%, RESPECTIVELY, OF ITS ASSETS IN
LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL
GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN
HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER
THESE RISKS BEFORE INVESTING (SEE "ADDITIONAL RISK FACTORS _
LOWER RATED BONDS"). THE EMERGING GROWTH SERIES, THE GROWTH
SERIES, THE RESEARCH SERIES AND THE GROWTH WITH INCOME SERIES
ARE INTENDED FOR INVESTORS WHO UNDERSTAND AND ARE WILLING TO
ACCEPT THE RISKS ENTAILED IN SEEKING LONG-TERM GROWTH OF
CAPITAL. BECAUSE OF THEIR INVESTMENT POLICIES PERMITTING
INVESTMENT IN FOREIGN SECURITIES,
INVESTMENTS IN EACH SERIES (EXCEPT FOR THE LIMITED MATURITY
SERIES AND THE MONEY MARKET SERIES) MAY BE SUBJECT TO A GREATER
DEGREE OF RISK THAN INVESTMENTS IN OTHER INVESTMENT COMPANIES
WHICH INVEST ENTIRELY IN DOMESTIC SECURITIES.
____
_____
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.
_________
INVESTMENTS IN THE MONEY MARKET SERIES ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE
THAT THE SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
_________
SHARES OF THE TRUST ARE AVAILABLE AND ARE BEING MARKETED AS A
POOLED FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL
TYPES OF CONTRACTS.
This Prospectus sets forth concisely the information about each
Series that a prospective investor should know before applying
for the Contracts offered by the separate accounts of certain
insurance companies ("Participating Insurance Companies").
Investors are advised to read this Prospectus and the
applicable Contract prospectus carefully and retain them for
future reference. If you require more detailed information, a
Statement of Additional Information dated May 1, 1995, as
supplemented from time to time, is available upon request
without charge and may be obtained by calling or by writing to
the Shareholder Servicing Agent. (see back cover for address
and phone number.) The Statement of Additional Information,
which is incorporated by reference into this Prospectus, has
been filed with the Securities and Exchange Commission.
Investors should read this Prospectus and
retain it for future reference.
TABLE OF CONTENTS
Page
1.
Expense Summary . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
.
4
2.
Investment Concept of
the Trust
5
3.
Condensed Financial
Information
6
4.
Investment Objectives
and Policies
6
MFS Emerging Growth
Series
7
MFS Growth Series
8
MFS Research Series
8
MFS Growth With Income
Series
9
MFS Total Return Series
9
MFS Utilities Series
11
MFS High Income Series
12
MFS World Governments
Series
13
MFS Strategic Fixed
Income Series
15
MFS Bond Series
16
MFS Limited Maturity
Series
17
MFS Money Market Series
18
5.
Investment Techniques
19
6.
Additional Risk Factors
26
7.
Management of the Series
30
8.
Information Concerning
Shares of Each Series
32
Purchases and Redemptions
32
Net Asset Value
32
Distributions
32
Tax Status
33
Description of Shares,
Voting Rights and
Liabilities
33
Performance Information
33
Expenses
34
Shareholder
Communications
35
Appendix A _ Description
of Bond Ratings
A-1
Appendix B _ Principal
Sectors of the Utilities
Industry
B-1
Appendix C _ Description of Obligations Issued or Guaranteed by
U.S. Government
Agencies,
Authorities or Instrumentalities. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
C-1
1. EXPENSE SUMMARY
Annual Operating Expenses (as a percentage of average
net assets):
MFS
Emerging
Growth
Series
MFS Growth
Series
MFS Research
Series
MFS Growth
With Income
Series
Management Fee . . . . .
. . . . . . .
0.75%
0.75%
0.75%
0.75%
Other Expenses (after fee
reduction) . . . . . . .
. . . . . . .
0.25%
0.25%
0.25%
0.25%
Total Operating Expense
(after fee reduction)
. . . . . . . . . . .
. . .
1.00%
1.00%
1.00%
1.00%
MFS Total
Return
Series
MFS Utilities
Series
MFS High
Income
Series
MFS World
Governments
Series
Management Fee . . . . .
. . . . . . .
0.75%
0.75%
0.75%
0.75%
Other Expense (after fee
reduction) . . . . . . .
. . . . . . .
0.25%
0.25%
0.25%
0.25%
Total Operating Expenses
(after
fee reduction) . . . . . .
. . . . . .
1.00%
1.00%
1.00%
1.00%
MFS Strategic
Fixed Income
Series
MFS Bond
Series
MFS Limited
Maturity
Series
MFS Money Market
Series
Management Fee . . . . .
. . . . . . .
0.75%
0.60%
0.55%
0.50%
Other Expenses (after fee
reduction) . . . . . . .
. . . . . . .
0.25%
0.40%
0.45%
0.10%
Total Operating Expense
(after fee reduction)
. . . . . . . . . . .
. . .
1.00%
1.00%
1.00%
0.60%
_______
1
The Adviser has agreed to bear, subject to reimbursement, expenses
for each of the Emerging Growth Series, Growth Series, Research
Series, Growth With Income Series, Total Return Series, Utilities
Series, High Income Series, Strategic Fixed Income Series, Bond
Series and Limited Maturity Series such that each Series'
aggregate operating expenses shall not exceed, on an annualized
basis, 1.00% of the average daily net assets of the Series from
November 2, 1994 through December 31, 1996, 1.25% of the average
daily net assets of the Series from January 1, 1997 through
December 31, 1998, and 1.50% of the average daily net assets of the
Series from
January 1, 1999 through December 21, 2004; provided however, that
this obligation may be terminated or revised at any time. See
"Information Concerning Shares of Each Series_Expenses" below.
Absent this expense arrangement, "Other Expenses" and "Total
Operating Expenses" would be 1.00% and 1.75%, respectively for the
Emerging Growth Series, Growth Series, Research Series, Growth
with Income Series, High Income Series and Strategic Fixed Income
Series. Absent this expense arrangement, "Other Expenses" for the
Total Return Series, Utilities Series, Bond Series and Limited
Maturity Series would be 0.62%, 0.93%, 1.00% and 1.00%,
respectively, and "Total Operating Expenses"
would be 1.37%, 1.68%, 1.60% and 1.55%, respectively, for
these series.
2
The Adviser has agreed to bear, subject to reimbursement, until
December 31, 2004, expenses of the World Governments Series such
that the Series' aggregate expenses do not exceed 1.00%, on
an annualized basis, of its average daily net assets. See
"Information Concerning Shares of Each Series_Expenses" below.
Absent this expense arrangement, "Other Expenses" and "Total
Operating Expenses" would be 0.63% and 1.38%,
respectively.
3
The Adviser has agreed to bear, subject to reimbursement, until
December 31, 2004, expenses of the Money Market Series such that
the Series' aggregate operating expenses do not exceed, on an
annualized basis, 0.60% of its average daily net assets. See
"Information Concerning Shares of Each Series_Expenses" below.
Absent this expense arrangement, "Other Expenses" and "Total
Operating Expenses" for the Money Market Series would be 2.32% and
2.82%, respectively.
The Series' annual operating expenses do not reflect
expenses imposed by separate accounts of Participating Insurance
Companies through which an investment in a Series is made or their
related Contracts. A separate account's expenses are disclosed in
the prospectus through which the Contract relating to that
separate account is offered for sale.
2. INVESTMENT CONCEPT OF THE TRUST
The Trust is an open-end, registered management investment company
comprised of the following twelve series: Emerging Growth Series,
Growth Series, Research Series, Growth With Income Series, Total
Return Series, Utilities Series, High Income Series, World
Governments Series, Strategic Fixed Income Series, Bond Series,
Limited Maturity Series and Money Market Series. Each Series is a
segregated, separately managed portfolio of securities. All of the
Series, except the Utilities Series, World Governments Series and
Strategic Fixed Income Series, are diversified. Additional series
may be created from time to time. The Trust was organized as a
business trust under the laws of The Commonwealth of Massachusetts
by a Declaration of Trust dated February 1, 1994.
The Trust currently offers shares of each Series to
insurance company separate accounts that fund Contracts. Separate
accounts may purchase or redeem shares at net asset value without
any sales or redemption charge. Fees and charges imposed by a
separate account, however, will affect the actual return to the
holder of a Contract. A separate account may also impose certain
restrictions or limitations on the allocation of purchase payments
or Contract value to one or more Series, and not all Series may be
available in connection with a particular Contract. Prospective
investors should consult the applicable Contract prospectus for
information regarding fees and expenses of the Contract and
separate account and any applicable restrictions or limitations.
The Trust assumes no responsibility for such prospectuses.
Shares of the Series are offered to the separate accounts
of Participating Insurance Companies that are affiliated or
unaffiliated ("shared funding"). Shares of the Series may serve as
the underlying investments for both variable annuity and variable
life insurance contracts ("mixed funding"). Due to differences in
tax treatment or other considerations, the interests of various
Contract owners might at some time be in conflict. The Trust
currently does not foresee any such conflict. Nevertheless, the
Trust's Trustees intend to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response
thereto. If such a conflict were to occur, one or more separate
accounts of the Participating Insurance Companies might be
required to withdraw its investments in one one or more Series.
This might force a Series to sell securities at disadvantageous
prices.
Individual Contract holders are not the "shareholders" of
the Trust. Rather, the Participating Insurance Companies and their
separate accounts are the shareholders or investors, although such
companies may pass through voting rights to their Contract
holders.
The Trust's Board of Trustees provides broad supervision
over the affairs of the Trust and the Series. Massachusetts
Financial Services Company, a Delaware corporation ("MFS" or the
"Adviser"), is the investment adviser to each Series. A majority
of the Trustees of the Trust are not affiliated with the Adviser.
The Adviser is responsible for the management of the assets of
each Series and the officers of the Trust are responsible for the
operations. The Adviser manages the Series' portfolios from day to
day in accordance with the investment objectives and policies of
each Series. The selection of investments and the way they are
managed depend on the conditions and trends in the economy and the
financial marketplaces.
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the
World Governments Series' financial statements included in the
Series' Annual Report to shareholders which are incorporated by
reference into the Statement of Additional Information in reliance
upon the report of Deloitte & Touche LLP, independent certified
public accountants, as experts in accounting and auditing. The
other Series of the Trust had not commenced investment operations
as of December 31, 1994.
Year ended
December 31, 1994*
World Governments Series
Per share data (for a
share outstanding
throughout the period):
Net asset value_beginning
of period
$10.00
Income from investment
operations__
Net investment income** .
. . . . . . . . . .
$0.17
Net realized and
unrealized loss on
investments
(0.09)
Total from investment operations . . . . . . . . . . . . . .
. . . . . . . . .
$0.08
Less distributions
declared to shareholders_
From net investment
income . . . . .
$(0.17)
In excess of net
investment income
(0.09)
Total distributions declared to shareholders . . . . . . . .
. . . . . . . . .
$(0.26)
Net asset value_end of
period. . . . . . . . . .
. . . . . . . . . . . . .
. . . .
$9.82
Total return. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
0.79%
Ratios (to average net
assets)/Supplemental data**:
Expenses
1.00%_
Net investment income
4.68%_
Portfolio turnover
62%
Net assets at end of
period (000 omitted)
$2,881
_______
_
Annualized.
__
Per share data is based
on average shares
outstanding.
*
For the period from the
commencement of
investment
operations, June 14,
1994 to December 31,
1994.
*
*
The Adviser did not
impose a portion of
its management fee
for the period
indicated. If this
fee had been incurred
by the Series, the
net investment income
per share and the
ratios would have
been:
Net
i
n
v
e
s
t
m
e
n
t
i
n
c
o
m
e
$0.16
Rat
i
o
s
(
t
o
a
v
e
r
a
g
e
n
e
t
a
s
s
e
t
s
)
:
Exp
e
n
s
e
s
1.10%_
Net
i
n
v
e
s
t
m
e
n
t
i
n
c
o
m
e
4.58%_
Total return information does not reflect expenses that
apply to the separate accounts of Participating Insurance
Companies or their related Contracts. The inclusion of these
charges would reduce the total return figure for the period shown.
4. INVESTMENT OBJECTIVES AND POLICIES
Each Series has different investment objectives which it pursues
through separate investment policies, as described below. The
differences in objectives and policies among the Series can be
expected to affect the degree of market and financial risk to
which each Series is subject and the return of each Series. The
investment objectives and policies of each Series may, unless
otherwise specifically stated, be changed by the Trustees of the
Trust without a vote of the shareholders. Any investment involves
risk and there is no assurance that the objectives of any Series
will be achieved.
MFS Emerging Growth Series _ The Series seeks to provide long-term
growth of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment
objective of long-term growth of capital.
The Series' policy is to invest primarily (i.e., at least
80% of its assets under normal circumstances) in common stocks of
small and medium-sized companies that are early in their life
cycle but which have the potential to become major enterprises
(emerging growth companies). Such companies generally would be
expected to show earnings growth over time that is well above the
growth rate of the overall economy and the rate of inflation, and
would have the products, management and market opportunities which
are usually necessary to become more widely recognized as growth
companies.
However, the Series may also invest in more established
companies whose rates of earnings growth are expected to
accelerate because of special factors, such as rejuvenated
management, new products, changes in consumer demand, or basic
changes in the economic environment.
While the Series will invest primarily in common stocks, the
Series may, to a
limited extent, seek appreciation in other types of securities
such as foreign or convertible securities and warrants when
relative values make such purchases appear attractive either as
individual issues or as types of securities in certain economic
environments (see "Additional Risk Factors"). The Series may also
enter into forward foreign currency exchange contracts for the
purchase or sale of foreign currency for hedging purposes and non-
hedging purposes, including transactions entered into for the
purpose of profiting from anticipated changes in foreign currency
exchange rates, as well as options on foreign currencies (see
"Investment Techniques_Forward Contracts on Foreign Currency" and
"_Options on Foreign Currencies" below). The Series may also hold
foreign currency (see "Additional Risk Factors" below). The Series
may invest up to 25% (and generally expects to invest up to 10%)
of its assets in foreign securities (not including American
Depository Receipts ("ADRs"), which may be traded on foreign
exchanges. The Series may invest in emerging market securities and
Brady Bonds (consistent with its foreign securities limitations).
The Series may hold cash equivalents or other forms of debt
securities as a reserve for future purchases of common stock or to
meet liquidity needs.
The Series may invest in ADRs which are certificates
issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on
deposit with a custodian bank as collateral. Although ADRs are
issued by a U.S. depository, they are subject to many of the risks
of foreign securities such as exchange rates and more limited
information about foreign issuers. (See "Additional Risk Factors"
below).
The Series may invest in corporate asset-backed
securities (see "Investment Techniques_Corporate Asset-Backed
Securities" below). The Series may write covered call and put
options and purchase call and put options on securities and stock
indices in an effort to increase current income and for hedging
purposes (see "Investment Techniques_Options" below). The Series
may also purchase and sell stock index futures contracts and may
write and purchase options thereon for hedging purposes and for
non-hedging purposes, subject to applicable law (see "Investment
Techniques_Futures
Contracts and Options on Futures Contracts" below). In addition,
the Series may purchase portfolio securities on a "when-issued" or
on a "forward delivery" basis (see "Investment Techniques_When-
Issued Securities" below). The Series may also invest a portion of
its assets in "loan participations" (see "Investment
Techniques_Loan Participations" below).
While it is not generally the Series' policy to invest or trade
for short-term
profits, the Series may dispose of a portfolio security whenever
the Adviser 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.
The nature of investing in emerging growth companies
involves greater risk than is customarily associated with
investments in more established companies. Emerging growth
companies often have limited product lines, markets or financial
resources, and they may be dependent on one-person management. The
securities of emerging growth companies may have limited
marketability and may be subject to more abrupt or erratic market
movements than securities of larger, more established growth
companies or the market averages in general. Shares of the Series,
therefore, are subject to greater fluctuation in value than shares
of a conservative equity fund or of a growth fund which invests
entirely in proven growth stocks.
The Series may invest to a limited extent in lower rated
fixed income securities or comparable unrated securities (commonly
known as "junk bonds") (see "Additional Risk Factors_Lower Rated
Bonds" below).
MFS Growth Series _ The Growth Series' investment objective is to
provide long-term growth of capital and future income rather than
current income.
The Growth Series' policy is to invest, under normal
market conditions, at least 65% of its assets in the common
stocks, or securities convertible into common stocks, of companies
believed to possess better than average prospects for long-term
growth. Emphasis is placed on the selection of progressive, well-
managed companies.
The Series currently intends to invest in only those
convertible securities that are considered to be "investment
grade," rated Baa or better by Moody's Investor Service Inc.
("Moody's") or BBB or better by Standard & Poor's Rating Group
("S&P") or by Fitch Investors Service ("Fitch") or securities
which the Adviser believes to be of similar quality to "investment
grade" securities. However, the Series retains the right to invest
in convertible bonds that are in the lower rated categories (rated
Ba or lower by Moody's or BB or lower by S&P or by Fitch) or
securities which the Adviser believes to be of similar quality to
these lower rated securities (commonly known as "junk bonds"). For
a description of bond ratings, see Appendix A to this Prospectus.
The Growth Series may invest in ADRs and may invest up to
30% (and expects generally to invest between 5% and 15%) of its
total assets in foreign securities (not including ADRs). The
Series may invest in emerging market securities (consistent with
its foreign securities limitations). (See "Investment Techniques"
and "Additional Risk Factors" below.) The Growth Series also may
purchase portfolio securities on a "when-issued" or on a "forward
delivery" basis. In addition, the Growth Series may write covered
call and put options and purchase call and put options on
securities and stock indices as well as "yield curve" options. The
Series may also purchase and sell stock index and foreign currency
futures contracts and may write and purchase options thereon (see
"Investment Techniques" below).
The Growth Series may enter into forward foreign currency
exchange contracts and options on foreign currencies (see
"Investment Techniques" below). The Series may hold foreign
currency received in connection with investments in foreign
securities or in anticipation of purchasing foreign securities.
(See "Additional Risk Factors" below).
MFS Research Series _ The Research Series' investment objective is
to provide long-term growth of capital and future income.
The portfolio securities of the Research Series are selected by
the investment
research analysts in the Equity Research Group of the Adviser. The
Series' assets are allocated to economic sectors (e.g. health
care, technology, consumer staples), and then
to industry groups within these sectors (e.g. within the health
care sector, the managed care, drug and medical supply
industries). The allocation by sector and industry is determined
by the analysts acting together as a group. Individual analysts
are then responsible for selecting what they view as the best
securities for capital appreciation and future income within their
assigned industries.
The Research Series' policy is to invest a substantial
proportion of its assets in the common stocks or securities
convertible into common stocks of companies believed to possess
better than average prospects for long-term growth. A smaller
proportion of the assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal
characteristic is income production rather than growth. Such
securities may also offer opportunities for growth of capital as
well as income. In the case of both growth stocks and income
issues, emphasis is placed on the selection of progressive, well-
managed companies. The Series' non-convertible debt investments,
if any, may consist of "investment grade" securities (rated Baa or
better by Moody's or BBB or better by S&P or by Fitch), and, with
respect to no more than 10% of the Series' assets, securities in
the lower rated categories (rated Ba or lower by Moody's or BB or
lower by S&P or by Fitch) or securities which the Adviser believes
to be of similar quality to these lower rated securities (commonly
known as "junk bonds"). No more than 5% of the Series' convertible
securities, if any, will consist of securities in the lower rated
categories (rated Ba or lower by Moody's or BB or lower by S&P or
by Fitch) or securities which the Adviser believes to be of
similar quality to these lower rated securities. For a description
of bond ratings, see Appendix A to this Prospectus. It is not the
Series' policy to rely exclusively on ratings issued by
established credit rating agencies but rather to supplement such
ratings with the Adviser's own independent and ongoing review of
credit quality. The Series' achievement of its investment
objective may be more dependent on the Adviser's own credit
analysis than in the case of a fund investing in primarily higher
quality bonds. From time to time, the Series' management will
exercise its judgment with respect to the proportions invested in
growth stocks, income-producing securities or cash (including
foreign currency) and cash equivalents depending on its view of
their relative attractiveness.
The Research Series may invest in ADRs and may also
invest up to 20% (and expects generally to invest between 10% and
20%) of its total assets in foreign securities (not including
ADRs). (See "Additional Risk Factors" below). In addition, the
Research Series may enter into forward foreign currency exchange
contracts. (See "Investment Techniques" below). The Series may
also hold foreign currency received in connection with investments
in foreign securities or in anticipation of purchasing foreign
securities. (See "Additional Risk Factors" below).
The Research Series may purchase securities that are not
registered under the Securities Act of 1933 (the "1933 Act"),
including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act.
MFS Growth With Income Series _ The Growth With Income Series'
investment objectives are to provide reasonable current income and
long-term growth of capital and income.
Under normal market conditions, the Growth With Income
Series will invest at least 65% of its assets in common stocks or
securities convertible into common stocks that are believed to
have long-term prospects for growth and income. The Series
currently intends to invest in convertible securities only if such
securities are "investment grade" (rated Baa or better by Moody's
or BBB or better by S&P or Fitch) or securities which the Adviser
believes to be of similar quality to "investment grade"
securities. The Series retains the right to invest in convertible
securities that are in the lower rated categories (rated Ba or
lower by Moody's or BB or lower by S&P or by Fitch) or securities
which the Adviser believes to be of similar quality to these lower
rated securities (commonly known as "junk bonds"). For a
description of bond ratings, see Appendix A to this Prospectus.
However, the Series may hold its assets in cash or invest in
commercial paper, repurchase agreements or other forms of debt
securities either to provide reserves for future purchases of
common stock or as a defensive measure in certain economic
environments.
The Growth With Income Series may invest in ADRs and may
also invest up to 75% (and expects generally to invest between 5%
and 15%) of its total assets in foreign securities (not including
ADRs). The Series may invest in emerging market securities and
Brady Bonds (consistent with its foreign securities limitations).
The Series may hold foreign currency received in connection with
investments in foreign securities and in anticipation of
purchasing foreign securities. (See "Investment Techniques" and
"Additional Risk Factors" below).
The Growth With Income Series may purchase securities on
a "when-issued" or on a "forward delivery" basis. The Series also
may invest in zero coupon bonds. (See "Investment Techniques"
below).
The Growth With Income Series may write covered put and
call options and purchase put and call options on securities and
on stock indices. The Series also may enter into stock index and
foreign currency futures contracts and purchase and write options
on such futures contracts. In addition, the Series may enter into
forward foreign currency exchange contracts and may purchase and
write options on foreign currencies. (See "Investment Techniques"
below).
MFS Total Return Series _ The Total Return Series' primary
investment objective is to obtain above-average income (compared
to a portfolio entirely invested in equity securities) consistent
with the prudent employment of capital, and its secondary
objective is to provide a reasonable opportunity for growth of
capital and income, since many securities offering a better than
average yield may also possess growth potential. Thus, in
selecting securities for its portfolio, the Series considers each
of these objectives. Generally, at least 40% of the Total Return
Series' assets are invested in equity securities.
The Series' policy is to invest in a broad list of
securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type
of security. Fixed income securities and equity securities (which
include: common and preferred stocks; securities such as bonds,
warrants or rights that are convertible into stock; and depositary
receipts for those securities) may be held by the Series. Some
fixed income securities may also have a call on common stock by
means of a conversion privilege or attached warrants. The Total
Return Series may vary the percentage of assets invested in any
one type of security in accordance with the Adviser's
interpretation of economic and money market conditions, fiscal and
monetary policy and underlying security values. The Series' debt
investments may consist of both "investment grade" securities
(rated Baa or better by Moody's or BBB or better by S&P or by
Fitch) and securities that are unrated or are in the lower rating
categories (rated Ba or lower by Moody's or BB or lower by S&P or
by Fitch) (commonly known as "junk bonds") including up to 20% of
its assets in nonconvertible fixed income securities that are in
these lower rating categories and comparable unrated securities
(see "Additional Risk Factors" below). Generally, most of the
Series' long-term debt investments will consist of "investment
grade" securities. See Appendix A to this Prospectus for a
description of these ratings. It is not the Series' policy to rely
exclusively on ratings issued by established credit rating
agencies but rather to supplement such ratings with the Adviser's
own independent and ongoing review of credit quality.
The Series may also invest in United States government
securities, including:
(1) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less); U.S. Treasury notes (maturities
of one to ten years); and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are backed by
the full faith and credit of the U.S. Government; and (2)
obligations issued or guaranteed by U.S. Government agencies,
authorities or instrumentalities, some of which are backed by the
full faith and credit of the U.S. Treasury, e.g., direct pass-
through certificates of the Government National Mortgage
Association ("GNMA"); some of which are supported by the right of
the issuer to borrow from the U.S. Government, e.g., obligations
of Federal Home Loan Banks; and some of which are backed only by
the credit of the issuer itself, e.g., obligations of the Student
Loan Marketing Association (collectively, "U.S. Government
Securities"). The term "U.S. Government Securities" also includes
interests in trusts or other entities representing interests in
obligations that are backed by the full faith and credit of the
U.S. Government or are issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.
The Total Return Series may invest in ADRs and may invest
up to 20% (and expects generally to invest between 10% and 20%) of
its total assets in foreign securities (not including ADRs). The
Series may invest in emerging market securities and Brady Bonds
(consistent with its foreign securities limitations).The Series
may also hold foreign currency received in connection with
investments in foreign securities or in anticipation
of purchasing foreign securities. (See "Investment Techniques" and
"Additional Risk Factors" below).
The Total Return Series may invest in mortgage pass-
through securities, zero coupon bonds, deferred interest bonds and
PIK bonds. The Series also may purchase securities on a "when-
issued" or on a "forward delivery" basis. In addition, the Series
may invest in mortgage "dollar roll" transactions, loan
participations and corporate asset-backed securities. The Series
may invest in indexed securities whose value is linked to foreign
currencies, interest rates, commodities, indices or other
financial indicators. (See "Investment Techniques" below). The
Total Return Series may purchase securities that are not
registered under the 1933 Act, including those that can be offered
and sold to "qualified institutional buyers" under Rule 144A under
the 1933 Act. (See "Additional Risks" below).
The Total Return Series may write covered put and call
options on securities and stock indices and purchase put and call
options on securities and stock indices. The Series may also enter
into "yield curve" options and may purchase and write options on
foreign currencies. (See "Investment Techniques" below).
The Total Return Series may enter into stock index and
foreign currency futures contracts and may purchase and write
options on futures contracts. In addition, the Series may enter
into forward foreign currency exchange contracts. (See "Investment
Techniques" below).
MFS Utilities Series _ The Utilities Series' investment objective
is to seek capital growth and current income (income above that
available from a portfolio invested entirely in equity
securities).
The Utilities Series will seek to achieve its objective
by investing, under normal circumstances, at least 65% (but up to
100% at the discretion of the Adviser) of its assets in equity and
debt securities of both domestic and foreign companies in the
utilities industry. Equity securities in which the Series may
invest include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants
to purchase common or preferred stocks. At least 80% of the debt
securities held by the Series will be rated at the time of
investment at least Baa by Moody's or BBB by S&P or by Fitch or
will be of comparable quality as determined by the Adviser (see
"Additional Risk Factors" below). See Appendix A to this
prospectus for a description of these ratings. The Series may also
invest in debt and equity securities of issuers in other
industries, as discussed below, although under normal
circumstances not more than 35% of the Series' assets will be so
invested. In addition, the Series may hold a portion of its assets
in cash and money market instruments.
Companies in the utilities industry include (i) companies
engaged in the manufacture, production, generation, transmission,
sale or distribution of electric, gas or other types of energy,
water or other sanitary services and (ii) companies engaged in
telecommunications, including telephone, cellular telephones,
telegraph, satellite, microwave, cable television and other
communications media (but not companies engaged in public
broadcasting). The Adviser deems a particular company to be in the
utilities industry if, at the time of investment, the Adviser
determines that at least 50% of the company's assets or revenues
are derived from one or more of those industries.
The portion of the Utilities Series' assets invested in a
particular type of utility and in equity or debt securities will
vary in light of changes in interest rates, market conditions and
economic conditions and other factors. The Series may invest in
foreign securities, including emerging market securities and Brady
Bonds and non-dollar denominated securities, although under normal
circumstances it is not expected that more than 35% of the Series'
assets will be so invested. The Series also may invest in ADRs.
The Series may hold foreign currency received in connection with
investments in foreign securities and in anticipation of
purchasing foreign securities. (See "Investment Techniques" and
"Additional Risk Factors" below). For further information on the
principal sectors of the utilities industry in which the Series
may invest, see Appendix B.
Since the Utilities Series' investments are concentrated
in utility securities, the value of the Series' shares will be
especially affected by factors peculiar to the utilities industry,
and may fluctuate more widely than the value of shares of a fund
that invests in a broader range of industries. The rates many
utility companies may charge
their customers are controlled by governmental regulatory
commissions which may result in a delay in the utility company
passing along increases in costs to its customers. Furthermore,
there is no assurance that regulatory authorities will, in the
future, grant rate increases or that such increases will be
adequate to permit the payment of dividends on common stocks. Many
utility companies, especially electric and gas and other energy
related utility companies, are subject to various uncertainties,
including: risks of increases in fuel and other operating costs;
the high cost of borrowing to finance capital construction during
inflationary periods; difficulty obtaining adequate returns on
invested capital, even if frequent rate increases are approved by
public service commissions; restrictions on operations and
increased costs and delays as a result of environmental and
nuclear safety regulations; securing financing for large
construction projects during an inflationary period; difficulties
of the capital markets in absorbing utility debt and equity
securities; difficulty in raising capital in adequate amounts on
reasonable terms in periods of high inflation and unsettled
capital markets; technological innovations which may render
existing plants, equipment or products obsolete; the potential
impact of natural or man-made disasters; difficulties in obtaining
natural gas for resale or fuel for electric generation at
reasonable prices; coping with the general effects of energy
conservation, particularly in light of changing policies regarding
energy; and special risks associated with the construction and
operation of nuclear power generating facilities, including
technical factors and costs, and the possibility that federal,
state and municipal government authorities may from time to time
review existing requirements and impose additional requirements.
Certain utility companies, especially gas and telephone utility
companies, have in recent years been affected by increased
competition, which could adversely affect the profitability of
such utility companies. Furthermore, there are uncertainties
resulting from certain telecommunications companies'
diversification into new domestic and international businesses as
well as agreements by many such companies linking future rate
increases to inflation or other factors not directly related to
the active operating profits of the enterprise.
Foreign utility companies are also subject to regulation,
although such regulations may or may not be comparable to those in
the U.S. Foreign utility companies may be more heavily regulated
by their respective governments than utilities in the U.S. and, as
in the U.S., generally are required to seek government approval
for rate increases. In addition, since many foreign utilities use
fuel that causes more pollution than those used in the U.S., such
utilities may be required to invest in pollution control equipment
to meet any proposed pollution restrictions. Foreign regulatory
systems vary from country to country and may evolve in ways
different from regulation in the U.S.
The Utilities Series is permitted to invest in securities
of issuers that are outside the utilities industry, although under
normal circumstances not more than 35% of the Series' assets will
be so invested. Such investments may include common stocks, debt
securities (including municipal debt securities) and preferred
stocks and will be selected to meet the Series' investment
objective of both capital growth and current income. These
securities may be issued by either U.S. or non-U.S. companies.
Some of these issuers may be in industries related to the
utilities industry and, therefore, may be subject to similar
risks.
Investments outside the utilities industry may also
include U.S. Government Securities, as that term is defined under
"Investment Objectives and Policies_MFS Total Return Series"
above. When and if available, U.S. Government securities may be
purchased at a discount from face value. However, the Series does
not intend to hold such securities to maturity for the purpose of
achieving potential capital gains, unless current yields on the
securities remain attractive.
The Utilities Series may invest in mortgage pass-through
securities that are U.S. Government securities and in zero coupon
bonds, collateralized mortgage obligations, multiclass pass-
through securities and corporate asset-backed securities. The
Series may purchase securities on a "when-issued" or on a "forward
delivery" basis. The Series may invest in indexed securities whose
value is linked to foreign currencies, interest rates,
commodities, indices or other financial indicators. In addition,
the Series may enter into mortgage "dollar roll" transactions.
(See "Investment Techniques" below). The Series may purchase
securities that are not registered under the 1933 Act but can be
offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. (See "Additional Risk Factors" below).
The Utilities Series may write covered call and put
options and purchase call and
put options on domestic and foreign stock indices. The Series also
may enter into futures contracts on fixed income securities,
foreign currencies, indices of foreign currencies, and indices of
fixed income securities. In addition, the Series may purchase and
write options on such futures contracts. The Series may enter into
forward foreign currency exchange contracts and may purchase and
write options on foreign currencies. The Series also may hold
foreign currency received in connection with investments in
foreign securities or in anticipation of purchasing foreign
securities. (See "Investment Techniques" below).
MFS High Income Series _ The investment objective of the High
Income Series is to seek high current income by investing
primarily in a professionally managed diversified portfolio of
fixed income securities, some of which may involve equity
features.
Fixed income securities offering the high current income
sought by the High Income Series normally include those fixed
income securities which offer a current yield above that generally
available on debt securities in the three highest rating
categories of the recognized rating agencies (commonly known as
"junk bonds" if rated below the four highest categories of
recognized rating agencies). For a description of these rating
categories, see Appendix A to this Prospectus. (See "Additional
Risk Factors" below). However, since available yields and yield
differentials vary over time, no specific level of income or yield
differential can ever be assured. The dividends paid by the Series
will increase or decrease in relation to the income received by
the Series from its investments, which would in any case be
reduced by the expenses of the Series before such income is
distributed to its shareholders.
Fixed income securities include preferred and preference
stocks and all types of debt obligations of both domestic and
foreign issuers, such as bonds, debentures, notes, equipment lease
certificates, equipment trust certificates (including interests in
trusts or other entities representing such obligations),
conditional sales contracts, commercial paper and obligations
issued or guaranteed by the U.S. Government, any foreign
government or any of their respective political subdivisions,
agencies or instrumentalities (including obligations, such as
repurchase agreements, secured by instruments).
Corporate debt securities may bear fixed, fixed and
contingent, or variable rates of interest and may involve equity
features, such as conversion or exchange rights or warrants for
the acquisition of stock of the same or a different issuer;
participations based on revenues, sales or profits; or the
purchase of common stock in a unit transaction (where corporate
debt securities and common stock are offered as a unit). Under
normal market conditions, not more than 25% of the value of the
total assets of the High Income Series will be invested in equity
securities, including common stocks, warrants and rights.
Fixed income securities that the High Income Series may
invest in also include zero coupon bonds, deferred interest bonds,
PIK bonds, collateralized mortgage obligations, multiclass pass-
through securities, stripped mortgage-backed securities, mortgage
pass-through securities, corporate asset-backed securities, loan
participations and other direct indebtedness. The Series may enter
into mortgage "dollar roll" transactions. In addition, the Series
may purchase securities on a "when-issued" or on a "forward
delivery" basis. (See "Investment Techniques" below). The Series
also may purchase securities that are not registered under the
1933 Act but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the 1933 Act. (See "Additional Risk
Factors" below).
The High Income Series may invest in ADRs and may invest up to 35%
(and expects
generally to invest up to 10%) of its total assets in foreign
securities (not including ADRs). The Series may invest in emerging
market securities and Brady Bonds (consistent with its foreign
securities limitations). The Series may hold foreign currency
received in connection with investments in foreign securities and
in anticipation of purchasing foreign securities. The Series has
authority to invest up to 25% of its total assets in securities
issued or guaranteed by foreign governments or their agencies or
instrumentalities. (See "Additional Risk Factors" below).
The High Income Series may invest up to 40% of the value
of its total assets in each of the electric utility and telephone
industries, but will not invest more than 25% in either of those
industries unless yields available for four consecutive weeks in
the four highest rating categories on new issue bonds in such
industry (issue size of $50 million
or more) have averaged in excess of 105% of yields of new issue
long-term industrial bonds similarly rated (issue size of $50
million or more) and, in the opinion of the Adviser, the relative
return available from the electric utility or telephone industry
and the relative risk, marketability, quality and availability of
securities of such industry justifies such an investment.
When and if available, fixed income securities may be
purchased at a discount from face value. However, the High Income
Series does not intend to hold such securities to maturity for the
purpose of achieving potential capital gains, unless current
yields on these securities remain attractive. From time to time
the Series may purchase securities not paying interest at the time
acquired if, in the opinion of the Adviser, such securities have
the potential for future income or capital appreciation.
The High Income Series may write covered put and call
options and purchase put and call options on domestic and foreign
fixed income securities. The Series may also enter into "yield
curve" options. The Series may purchase and sell futures contracts
on fixed income securities or indices of such securities and may
write or purchase options on such futures contracts. The Series
may invest in indexed securities whose value is linked to foreign
currencies, interest rates, commodities, indices or other
financial indicators. In addition, the Series may enter into
forward foreign currency exchange contracts and may purchase and
write put and call options on foreign currencies. The Series may
enter into interest rate swaps, currency swaps and other types of
available swap agreements. The Series also may purchase and sell
caps, floors and collars. (See "Investment Techniques" below).
MFS World Governments Series _ The World Governments Series'
investment objective is to seek not only preservation, but also
growth of capital, together with moderate current income.
The World Governments Series seeks to achieve its
investment objective through a professionally managed,
internationally diversified portfolio consisting primarily of debt
securities and to a lesser extent equity securities. The Series
attempts to provide investors with an opportunity to enhance the
value and increase the protection of their investment against
inflation and otherwise by taking advantage of investment
opportunities in the U.S. as well as in other countries where
opportunities may be more rewarding. It is believed that
diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., can
affect the entire portfolio. Although the percentage of the
Series' assets invested in securities issued abroad and
denominated in foreign currencies will vary depending on the state
of the economies of the principal countries of the world, their
financial markets and the relationship of their currencies to the
U.S. dollar, under normal conditions the Series' portfolio is
internationally diversified. However, for defensive reasons or
during times of international political or economic uncertainty or
turmoil, most or all of the Series' investments may be in the U.S.
Under normal economic and market conditions, at least 80%
of the Series' portfolio is invested in debt securities, such as
bonds, debentures, mortgage securities, notes, commercial paper,
obligations issued or guaranteed by a government or any of its
political subdivisions, agencies or instrumentalities,
certificates of deposit, as well as debt obligations which may
have a call on common stock by means of a conversion privilege or
attached warrants. Debt securities in which the Series may invest
may also include zero coupon bonds, mortgage pass-through
securities, collateralized mortgage obligations, multiclass pass-
through securities and stripped mortgage-backed securities. The
Series also may enter into mortgage "dollar roll" transactions.
The Series may invest in indexed securities whose value is linked
to foreign currencies, interest rates, commodities, indices or
other financial indicators. (See "Investment Techniques" below).
The Series may purchase securities that are not registered under
the 1933 Act but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act. (See
"Additional Risk Factors" below).
The World Governments Series may write covered put and
call options on securities and purchase put and call options. The
Series may enter into "yield curve" options. The Series may also
enter into futures contracts on fixed income securities, on
foreign currencies and on indices of securities, and may purchase
and write options on such futures contracts. In addition, the
Series may enter into forward foreign currency exchange contracts
and options on foreign currencies. The Series also may enter into
interest rate swaps, currency swaps and other types of available
swap agreements. The Series also may purchase and sell caps,
floors and collars. (See "Investment Techniques" below).
The World Governments Series may invest in ADRs. The
Series may also invest up to 100% (and expects generally to invest
up to 80%) of its total assets in foreign securities (not
including ADRs). The Series may invest in emerging market
securities and Brady Bonds (consistent with its foreign securities
limitations). See "Investment Techniques" and "Additional Risk
Factors" below. The Adviser will determine the amount of the World
Governments Series' assets to be invested in the United States and
the amount to be invested abroad. The U.S. assets will be invested
in high quality debt securities and the remainder of the assets
will be diversified among countries where opportunities for total
return are expected to be most attractive. It is currently
expected that investments within foreign countries will be
primarily in government securities to minimize credit risks. The
Series will not invest 25% or more of the value of its assets in
the securities of any one foreign government. The portfolio will
be managed actively and the asset allocations modified as the
Adviser deems necessary.
The World Governments Series will purchase non-dollar
securities denominated in the currency of countries where the
interest rate environment as well as the general economic climate
provide an opportunity for declining interest rates and currency
appreciation. If interest rates decline, such non-dollar
securities will appreciate in value. If the currency also
appreciates against the dollar, the total investment in such non-
dollar securities would be enhanced further. Conversely, a rise in
interest rates or decline in currency exchange rates would
adversely affect the Series' return. Investments in non-dollar
denominated securities are evaluated primarily on the strength of
a particular currency against the dollar and on the interest rate
climate of that country. Currency is judged on the basis of
fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and
economic policies) as well as technical and political data. In
addition to the foregoing, interest rates are evaluated on the
basis of differentials or anomalies that may exist between
different countries. The Series may hold foreign currency received
in connection with investments in foreign securities and in
anticipation of purchasing foreign securities. (See "Additional
Risk Factors" below).
The phrase "preservation of capital" when applied to a
domestic investment company is generally understood to imply that
the portfolio is invested in very low risk securities and that the
major risk is loss of purchasing power through the effects of
inflation or major changes in interest rates. However, while the
World Governments Series invests in securities which are believed
to have minimal credit risk, an error of judgment in selecting a
currency or an interest rate environment could result in a loss of
capital.
It is contemplated that the World Governments Series'
long-term debt investments will consist primarily of securities
which are believed by the Adviser to be of relatively high
quality. If after the Series purchases such a security, the
quality of the security deteriorates significantly, the security
will be sold only if the Adviser believes it is advantageous to do
so.
MFS Strategic Fixed Income Series _ The Strategic Fixed Income
Series' investment objective is to maximize current income.
The Strategic Fixed Income Series seeks to achieve its
objective by investing approximately one-third of its assets in
each of the following sectors of the fixed income securities
markets: (i) U.S. Government securities, as that term is defined
in "Investment Objectives and Policies_MFS Total Return Series"
above and related options; (ii) debt securities issued by foreign
governments, their political subdivisions and other foreign
issuers; and (iii) high yielding corporate fixed income
securities, some of which may involve equity features. By
following this investment strategy, the Series' net asset value is
likely to be more stable than that of a fund which invests in only
one of these three fixed income sectors. The Adviser believes that
greater stability would occur because, in general, each sector
historically has produced results which are different from each
other sector, so that significant changes in one sector have
tended to offset changes in other sectors. During periods of
unusual market or economic conditions (such as a collapse of the
high yield corporate fixed income market or a general contraction
in yields on foreign obligations), the Series may invest up to 50%
of its assets in any one
sector and may choose not to invest in a sector in order to
achieve its investment objective. The Series expects that, under
normal market conditions, the maturity of its portfolio securities
will not exceed 30 years in the U.S. Government sector and 25
years in the corporate fixed income sector. At least 80% of the
Series' assets under normal circumstances will be invested in
fixed income securities.
The Strategic Fixed Income Series may invest in ADRs. The
Series does not currently intend to invest over 50% of its assets
in foreign securities (not including ADRs), but reserves the right
to invest up to 67% of its assets in foreign securities, (not
including ADRs), depending on market conditions. The Series may
also invest in emerging market securities and Brady Bonds
consistent with its foreign securities limitations. These foreign
securities shall include securities issued by foreign governments
considered stable by the Investment Adviser and fixed income
securities of foreign corporations. The foreign government
securities in which the Series intends to invest will generally
consist of obligations supported though their authority to levy
taxes by national, state or provincial governments or similar
political subdivisions. While one-third of the Series' assets
normally will be invested in securities issued abroad and
denominated in foreign currencies ("non-dollar securities"), that
amount may vary depending on the relative yield of such
securities, the economies of the countries in which the
investments are made and such countries' financial markets, the
interest rate climate of such countries and the relationship of
such countries' currencies to the U.S. dollar. Investments in non-
dollar securities and currency will be evaluated on the basis of
fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and
economic policies) as well as technical and political data. In
addition to the foregoing, interest rates are evaluated on the
basis of differentials or anomalies that may exist between
different countries. The Series may hold foreign currency for
hedging purposes to protect against declines in the U.S. dollar
value of foreign securities held by the Series and against
increases in the U.S. dollar value of the foreign securities which
the Series might purchase. The Series may speculate in foreign
currency when, in the judgment of the Adviser, it would be
beneficial to convert such currency into U.S. dollars at a later
date, based on anticipated changes in the relevant exchange rate.
(See "Investment Techniques" and "Additional Risk Factors" below.)
High yield corporate fixed income securities of both
domestic and foreign issuers (denominated either in U.S. dollars
or foreign currency) in which the Strategic Fixed Income Series
may invest include preferred and preference stock and all types of
long- or short-term debt obligations, such as bonds, debentures,
notes, equipment lease certificates, equipment trust certificates,
conditional sales contracts and commercial paper (including
obligations, such as repurchase agreements, secured by such
instruments). High yield corporate fixed income securities held by
the Series are ordinarily unrated or in the lower rating
categories of recognized rating agencies. (See "Additional Risk
Factors" below.) Corporate fixed income securities may also
include zero coupon bonds, deferred interest bonds and PIK bonds.
Corporate fixed income securities may involve equity features,
such as conversion or exchange rights or warrants for the
acquisition of stock of the same or a different issuer;
participations based on revenues, sales or profits; or the
purchase of common stock in a unit transaction (where corporate
debt securities and common stock are offered as a unit).
The Strategic Fixed Income Series may invest in "when-issued"
securities,
collateralized mortgage obligations, multiclass pass-through
securities, stripped mortgage-backed securities, corporate asset-
backed securities, zero coupon bonds, loan participations and
other indebtedness and may enter into mortgage "dollar roll"
transactions. (See "Investment Techniques" below.) The Series may
purchase securities that are not registered under the 1933 Act but
can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. (See "Additional Risk Factors"
below.)
The Strategic Fixed Income Series may write covered put
and call options on securities and purchase put and call options
on securities. The Series may also enter into "yield curve"
options. The Series may enter into futures contracts on fixed
income securities, on foreign currencies and on indices of
securities or foreign currencies, and may purchase and write
options on such futures contracts. In addition, the Series may
enter into forward foreign currency exchange contracts and options
on foreign currencies. The Series may enter into interest rate
swaps, currency swaps and other types of available swap
agreements. The Series also may purchase and sell caps, floors and
collars. (See "Investment Techniques" below.)
The Strategic Fixed Income Series may invest up to 40% of
the value of its total assets in each of the electric utility and
telephone industries, but will not invest more than 25% in either
of those industries unless yields available for four consecutive
weeks in the four highest rating categories on new issue bonds in
such industry (issue size of $50 million or more) have averaged in
excess of 105% of yields of new issue long-term industrial bonds
similarly rated (issue size of $50 million or more).
When the Investment Adviser believes that investing for defensive
purposes is
appropriate, such as during periods of unusual market conditions,
part or all of the Strategic Fixed Income Series' assets may be
temporarily invested in the instruments set forth under "Short
Term Investments for Defensive Purposes" below as well as in
foreign government securities of at least investment grade level.
MFS Bond Series _ The Bond Series' primary investment objective is
to provide as high a level of current income as is believed to be
consistent with prudent investment risk. The Series' secondary
objective is to protect shareholders' capital.
Under normal market conditions, all of the Bond Series'
investments will be made in accordance with the following
policies:
1. Approximately 80% of the Series' net assets will
be invested in:
(a) non-convertible debt securities which have a
rating within the four highest grades as determined by S&P (AAA,
AA, A or BBB) or Fitch or Moody's (Aaa, Aa, A or Baa) and
comparable unrated securities; for a description of these rating
categories, see Appendix A to this Prospectus;
(b) U.S. Government Securities, as defined in "Investment
Objectives and
Policies_MFS Total Return Series" above;
(c) non-convertible debt securities issued or
guaranteed by national or state banks or bank holding companies
(as defined in the Federal Bank Holding Company Act) which,
although not rated as a matter of policy by S&P or Moody's, are
considered by the Adviser to have an investment quality equivalent
to securities which may be purchased under item (a) above; or
(d) commercial paper, repurchase agreements, cash or
cash equivalents (such as certificates of deposit and bankers'
acceptances).
2. Up to 20% of the Series' total assets may be
invested in non-convertible debt securities which are not rated
within the four highest grades of S&P or Moody's or Fitch as
described above and comparable unrated securities (commonly known
as "junk bonds") and in convertible debt securities and preferred
stocks. These convertible debt securities and preferred stocks may
be unrated or rated below the four highest grades of S&P and
Moody's or Fitch described above. For a description of these
ratings see Appendix A to this Prospectus. For a discussion of the
risks of investing in these securities, see "Additional Risks"
below.
Although the Bond Series may purchase Canadian and other
foreign securities, under normal market conditions, it may not
invest more than 10% of its assets in non-dollar denominated non-
Canadian foreign securities, including emerging markets securities
and Brady Bonds.. The Series may hold foreign currency received in
connection with investments in foreign securities or in
anticipation of purchasing foreign securities. (See "Investment
Techniques" and "Additional Risk Factors" below).
The Bond Series may not directly purchase common stocks.
However, the Series may retain up to 10% of its total assets in
common stocks which were acquired either by conversion of fixed
income securities or by the exercise of warrants attached thereto.
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.
The Bond Series may invest in corporate asset-backed
securities, mortgage pass-through securities, zero coupon bonds,
deferred interest bonds, PIK bonds,
collateralized mortgage obligations, multiclass pass-through
securities, stripped mortgage-backed securities, "when-issued"
securities and mortgage "dollar roll" transactions. (See
"Investment Techniques" below). The Series may invest in indexed
securities whose value is linked to foreign currencies, interest
rates, commodities, indices or other financial indicators (see
"Investment Techniques" below). The Series may purchase securities
that are not registered under the 1933 Act but can be offered and
sold to "qualified institutional buyers" under Rule 144A under the
1933 Act. (See "Additional Risk Factors" below.)
The Bond Series may write covered put and call options
and purchase put and call options on domestic and foreign fixed
income securities. The Series may also enter into "yield curve"
options. The Bond Series may purchase and sell futures contracts
on domestic or foreign fixed income securities or indices of such
securities as well as options on such futures contracts. The
Series may also enter into forward foreign currency exchange
contracts and options on foreign currency. In addition, the Series
may enter into interest rate swaps, currency swaps and other types
of available swap agreements. The Series also may purchase caps,
floors and collars. (See "Investment Techniques" below).
MFS Limited Maturity Series _ The Limited Maturity Series' primary
investment objective is to provide as high a level of current
income as is believed to be consistent with prudent investment
risk. The Series' secondary objective is to protect shareholders'
capital.
In seeking to achieve its investment objectives, the Limited
Maturity Series
invests, under normal market conditions, substantially all its
assets in the following securities:
1. Debt securities (including corporate asset-backed
securities and mortgage pass-through securities discussed below)
which have a rating within the four highest grades as determined
by S&P or Fitch (AAA, AA, A or BBB) or Moody's (Aaa, Aa, A or Baa)
and comparable unrated securities; for a description of these
rating categories, see Appendix A to this Prospectus;
2. U.S. Government Securities, as defined in "Investment
Objectives and
Policies_MFS Total Return Series" above; or
3. Commercial paper, repurchase agreements, cash or
cash equivalents (such as certificates of deposit and bankers'
acceptances).
The Limited Maturity Series will only invest in
securities rated within the four highest grades, as determined by
S&P or Moody's or Fitch, and comparable unrated securities. In
addition, the dollar weighted average quality of the Series will
be within the three highest grades, as determined by S&P or
Moody's or Fitch (or the Adviser in the case of unrated
securities).
Under normal market conditions, substantially all the securities
in the Series'
portfolio will have remaining maturities of five years or less or
estimated remaining average lives of five years or less. In the
case of mortgage-backed and corporate asset-backed securities as
well as collateralized mortgage obligations, the average life is
likely to be substantially shorter than the stated final maturity
as a result of unscheduled principal prepayments.
For purposes of the foregoing investment policy, securities having
a certain
maturity will be deemed to include securities with an equivalent
"duration" of such securities. "Duration" is a commonly used
measure of the longevity of a debt instrument that takes into
account the full stream of payments received on a debt instrument,
including both interest and principal payments, based on their
present values. A debt instrument's duration is derived by
discounting principal and interest payments to their present value
using the instrument's current yield to maturity and taking the
dollar-weighted average time until those payments will be
received. Contractual rights to dispose of a security will be
considered in calculating duration because such rights limit the
period during which the Series bears a market risk with respect to
the security.
The Limited Maturity Series may invest in U.S. Government
Securities as defined
under "Investment Objectives and Policies_MFS Total Return Series"
above.
The Limited Maturity Series may invest up to 25% of its
assets in dollar denominated
foreign debt securities which may include emerging markets
securities and Brady Bonds.(See "Investment Techniques" and
"Additional Risk Factors" below). The Series may invest in
mortgage pass-through securities, zero coupon bonds,
collateralized mortgage obligations, corporate asset-backed
securities and multiclass pass-through securities. In addition,
the Series may enter into mortgage "dollar roll" transactions and
may purchase securities on a "when-issued" or on a "forward
delivery" basis. (See "Investment Techniques" below). The Series
also may purchase securities that are not registered under the
1933 Act but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the 1933 Act.
The Limited Maturity Series may purchase and sell futures
contracts on fixed income securities or indices of such
securities. In addition, the Series may enter into interest rate
swaps, currency swaps and other available swap agreements. The
Series also may purchase and sell caps, floors and collars. (See
"Investment Techniques" below).
MFS Money Market Series _ The Money Market Series' investment
objective is to seek as high a level of current income as is
considered consistent with the preservation of capital and
liquidity.
The Money Market Series seeks to achieve its investment objective
by investing
primarily (i.e., at least 80% of its assets under normal
circumstances) in the following instruments:
(a) U.S. Government Securities, as defined in
"Investment Objectives and Policies_MFS Total Return
Series" above (including repurchase agreements
collateralized by such securities);
(b) obligations of banks (including
certificates of deposit and bankers' acceptances) which
at the date of investment have capital, surplus, and
undivided profits (as of the date of their most recently
published financial statements) in excess of
$100,000,000; and obligations of other banks or savings
and loan associations if such obligations are insured by
the Federal Deposit Insurance Corporation, provided that
not more than 10% of the Series' total assets will be
invested in such insured obligations;
(c) commercial paper which at the date of
investment is rated A-1 by S&P or by Fitch or P-1 by
Moody's or, if not rated, is issued or guaranteed as to
payment of principal and interest by companies which at
the date of investment have an outstanding debt issue
rated AA or better by S&P or by Fitch or Aa or better by
Moody's (for a description of these ratings, see Appendix
A to this Prospectus); and
(d) short-term (maturing in 13 months or less)
corporate obligations which at the date of investment are
rated AA or better by S&P or by Fitch or Aa or better by
Moody's.
The Money Market Series may also invest up to 20% of its total
assets in debt
instruments not specifically described in (a) through (d) above,
provided that such instruments are deemed by the Trustees of the
Trust to be of comparable high quality and liquidity and provided
that such investments are in accordance with applicable law. The
Money Market Series may invest its assets in the securities of
foreign issuers and in the securities of foreign branches of U.S.
banks such as negotiable certificates of deposit (Eurodollars).
Since the portfolio of the Series may contain such securities, an
investment in the Series may involve a greater degree of risk than
an investment in a fund which invests only in debt obligations of
U.S. domestic issuers, due to the possibility that there may be
less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or
expropriation. (See "Additional Risk Factors" below).
In addition, the Money Market Series may invest up to 75% of its
assets in all
finance companies as a group, all banks and bank holding companies
as a group and all utility companies as a group when, in the
opinion of management, yield differentials and money market
conditions suggest such investments are advisable and when cash is
available for such investments and instruments are available for
purchase which fulfill the Series' objective in terms of quality
and marketability.
All the assets of the Money Market Series will be invested in
obligations which
mature in 13 months or less and substantially all of these
investments will be held to maturity; however, securities
collateralizing repurchase agreements may have maturities in
excess of 13 months. The Money Market Series will, to the extent
feasible, make portfolio investments primarily in anticipation of
or in response to changing economic and money market conditions
and trends. Currently, the dollar weighted average maturity of the
investments of the Series may not exceed 90 days.
7. MANAGEMENT OF THE SERIES
The Trust's Board of Trustees, as part of its overall management
responsibility, oversees various organizations responsible for
each Series' day-to-day management.
Investment Adviser _ MFS manages each Series pursuant to an
Investment Advisory Agreement with the Trust on behalf of each
Series dated April 14, 1994 (the "Advisory Agreement"). MFS
provides the Series 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 each Series. For its services and
facilities, MFS receives a management fee, computed and paid
monthly, in an amount equal to the following annual rates of the
average daily net assets of each Series:
Series
Percentage of the average
daily
net assets
of each Series
Emerging Growth Series .
. . . . . . . . . . . . .
. . . . .
0.75%
Growth Series
0.75%
Research Series
0.75%
Growth With Income Series
0.75%
Total Return Series
0.75%
Utilities Series
0.75%
High Income Series
0.75%
World Governments Series
0.75%
Strategic Fixed Income
Series
0.75%
Bond Series
0.60%
Limited Maturity Series
0.55%
Money Market Series
0.50%
For the World Governments Series' fiscal year ended
December 31, 1994, MFS received management fees under the Series'
Advisory Agreement of $7,604 and assumed $36,473 of the Series'
expenses. See "Expenses" below.
The identity and background of the portfolio manager for each
Series is set forth
below. Each portfolio manager has acted in that capacity since the
commencement of investment operations of each Series.
1. John W. Ballen, a Senior Vice President of the
Adviser, is the Emerging Growth
Series' portfolio manager. Mr. Ballen has been
employed by the Adviser since 1984.
2. George F. Bennett, Jr., a Senior Vice President
of the Adviser, is the Growth
Series' portfolio manager. Mr. Bennett has been
employed by the Adviser since 1969.
3. The Research Series is currently managed by a
committee comprised of various
equity research analysts employed by the Adviser.
4. Kevin R. Parke and John D. Laupheimer, Jr., a
Senior Vice President and a Vice
President of the Adviser, respectively, is the
Growth With Income Series' portfolio managers.
Mr. Parke has been employed by the Adviser since
1985, and Mr.
Laupheimer has been employed by the Adviser since 1981.
5. Richard E. Dahlberg, a Senior Vice President of
the Adviser, is the Total
Return Series' portfolio manager. Mr. Dahlberg
has been employed by the Adviser since 1968.
6. Maura A. Shaughnessy, a Vice President of the
Adviser, is the Utilities
Series' portfolio manager. Ms. Shaughnessy has
been employed by the Adviser since 1991. Prior to
1991, Ms. Shaughnessy served as Equity Analyst at
Harvard Management Company.
7. Joan S. Batchelder, a Senior Vice President of
the Adviser, is the High Income
Series' portfolio manager. Ms. Batchelder has
been employed by the Adviser since 1984.
8. Stephen C. Bryant, a Senior Vice President of the
Adviser, is the World
Governments Series' portfolio manager.
Mr. Bryant has been employed by the Adviser since 1987.
9. James Swanson, a Senior Vice President of the
Adviser, is the Strategic Fixed
Income Series' portfolio manager.
Mr. Swanson has been employed by the Adviser since 1985.
10. Geoffrey L. Kurinsky, a Senior Vice President of
the Adviser, is the Bond
Series', Limited Maturity Series' and the Money
Market Series' portfolio manager. Mr. Kurinsky
has been employed by the Adviser since 1987.
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 Union Standard Trust, MFS/Sun Life Series
Trust, Sun Growth Variable Annuity Fund, Inc. and seven variable
accounts, each of which is a registered investment company
established by Sun Life Assurance Company of Canada (U.S.) ("Sun
Life of Canada (U.S.)") in connection with the sale of Compass-2
and Compass-3 combination fixed/variable annuity contracts. MFS
and its wholly owned subsidiary, MFS Asset Management, Inc.,
provide investment advice to substantial private clients.
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 $35 billion
on behalf of
approximately 1.6 million investor accounts as of March 31, 1995.
As of such date, the MFS organization managed approximately $12
billion of assets invested in equity securities and approximately
$19.2 billion of assets invested in fixed income securities.
Approximately $2.9 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 subsidiary of Sun Life
Assurance Company of Canada ("Sun Life"). The Directors of MFS are
A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D.
McNeil and John R. Gardner. Mr. Brodkin is the Chairman,
Mr. Shames is the President and Mr. Scott is the Secretary and a
Senior Executive Vice President of MFS. Messrs. McNeil and Gardner
are the Chairman and President, respectively, of Sun Life. Sun
Life, a mutual life insurance company, is one of the largest
international life insurance companies and has been operating in
the United States since 1895, establishing a headquarters office
here in 1973. The executive officers of MFS report to the Chairman
of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is
the Chairman and President 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.
From time to time, the Adviser may purchase, redeem and
exchange shares of any Series. The purchase by the Adviser of
shares of a Series may have the effect of lowering that Series'
expense ratio, while the redemption by the Adviser of shares of a
Series may have the effect of increasing that Series' expense
ratio.
Distributor _ MFS Fund Distributors, Inc. ("MFD"), a
wholly owned subsidiary of MFS, is the distributor of shares of
each Series and also serves as distributor for certain of the
other mutual funds managed by MFS.
Shareholder Servicing Agent _ MFS Service Center, Inc.
(the "Shareholder Servicing Agent"), a wholly owned subsidiary of
MFS, performs transfer agency, certain dividend disbursing agency
and other services for each Series.
8. INFORMATION CONCERNING SHARES OF EACH SERIES
Purchases and Redemptions
The separate accounts of the Participating Insurance Companies
place orders to purchase and redeem shares of each Series based
on, among other things, the amount of premium payments to be
invested and surrender and transfer requests to be effected on
that day pursuant to Contracts. Orders received by the Trust are
effected on days on which the Exchange is open for trading. For
orders received by the Trust before the close of regular trading
on the Exchange (normally 4 p.m. eastern time), such purchases and
redemptions of the shares of each Series are effected at the
respective net asset values per share determined as of the close
of regular trading on the Exchange on that same day. Participating
Insurance Companies shall be the designee of the Trust for receipt
of purchase and redemption orders from Contract holders and
receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such order by 9:30 a.m.
eastern time on the next following day on which the Exchange is
open for trading. Payment for shares shall be by federal funds
transmitted by wire and must be received by 2:00 p.m. eastern time
on the next following day on which the Exchange is open for
trading after the purchase order is received. Redemption proceeds
shall be by federal funds transmitted by wire and shall be sent by
2:00 p.m. eastern time on the next following day on which the
Exchange is open for trading after the redemption order is
received. No fee is charged the shareholders when they redeem
Series shares.
The offering of shares of any Series may be suspended for
a period of time and each Series reserves the right to refuse any
specific purchase order. Purchase orders may be refused if, in the
Adviser's opinion, they are of a size that would disrupt the
management of a Series. The Trust may suspend the right of
redemption of shares of any Series and may postpone payment for
any period: (i) during which the Exchange is closed other than
customary weekend and holiday closings or during which trading on
the Exchange is restricted; (ii) when the SEC determines that a
state of emergency exists which may make payment or transfer not
reasonably practicable; (iii) as the SEC may by order permit for
the protection of the security holders of the Trust; or (iv) at
any time when the Trust
may, under applicable laws, rules and regulations, suspend payment
on the redemption of its shares.
Should any conflict between Contract holders arise which would
require that a
substantial amount of net assets be withdrawn from any Series,
orderly portfolio management could be disrupted to the potential
detriment of such Contract.
Net Asset Value
The net asset value per share of each Series is determined each
day during which the Exchange is open for trading. 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
Series' liabilities from the value of the Series' assets and
dividing the difference by the number of shares of the Series
outstanding. Values of assets in a Series' portfolio are
determined on the basis of their market or other fair value
(amortized cost value in the case of the Money Market Series), as
described in the Statement of Additional Information. All
investments, assets and liabilities are expressed in U.S. dollars
based upon current currency exchange rates.
Distributions
Substantially all of each Series' (except the Money Market
Series') net investment income for any calendar year is declared
as dividends and paid to its shareholders as dividends on an
annual basis. In addition, each Series may make one or more
distributions during the calendar year to its shareholders from
any long-term capital gains, and may also make one or more
distributions to its shareholders from short-term capital gains.
In determining the net investment income available for
distribution, a Series may rely on projections of its anticipated
net investment income (which may include short-term capital gains
from the sales of securities or other assets, and, if allowed by a
Series' investment restrictions, premiums from options written),
over a longer term, rather than its actual net investment income
for the period.
Substantially all of the Money Market Series' net
investment income for any calendar year is declared as dividends
daily and paid to its shareholders as dividends on a monthly
basis. Generally, those dividends are distributed on the last
business day of the month in the form of additional shares of the
Money Market Series at the rate of one share (and fraction
thereof) for each dollar (and fraction thereof) of dividend income
or, at the election of the shareholder, in cash. Shares purchased
become entitled to dividends declared as of the first day
following the date of investment.
Shareholders of any of the Series may elect to receive
dividends and capital gain distributions in either cash or
additional shares.
Tax Status
Each Series of the Trust is treated as a separate entity for
federal income tax purposes. In order to minimize the taxes each
Series would otherwise be required to pay, each Series intends to
qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"), and to make distributions to its shareholders in
accordance with the timing requirements imposed by the Code. It is
not expected that any of the Series will be required to pay entity
level federal income or excise taxes.
Shares of the Series are offered only to the Participating
Insurance Companies'
separate accounts that fund Contracts. See the applicable Contract
prospectus for a discussion of the federal income tax treatment of
(1) the separate accounts that purchase and hold Series shares and
(2) the holders of the Contracts that are funded through those
accounts. In addition to the diversification requirements of
Subchapter M of the Code, each Series also intends to diversify
its assets as required by Code Section 817(h)(1), and the
regulations thereunder. See also "Tax Status" in the Statement of
Additional Information."
Description of Shares, Voting Rights and Liabilities
Each Series 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 are entitled to vote separately to approve
investment advisory agreements or changes in investment
restrictions with respect to that Series, but shares of all Series
vote together in the election of Trustees and selection of
accountants. Additionally, each Series will vote separately on any
other matter that affects solely that Series, but will 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 Statement of Additional
Information.
Each share of a Series represents an equal proportionate
interest in the Series with each 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 a Series
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.
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.
As of December 31, 1994, Century Life of America, on
behalf of its Century Variable Annuity Account, 2000 Heritage Way,
Waverly, Iowa 50677-9208 was the owner of approximately 69% of the
outstanding shares of the World Governments Series. As of December
31, 1994, Massachusetts Financial Services Company Inc., 500
Boylston Street, Boston, Massachusetts 02116-3740, was the owner
of approximately 30% of the outstanding shares of the World
Governments Series.
Performance Information
Each Series' performance may be quoted in advertising in terms of
yield and, except for the Money Market Series, total return.
Performance is based on historical results and is not intended to
indicate future performance. Performance quoted for a Series
includes the effect of deducting that Series' expenses, but may
not include charges and expenses attributable to any particular
insurance product. Excluding these charges from quotations of a
Series' performance has the effect of increasing the performance
quoted. Performance for a Series will vary based on, among other
things, changes in market conditions, the level of interest rates
and the level of the Series' expenses. For further information
about the World Governments Series' performance for the fiscal
year ended December 31, 1994, please see the Series' Annual
Report. A copy of this Annual Report may be obtained without
charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number.)
Money Market Series: From time to time, quotations of the Money
Market Series'
"yield" and "effective yield" may be included in advertisements,
sales literature or reports to shareholders or prospective
investors. The yield of the Money Market Series refers to the net
investment income generated by the Series over a specified seven-
day period (the ending date of which will be stated). Included in
"net investment income" is the amortization of market premium or
accretion of market and original issue discount. This income is
then "annualized." That is, the amount of income generated by the
Series during that week is assumed to be generated during each
week over a 365 day period and is shown as a percentage. The
effective yield is expressed similarly but, when annualized, the
income earned by an investment in the Series is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed
reinvestment.
Other Series: From time to time, quotations of a Series'
total return and yield may be included in advertisements, sales
literature or reports to shareholders or prospective investors.
The total return of a Series refers to return assuming an
investment has been held in the Series for one year and for the
life of the Series (the ending date of which will be stated). The
total return quotations may be expressed in terms of average
annual
or cumulative rates of return for all periods quoted. Average
annual total return refers to the average annual compound rate of
return of an investment in a Series. Cumulative total return
represents the cumulative change in value of an investment in a
Series. Both will assume that all dividends and capital gains
distributions were reinvested. The yield of a Series refers to net
investment income generated by a Series over a specified 30-day
(or one month) period. This income is then "annualized." That is,
the amount of income generated by the Series during that 30-day
(or one month) period is assumed to be generated over a 12-month
period and is shown as a percentage of net asset value.
Expenses
The Trust pays the compensation of the Trustees who are not
officers of MFS and all expenses of each Series (other than those
assumed by MFS) including but not limited to: governmental fees;
interest charges; taxes; membership dues in the Investment Company
Institute allocable to each Series; fees and expenses of
independent auditors, of legal counsel, and of any transfer agent,
registrar or dividend disbursing agent of each Series; expenses of
repurchasing and redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing
prospectuses, periodic reports, notices and proxy statements to
shareholders and to governmental officers and commissions;
brokerage and other expenses connected with the execution,
recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of Investors Bank & Trust
Company, the Trust's Custodian, for all services to each Series,
including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net
asset value of shares of each Series; and expenses of shareholder
meetings. Expenses relating to the issuance, registration and
qualification of shares of each Series and the preparation,
printing and mailing of prospectuses are borne by each Series
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 are allocated between the Series in a manner believed by
management of the Trust to be fair and equitable.
MFS has agreed to pay until December 31, 2004 the
expenses of the World Governments Series such that the Series'
aggregate operating expenses do not exceed, on an annualized
basis, 1.00% of its average daily net assets; provided, however,
that this obligation may be terminated or revised at any time by
MFS without the consent of the Trust or the Series by notice in
writing from MFS to the Trust on behalf of the Series. Such
payments by MFS are subject to reimbursement by the World
Governments Series which will be accomplished by the payment by
the Series of an expense reimbursement fee to MFS computed and
paid monthly at a percentage of its average daily net assets for
its then current fiscal year, with a limitation that immediately
after such payment the aggregate operating expenses of the Series
would not exceed, on an annualized basis, 1.00% of its average
daily net assets. The expense reimbursement agreement terminates
for the World Governments Series on the earlier of the date on
which payments made thereunder by the Series equal the prior
payment of such reimbursable expenses by MFS or December 31, 2004.
MFS has agreed to pay expenses of each of the Series
(except the World Governments Series and the Money Market Series)
such that the respective Series' aggregate operating expenses
shall not exceed, on an annualized basis, 1.00% of the average
daily net assets of the respective Series from November 2, 1994
through December 31, 1996, 1.25% of the average daily net assets
of the respective Series from January 1, 1997 through
December 31, 1998, and 1.50% of the average daily net assets of
the respective Series from January 1, 1999 through December 31,
2004; provided, however, that this obligation may be terminated or
revised at any time by MFS without the consent of the Trust or the
Series by notice in writing from MFS to the Trust on behalf of the
Series. Such payments by MFS are subject to reimbursement by each
Series which will be accomplished by the payment of the Series of
an expense reimbursement fee to MFS computed and paid monthly at a
percentage of the respective Series' average daily net assets for
its then current fiscal year, with a limitation that immediately
after such payment the aggregate operating expenses of the
respective Series would not exceed, on an annualized basis, 1.00%
of the average daily net assets of the respective Series through
December 31, 1996, 1.25% of the average daily net assets of the
respective Series from January 1, 1997 through December 31, 1998,
and 1.50% of the average daily net assets of the respective Series
from January 1, 1999 through December 31, 2004. This expense
reimbursement agreement terminates for each such Series on the
earlier of the date on which payments made thereafter by the
respective Series equal the prior payment of such reimbursable
expenses by MFS or December 31, 2004.
MFS has agreed to pay until December 31, 2004, expenses
of the Money Market Series (the "Series") such that the Series'
aggregate operating expenses shall not exceed, on an annualized
basis, 0.60% of the average daily net assets of the Series;
provided, however, that this obligation may be terminated or
revised at any time by MFS without the consent of the Trust or the
Series by notice in writing from MFS to the Trust on behalf of the
Series. Such payments by MFS are subject to reimbursement by the
Series, which will be accomplished by the payment by the Series of
an expense reimbursement fee to MFS computed and paid monthly at a
percentage of the average daily net assets of the Series for its
then current fiscal year, with a limitation that immediately after
such payment the aggregate operating expenses of the Series would
not exceed, on an annualized basis, 0.60% of its average daily net
assets. This expense reimbursement terminates for the Series on
the earlier of the date on which payments made thereunder by such
Series equal the prior payments of such reimbursable expenses by
MFS or December 31, 2004.
Shareholder Communications
Owners of Contracts issued by Participating Insurance Companies
for which shares of one or more Series are the investment vehicle
will receive from the Participating Insurance Companies semi-
annual financial statements and audited year-end financial
statements certified by the Trust's independent certified public
accountants. Each report will show the investments owned by the
Trust and the valuations thereof as determined by the Trustees and
will provide other information about the Trust and its operations.
Participating Insurance Companies with inquiries
regarding the Trust may call the Trust's Shareholder Servicing
Agent. (See back cover for address and phone number.)
_________
The Statement of Additional Information for the Trust,
dated May 1, 1995, contains more detailed information about each
of the Series, including information related to: (i) the
investment policies and restrictions of each Series; (ii) the
Trustees, officers and investment adviser of the Trust; (iii)
portfolio transactions; (iv) the shares of each Series, including
rights and liabilities of shareholders; (v) the method used to
calculate yield and total rate of return quotations of each
Series; (vi) the determination of net asset value of shares of
each Series; and (vii) certain voting rights of shareholders of
each Series.
Investment Adviser
Massachusetts Financial
Services Company 500
Boylston Street, Boston,
MA 02116 (617) 954-5000
(800) 637-8730
Distributor
MFS Fund Distributors,
Inc.
500 Boylston Street,
Boston, MA 02116 (617)
954-5000
Custodian
Investors Bank & Trust
Company
89 South Street, Boston,
MA 02111
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 Accountants
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
______________
MFS_
VARIABLE
INSURANCE
TRUST
PROSPECTUS
May 1, 1995
APPENDIX A Description of Bond Ratings
The ratings of Moody's, S&P and Fitch represent their opinions as
to the quality of
various debt instruments. It should be emphasized, however, that
ratings are not absolute standards of quality. Consequently, debt
instruments with the same maturity, coupon and rating may have
different yields while debt instruments of the same maturity and
coupon with different ratings may have the same yield.
Moody's Investors
Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by
all standards.
Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa
securities or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium
grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Absence of Rating: Where no rating has been assigned or where a
rating has been
suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.
Should no rating be assigned, the reason may be one of
the following:
1. an application for rating was not received or
accepted;
2. the issue or issuer belongs to a group of
securities or companies that are not rated as a matter of policy;
3. there is a lack of essential data pertaining to the issue
or issuer; and
4. the issue was privately placed, in which case the
rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material
circumstances arise, the
effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment
to be formed; if a bond is called for redemption; or for other
reasons.
Standard & Poor's
Ratings Group
AAA: Debt rated AAA has the highest rating assigned by S&P's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
BB: Debt rated BB has less near-term vulnerability to
default than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB_ rating.
B: Debt rated B has a greater vulnerability to default
but currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BB or BB_ rating.
CCC: Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable
business, financial and economic conditions to meet timely payment
of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied B or B_ rating.
CC: The rating CC is typically applied to debt
subordinated to senior debt that is assigned an actual or implied
CCC rating.
C: The rating C is typically applied to debt subordinated
to senior debt which is assigned an actual or implied CCC_ debt
rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
C1: The rating C1 is reserved for income bonds on which
no interest is being paid.
D: Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (_): The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
NR: Indicates that no public rating has been requested,
that there is insufficient information on which to base a rating,
or that S&P does not rate a particular type of obligation as a
matter of policy.
A-1 and P-1 Commercial Paper Ratings
Description of S&P, Fitch and Moody's highest commercial paper
ratings:
The rating "A" is the highest commercial paper rating
assigned by S&P and Fitch, and issues so rated are regarded as
having the greatest capacity for timely payment. Issues in the "A"
category are delineated with the numbers 1, 2 and 3 to indicate
the relative degree of safety. The A-1 designation indicates that
the degree of safety regarding timely payment is either
overwhelming or very strong. Those A-1 issues determined to
possess overwhelming safety characteristics will be denoted with a
plus (+) sign designation.
The rating P-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated P-1 have a superior ability for
repayment. P-1 repayment capacity will normally be evidenced by
the following characteristics: (1) leading market positions in
well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structure with moderate
reliance on debt and ample asset protection;
(4) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and (5) well established access
to a range of financial markets and assured sources of alternate
liquidity.
Fitch Investors
Service, Inc.
AAA: Bonds considered to be investment grade and of the highest
credit quality. The
obligor has an exceptionally strong ability to pay interest and
prepay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as
bonds rated "AAA'. Because bonds rated in the "AAA' and "AA'
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
"F-1+'.
A: Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest
and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely
to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher
ratings.
BB: Bonds are considered speculative. The obligor's ability to pay
interest and
repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B: Bonds are considered highly speculative. While bonds
in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC: Bonds have certain identifiable characteristics
which, if not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.
CC: Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest
of principal.
Plus(+) Minus(_): Plus and minus signs are used with a
rating symbol to indicate the relative position of a credit within
the rated category. Plus and minus signs, however, are not used
in the "AAA' category.
NR indicates that Fitch does not rate the specific issue.
Conditional A conditional rating is premised on the successful
completion of a
project or the occurrence of a specific event.
Suspended A rating is suspended when Fitch deems the
amount of information available from the issuer to be inadequate
for rating purposes.
Withdrawn A rating will be withdrawn when an issue
matures or is called or refinanced, and, at Fitch's discretion,
when an issuer fails to furnish proper and timely information.
FitchAlert Ratings are placed on FitchAlert to notify
investors of an occurrence that is likely to result in a rating
change and the likely direction of such change. These are
designated a "Positive", indicating a potential upgrade,
"Negative", for potential downgrade, or "Evolving", where ratings
may be lowered, FitchAlert is relatively short-term, and should be
resolved within 12 months.
MFS_ VARIABLE
INSURANCE TRUST
500 Boylston Street,
Boston, MA 02116
______________
APPENDIX B
Principal Sectors of the Utilities Industry
The principal sectors of the utility industry in which the
Utilities Series may invest are
discussed below.
Electric _ The electric utility industry consists of companies
that are engaged
principally in the generation, transmission and sale of electric
energy, although many also provide other energy-related services.
Domestic electric utility companies, in general, recently have
been favorably affected by lower fuel and financing costs and the
full or near completion of major construction programs. In
addition, many of these companies recently have generated cash
flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into
unregulated businesses. Some electric utilities have also taken
advantage of the right to sell power outside of their traditional
geographic areas. Electric utility companies historically have
been subject to the risks associated with increases in fuel and
other operating costs, high interest costs on borrowings needed
for capital construction programs, costs associated with
compliance with environmental and safety regulations and changes
in the regulatory climate.
In the U.S., the construction and operation of nuclear
power facilities is subject to increased scrutiny by, and evolving
regulations of, the Nuclear Regulatory Commission and state
agencies having comparable jurisdiction. Increased scrutiny might
result in higher operating costs and higher capital expenditures,
with the risk that the regulators may disallow inclusion of these
costs in rate authorizations or the risk that a company may not be
permitted to operate or complete construction of a facility. In
addition, operators of nuclear power plants may be subject to
significant costs for disposal of nuclear fuel and for the de-
commissioning of such plants.
Telecommunications _ The telephone industry is large and highly
concentrated. Companies that distribute telephone services and
provide access to the telephone networks comprise the greatest
portion of this segment. Telephone companies in the U.S. are still
experiencing the effects of the breakup of American Telephone &
Telegraph Company, which occurred in 1984. Since 1984, companies
engaged in telephone communication services have expanded their
non-regulated activities into other businesses, including cellular
telephone services, data processing, equipment retailing, computer
software and hardware services, and financial services. This
expansion has provided significant opportunities for certain
telephone companies to increase their earnings and dividends at
faster rates than had been allowed in traditionally regulated
businesses. Increasing competition, technological innovations and
other structural changes, however, could adversely affect the
profitability of such utilities.
Gas _ Gas transmission companies and gas distribution companies
are also undergoing significant changes. In the U.S., interstate
transmission companies are regulated by the Federal Energy
Regulatory Commission, which is reducing its regulation of the
industry. Many companies have diversified into oil and gas
exploration and development, making returns more sensitive to
energy prices. In the recent decade, gas utility companies have
been adversely affected by disruptions in the oil industry and
have also been affected by increased concentration and
competition. In the opinion of the Adviser, however, environmental
considerations could improve the gas industry outlook in the
future. For example, natural gas is the cleanest of the
hydrocarbon fuels, and this may result in incremental shifts in
fuel consumption toward natural gas and away from oil and coal.
Water _ Water supply utilities are companies that collect, purify,
distribute and sell water. In the U.S. and around the world, the
industry is highly fragmented because most of the supplies are
owned by local authorities. Companies in this industry are
generally mature and are experiencing little or no per capita
volume growth.
_________
There can be no assurance that the positive developments noted
above, including
those relating to changing regulation, will occur or that risk
factors other than those noted above will not develop in the
future.
APPENDIX C
Description of Obligations
Issued or Guaranteed by
U.S. Government Agencies, Authorities
or Instrumentalities
U.S. Government Obligations _ are issued by the U.S. Treasury and
include bills, certificates of indebtedness, notes and bonds.
Agencies and instrumentalities of the U.S. Government are
established under the authority of an act of Congress and include,
but are not limited to, the Tennessee Valley Authority, the Bank
for Cooperatives, the Farmers Home Administration, Federal Home
Loan Banks, Federal Intermediate Credit Banks and Federal Land
Banks, as well as those listed below.
Federal Farm Credit Consolidated Systemwide Notes and Bonds _ are
bonds issued by a cooperatively owned nationwide system of banks
and associations supervised by the Farm Credit Administration.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds _ are bonds issued by the Department
of Transportation of the U.S. Government.
FHA Debentures _ are debentures issued by the Federal Housing
Administration of the U.S. Government and are fully and
unconditionally guaranteed by the U.S. Government.
GNMA Certificates _ are mortgage-backed securities, with timely
payment guaranteed by the full faith and credit of the U.S.
Government, which represent a partial ownership interest in a pool
of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Each mortgage
loan included in the pool is also insured or guaranteed by the
Federal Housing Administration, the Veterans Administration or the
Farmers Home Administration.
Federal Home Loan Mortgage Corporation ("FHLMC") Bonds _ are bonds
issued and guaranteed by the Federal Home Loan Mortgage
Corporation and are not guaranteed by the U.S. Government.
Federal Home Loan Bank Bonds _ are bonds issued by the Federal
Home Loan Bank System and are not guaranteed by the U.S.
Government.
Financing Corporation Bonds and Notes _ are bonds and notes issued
and guaranteed by the Financing Corporation.
Federal National Mortgage Association Bonds _ are bonds issued and
guaranteed by the Federal National Mortgage Association and are
not guaranteed by the U.S. Government.
Resolution Funding Corporation Bonds and Notes _ are bonds and
notes issued and guaranteed by the Resolution Funding Corporation.
Student Loan Marketing Association ("SLMA") Debentures _ are
debentures backed by the Student Loan Marketing Association and
are not guaranteed by the U.S. Government.
Tennessee Valley Authority Bonds and Notes _ are bonds and notes
issued and guaranteed by the Tennessee Valley Authority.
Some of the foregoing obligations, such as Treasury bills and GNMA
pass-through
certificates, are supported by the full faith and credit of the
U.S. Government; others, such as securities of FNMA, by the right
of the issuer to borrow from the U.S. Treasury; still others, such
as bonds issued by SLMA, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S.
Government will provide financial support to instrumentalities
sponsored by the U.S. Government as it is not obligated by law, in
certain instances, to do so.
Although this list includes a description of the primary
types of U.S. Government agency, authorities or instrumentality
obligations in which the Series may invest, the Series may invest
in obligations of U.S. Government agencies or instrumentalities
other than those listed above.
Description of Short-Term Investments Other Than
U.S. Government Obligations
Certificates of Deposit _ are certificates issued against funds
deposited in a bank (including eligible foreign branches of U.S.
banks), are for a definite period of time, earn a specified rate
of return and are normally negotiable.
Bankers' Acceptances _ are marketable short-term credit
instruments used to finance the import, export, transfer or
storage of goods. They are termed "accepted" when a bank
guarantees their payment at maturity.
Commercial Paper _ refers to promissory notes issued by
corporations in order to finance their short-term credit needs.
Corporate Obligations _ include bonds and notes issued by
corporations in order to finance long-term credit needs.
MFS_ VARIABLE INSURANCE TRUSTSM
STATEMENT OF
ADDITIONAL
INFORMATION
May 1, 1995
1. General Information and Definitions
2. Investment Techniques
3. Investment Restrictions
4. Management of the Trust
Trustees
Officers
Investment Adviser
Investment Advisory Agreement
Custodian
Shareholder Servicing Agent
Distributor
5. Portfolio Transactions and Brokerage Commissions
6. Tax Status
7. Net Income and Distributions
8. Determination of Net Asset Value; Performance
Information
9. Description of Shares, Voting Rights and Liabilities
10. Independent Accountants and Financial Statements
MFS_ VARIABLE INSURANCE TRUSTSM
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information
which may be of interest to investors but which is not necessarily
included in the Trust's Prospectus, dated May 1, 1995 as
supplemented from time to time. This Statement of Additional
Information
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 Statement of Additional Information is NOT a prospectus and
is authorized for distribution to prospective investors only if
preceded or accompanied by a current prospectus.
1. GENERAL INFORMATION AND DEFINITIONS
MFS Variable Insurance Trust (the "Trust") is a professionally
managed open-end management investment company (a "mutual fund")
consisting of twelve separate series: MFS Emerging Growth Series
(the "Emerging Growth Series"), MFS Growth Series (the "Growth
Series"), MFS Research Series (the "Research Series"), MFS Growth
With Income Series (the "Growth With Income Series"), MFS Total
Return Series (the "Total Return Series"), MFS Utilities Series
(the "Utilities Series"), MFS High Income Series (the "High Income
Series"), MFS World Governments Series (the "World Governments
Series"), MFS Strategic Fixed Income Series (the "Strategic Fixed
Income Series"), MFS Bond Series (the "Bond Series"), MFS Limited
Maturity Series (the "Limited Maturity Series") and MFS Money
Market Series (the "Money Market Series") (individually or
collectively hereinafter referred to as a "Series" or the
"Series"). Additional series may be created by the Trustees from
time to time. Shares of each Series will be offered to the
separate accounts of certain insurance companies (individually, a
"Participating Insurance Company" and collectively, the
"Participating Insurance Companies") that fund certain variable
annuity and variable life insurance contracts ("Contracts"). Each
Series offers its shares using a joint prospectus dated May 1,
1995, as supplemented or amended from time to time (the
"Prospectus").
Each Series' investment adviser and distributor is,
respectively, Massachusetts Financial Services Company ("MFS" or
the "Adviser") and MFS Fund Distributors, Inc. ("MFD" or the
"Distributor"), each a Delaware corporation.
2. INVESTMENT TECHNIQUES
Lending of Portfolio Securities: Each of the Series (except the
Money Market Series) may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to
member firms of the New York Stock Exchange (the "Exchange") (and
subsidiaries thereof) and member banks of the Federal Reserve
System, and would be required to be secured continuously by
collateral in cash, cash equivalents or United States ("U.S.")
Treasury securities maintained on a current basis at an amount at
least equal to the market value of the securities loaned. A Series
would have the right to call a loan and obtain the securities
loaned at any time on customary industry settlement notice (which
will not usually exceed five business days). For the duration of a
loan, the Series would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned
and would also receive compensation from the investment of the
collateral. The Series would not, however, have the right to vote
any securities having voting rights during the existence of the
loan, but the Series would call the loan in anticipation of an
important vote to be taken among holders of the securities or of
the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there
are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially.
However, the loans would be made only to firms deemed by the
Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from
securities loans of this type justifies the attendant risk. If the
Adviser determines to make securities loans, it is intended that
the value of the securities loaned would not exceed 25% of the
value of a Series' net assets.
Repurchase Agreements: Each of the Series may enter into
repurchase agreements with sellers who are member firms (or a
subsidiary thereof) of the Exchange or members of the Federal
Reserve System, recognized primary U.S. Government securities
dealers or institutions which the Adviser has determined to be of
comparable creditworthiness. The securities that a Series
purchases and holds through its agent are U.S. Government
securities, the values of which are equal to or greater than the
repurchase price agreed to be paid by the seller. The repurchase
price may be higher than the purchase price, the difference being
income to the Series, or the purchase and repurchase prices may be
the same, with interest at a standard rate due to the Series
together with the repurchase price on repurchase. In either case,
the income to the Series is unrelated to the interest rate on the
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, a Series will have the right to liquidate the
securities. If at the time the Series 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 Series' exercise of its
right to liquidate the securities may be delayed
and result in certain losses and costs to the Series. Each Series
has adopted and follows procedures which are intended to minimize
the risks of repurchase agreements. For example, each Series only
enters into repurchase agreements after the Adviser has determined
that the seller is creditworthy, and the Adviser monitors that
seller's creditworthiness on an ongoing basis. Moreover, under
such agreements, the value of the securities (which are marked to
market every business day) is required to be greater than the
repurchase price, and a Series has the right to make margin calls
at any time if the value of the securities falls below the agreed
upon margin.
"When-Issued" Securities: Each of the Series (except the
Research Series, the World Governments Series and the Money Market
Series) may purchase securities on a "when-issued" or on a
"forward delivery" basis. Although a Series is not limited as to
the amount of these securities for which it may have commitments
to purchase on such bases, it is expected that under normal
circumstances the Series will not commit more than 20% of its
total assets to such purchases. When a Series commits to purchase
these securities on a "when-issued" or "forward delivery" basis,
it will set up procedures consistent with the General Statement of
Policy of the Securities and Exchange Commission (the "SEC")
concerning such purchases. Since that policy currently recommends
that an amount of the Series' assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the
commitment, the Series will always have cash, short-term money
market instruments or high quality debt securities sufficient to
cover any commitments or to limit any potential risk. Although no
Series intends to make such purchases for speculative purposes and
each Series intends to adhere to the provisions of the SEC policy,
purchases of securities on such bases may involve more risk than
other types of purchases. For example, a Series may have to sell
assets which have been set aside in order to meet redemptions.
Also, if a Series determines it is necessary to sell the "when-
issued" or "forward delivery" securities before delivery, the
Series may incur a loss because of market fluctuations since the
time the commitment to purchase such securities was made.
Mortgage "Dollar Roll" Transactions: Each of the Total
Return Series, the Bond Series, the Strategic Fixed Income Series,
the World Governments Series, the Limited Maturity Series, the
High Income Series and the Utilities Series may enter into
mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and
simultaneously contracts to repurchase substantially similar
securities on a specified future date. During the roll period, a
Series foregoes principal and interest paid on the mortgage-backed
securities. A Series is compensated for the lost interest by the
difference between the current sales price and the lower price for
the future purchase (often referred to as the "drop") as well as
by the interest earned on the cash proceeds of the initial sale. A
Series may also be compensated by receipt of a commitment fee. In
the event that the party with whom the Series contracts to replace
substantially similar securities on a future date fails to deliver
such securities, the Series may not be able to obtain such
securities at the price specified in such contract and thus may
not benefit from the price differential between the current sales
price and the repurchase price.
Corporate Asset-Backed Securities: Each of the Emerging
Growth Series, the Total Return Series, the Bond Series, the
Limited Maturity Series, the Strategic Fixed Income Series, the
High Income Series and the Utilities Series may invest in
corporate asset-backed securities. These securities, issued by
trusts and special purpose corporations, are backed by a pool of
assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks.
For instance, in the case of credit card receivables, these
securities may not have the benefit of any security interest in
the related collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of
automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large
number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in
all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these
securities. The underlying assets (e.g., loans) are also subject
to prepayments which shorten the securities weighted average life
and may lower their return.
Corporate asset-backed securities are often backed by a
pool of assets representing the obligations of a number of
different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, the securities may contain
elements of credit support which fall into two categories: (i)
liquidity protection and
(ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers
to the provision of advances, generally by the entity
administering the pool of assets, to ensure that the receipt of
payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures
payment through insurance policies or letters of credit obtained
by the issuer or sponsor from third parties. A Series will not pay
any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on
historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in
excess of that anticipated or failure of the credit support could
adversely affect the return on an investment in such a security.
Collateralized Mortgage Obligations and Multiclass Pass-
Through Securities: Each of the Bond Series, the Strategic Fixed
Income Series, the World Governments Series, the Limited Maturity
Series, the High Income Series and the Utilities Series may invest
a portion of its assets in collateralized mortgage obligations or
"CMOs", which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities (such collateral
referred to collectively as "Mortgage Assets"). Unless the context
indicates otherwise, all references herein to CMOs include
multiclass pass-through securities.
Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semi-annual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several
classes of a series of a CMO in innumerable ways. In a common
structure, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of
the series of a CMO in the order of their respective stated
maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other
classes having an earlier stated maturity or final distribution
date have been paid in full. Certain CMOs may be stripped
(securities which provide only the principal or interest factor of
the underlying security). See "Stripped Mortgage-Backed
Securities" below for a discussion of the risks of investing in
these stripped securities and of investing in classes consisting
of principals of interest payments or principal payments.
Each of the Bond Series, the World Governments Series,
the Limited Maturity Series, the High Income Series and the
Utilities Series may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("'PAC Bonds"). Parallel pay CMOs are
structured to provide payments of principal on each payment date
to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier.
Stripped Mortgage-Backed Securities: Each of the Bond
Series, the Strategic Fixed Income Series, the World Governments
Series and the High Income Series may invest a portion of its
assets in stripped mortgage-backed securities ("SMBS") which are
derivative multiclass mortgage securities issued by agencies of
or instrumentalities of the U.S. Government, or by private
originators of, or investors in mortgage loans, including savings
and loan institutions, mortgage banks, commercial banks and
investment banks.
SMBS are usually structured with two classes that receive
different proportions of the interest and principal distributions
from a pool of mortgage assets. A common type of SMBS will have
one class receiving some of the interest and most of the principal
from the Mortgage Assets, while the other class will receive most
of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the
interest-only or "IO" class) while the other class will receive
all of the principal (the principal-only or "PO" class). The yield
to maturity on an IO is extremely sensitive to the rate of
principal payments, including prepayments on the related
underlying Mortgage Assets, and a rapid rate of principal payments
may have a material adverse effect
on such security's yield to maturity. If the underlying Mortgage
Assets experience greater than anticipated prepayments of
principal, a Series may fail to fully recoup its initial
investment in these securities. The market value of the class
consisting primarily or entirely of principal payments generally
is unusually volatile in response to changes in interest rates.
Because SMBS were only recently introduced, established trading
markets for these securities have not yet developed, although the
securities are traded among institutional investors and investment
banking firms.
Loan Participations and Other Direct Indebtedness: Each of the
Emerging Growth
Series, the Total Return Series, the Strategic Fixed Income Series
and the High Income Series may purchase loan participations and
other direct indebtedness. In purchasing a loan participation, a
Series acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Many such
loans are secured, although some may be unsecured. Such loans may
be in default at the time of purchase. Loans and other direct
indebtedness that are fully secured offer a Series more protection
than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan or other direct
indebtedness would satisfy the corporate borrower's obligation, or
that the collateral can be liquidated.
These loans and other direct indebtedness are made
generally to finance internal growth, mergers, acquisitions, stock
repurchases, leveraged buy-outs and other corporate activities.
Such loans and other direct indebtedness loans are typically made
by a syndicate of lending institutions, represented by an agent
lending institution which has negotiated and structured the loan
and is responsible for collecting interest, principal and other
amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against
the borrower. Alternatively, such loans and other direct
indebtedness may be structured as a novation, pursuant to which a
Series would assume all of the rights of the lending institution
in a loan or as an assignment, pursuant to which the Series would
purchase an assignment of a portion of a lender's interest in a
loan or other direct indebtedness either directly from the lender
or through an intermediary. A Series may also purchase trade or
other claims against companies, which generally represent money
owned by the company to a supplier of goods or services. These
claims may also be purchased at a time when the company is in
default.
Certain of the loan participations and the other direct
indebtedness acquired by a Series may involve revolving credit
facilities or other standby financing commitments which obligate
the Series to pay additional cash on a certain date or on demand.
These commitments may have the effect of requiring a Series to
increase its investment in a company at a time when the Series
might not otherwise decide to do so (including at a time when the
company's financial condition makes it unlikely that such amounts
will be repaid). To the extent that a Series is committed to
advance additional funds, it will at all times hold and maintain
in a segregated account cash or other high grade debt obligations
in an amount sufficient to meet such commitments.
A Series'
ability to receive
payment of principal,
interest and other
amounts due in connection
with these investments
will depend primarily on
the financial condition
of the borrower. In
selecting the loan
participations and other
direct indebtedness which
a Series will purchase,
the Adviser will rely
upon its own (and not the
original lending
institution's) credit
analysis of the borrower.
As the Series may be
required to rely upon
another lending
institution to collect
and pass onto the Series
amounts payable with
respect to the loan and
to enforce the Series'
rights under the loan and
other direct
indebtedness, an
insolvency, bankruptcy or
reorganization of the
lending institution may
delay or prevent the
Series from receiving
such amounts. In such
cases, the Series will
evaluate as well the
creditworthiness of the
lending institution and
will treat both the
borrower and the lending
institution as an
"issuer" of the loan
participation for
purposes of certain
investment restrictions
pertaining to the
diversification of the
Series' portfolio
investments. The highly
leveraged nature of many
such loans and other
direct indebtedness may
make such loans and other
direct indebtedness
especially vulnerable to
adverse changes in
economic or market
conditions. Investments
in such loans and other
direct indebtedness may
involve additional risk
to a Series. For example,
if a loan or other direct
indebtedness is
foreclosed, a Series
could become part owner
of any collateral, and
would bear the costs and
liabilities associated
with owning and disposing
of the collateral. In
addition, it is
conceivable that under
emerging legal theories
of lender liability, a
Series could be held
liable as a co-lender. It
is unclear whether loans
and other forms of direct
indebtedness offer
securities law
protections against
fraud and
misrepresentation. In the
absence of definitive
regulatory guidance, each
Series relies on the
Adviser's research in an
attempt to avoid
situations where fraud
and misrepresentation
could adversely affect a
Series. In addition, loan
participations and other
direct investments may
not be in the form of
securities or may be
subject to restrictions
on transfer, and only
limited opportunities may
exist to resell such
instruments. As a result,
a Series may be unable to
sell such investments at
an opportune time or may
have to resell them at
less than fair market
value. To the extent that
the Adviser determines
that any such investments
are illiquid, a Series
will include them in the
investment limitations
described below.
Mortgage Pass-
Through Securities: Each
of the Total Return
Series, the Bond Series,
the World Governments
Series, the Limited
Maturity Series and the
High Income Series may
invest in mortgage pass-
through securities. The
Utilities Series may
invest in mortgage pass-
through securities that
are securities issued or
guaranteed as to
principal and interest by
the U.S. Government, its
agencies, authorities or
instrumentalities.
Mortgage pass-through
securities are securities
representing interests in
"pools" of mortgage
loans. Monthly payments
of interest and principal
by the individual
borrowers on mortgages
are passed through to the
holders of the securities
(net of fees paid to the
issuer or guarantor of
the securities) as the
mortgages in the
underlying mortgage pools
are paid off. The average
lives of mortgage pass-
throughs are variable
when issued because their
average lives depend on
prepayment rates. The
average life of these
securities is likely to
be substantially shorter
than their stated final
maturity as a result of
unscheduled principal
prepayment. Prepayments
on underlying mortgages
result in a loss of
anticipated interest, and
all or part of a premium
if any has been paid, and
the actual yield (or
total return) to the Fund
may be different than the
quoted yield on the
securities. Mortgage
premiums generally
increase with falling
interest rates and
decrease with rising
interest rates. Like
other fixed income
securities, when interest
rates rise the value of
mortgage pass-through
security generally will
decline; however, when
interest rates are
declining, the value of
mortgage pass-through
securities with
prepayment features may
not increase as much as
that of other fixed-
income securities.
Payment of
principal and interest on
some mortgage pass-
through securities (but
not the market value of
the securities
themselves) may be
guaranteed by the full
faith and credit of the
U.S. Government (in the
case of securities
guaranteed by the
Government National
Mortgage Association
("GNMA"); or guaranteed
by agencies or
instrumentalities of the
U.S. Government (such as
the Federal National
Mortgage Association
("FNMA") or the Federal
Home Loan Mortgage
Corporation, (FHLMC)
which are supported only
by the discretionary
authority of the U.S.
Government to purchase
the agency's
obligations). Mortgage
pass-through securities
may also be issued by
non-governmental issuers
(such as commercial
banks, savings and loan
institutions, private
mortgage insurance
companies, mortgage
bankers and other
secondary market
issuers). Some of these
mortgage pass-through
securities may be
supported by various
forms of insurance or
guarantees.
Interests in
pools of mortgage-related
securities differ from
other forms of debt
securities, which
normally provide for
periodic payment of
interest in fixed amounts
with principal payments
at maturity or specified
call dates. Instead,
these securities provide
a monthly payment which
consists of both interest
and principal payments.
In effect, these payments
are a "pass-through" of
the monthly payments made
by the individual
borrowers on their
mortgage loans, net of
any fees paid to the
issuer or guarantor of
such securities.
Additional payments are
caused by prepayments of
principal resulting from
the sale, refinancing or
foreclosure of the
underlying property, net
of fees or costs which
may be incurred. Some
mortgage pass-through
securities (such as
securities issued by the
GNMA) are described as
"modified pass-through."
These securities entitle
the holder to receive all
interests and principal
payments owed on the
mortgages in the mortgage
pool, net of certain
fees, at the scheduled
payment dates regardless
of whether the mortgagor
actually makes the
payment.
The principal
governmental guarantor of
mortgage pass-through
securities is GNMA. GNMA
is a wholly owned U.S.
Government corporation
within the Department of
Housing and Urban
Development. GNMA is
authorized to guarantee,
with the full faith and
credit of the U.S.
Government, the timely
payment of principal and
interest on securities
issued by institutions
approved by GNMA (such as
savings and loan
institutions, commercial
banks and mortgage
bankers) and backed by
pools of FHA-insured or
VA-guaranteed mortgages.
These guarantees,
however, do not apply to
the market value or yield
of mortgage pass-through
securities. GNMA
securities are often
purchased at a premium
over the maturity value
of the underlying
mortgages. This premium
is not guaranteed and
will be lost if
prepayment
occurs.
Government-
related guarantors (i.e.,
whose guarantees are not
backed by the full faith
and credit of the U.S.
Government) include FNMA
and FHLMC. FNMA is a
government-sponsored
corporation owned
entirely by private
stockholders. It is
subject to general
regulation by the
Secretary of Housing and
Urban Development. FNMA
purchases conventional
residential mortgages
(i.e., mortgages not
insured or guaranteed by
any governmental agency)
from a list of approved
seller/servicers which
include state and
federally chartered
savings and loan
associations, mutual
savings banks, commercial
banks, credit unions and
mortgage bankers. Pass-
through securities issued
by FNMA are guaranteed as
to timely payment by FNMA
of principal and
interest.
FHLMC is also a
government-sponsored
corporation owned by
private stockholders.
FHLMC issues
Participation
Certificates ("PCs")
which represent interests
in conventional mortgages
(i.e., not federally
insured or guaranteed)
for FHLMC's national
portfolio. FHLMC
guarantees timely payment
of interest and ultimate
collection of principal
regardless of the status
of the underlying
mortgage loans.
Commercial
banks, savings and loan
institutions, private
mortgage insurance
companies, mortgage
bankers and other
secondary market issuers
also create pass-through
pools of mortgage loans.
Such issuers may also be
the originators and/or
servicers of the
underlying mortgage-
related securities. Pools
created by such non-
governmental issuers
generally offer a higher
rate of interest than
government and
government-related pools
because there are no
direct or indirect
government or agency
guarantees of payments in
the former pools.
However, timely payment
of interest and principal
of mortgage loans in
these pools may be
supported by various
forms of insurance or
guarantees, including
individual loan, title,
pool and hazard insurance
and letters of credit.
The insurance and
guarantees are issued by
governmental entities,
private insurers and the
mortgage poolers. There
can be no assurance that
the private insurers or
guarantors can meet their
obligations under the
insurance policies or
guarantee arrangements. A
Series may also buy
mortgage-related
securities without
insurance or guarantees.
Indexed
Securities: Each of the
Total Return Series, the
High Income Series, the
Bond Series, the
Utilities Series and the
World Governments Series
may purchase securities
whose prices are indexed
to the prices of other
securities, securities
indices, currencies,
precious metals or other
commodities, or other
financial indicators.
Indexed securities
typically, but not
always, are debt
securities or deposits
whose value at maturity
or coupon rate is
determined by reference
to a specific instrument
or statistic. Gold-
indexed securities, for
example, typically
provide for a maturity
value that depends on the
price of gold, resulting
in a security whose price
tends to rise and fall
together with gold
prices. Currency-indexed
securities typically are
short-term to
intermediate-term debt
securities whose maturity
values or interest rates
are determined by
reference to the values
of one or more specified
foreign currencies, and
may offer higher yields
than U.S. dollar-
denominated securities of
equivalent issuers.
Currency-indexed
securities may be
positively or negatively
indexed; that is, their
maturity value may
increase when the
specified currency value
increases, resulting in a
security that performs
similarly to a foreign-
denominated instrument,
or their maturity value
may decline when foreign
currencies increase,
resulting in a security
whose price
characteristics are
similar to a put on the
underlying currency.
Currency-indexed
securities may also have
prices that depend on the
values of a number of
different foreign
currencies relative to
each other.
The performance
of indexed securities
depends to a great extent
on the performance of the
security, currency, or
other instrument to which
they are indexed, and may
also be influenced by
interest rate changes in
the U.S. and abroad. At
the same time, indexed
securities are subject to
the credit risks
associated with the
issuer of the security,
and their values may
decline substantially if
the issuer's
creditworthiness
deteriorates. Recent
issuers of indexed
securities have included
banks, corporations, and
certain U.S. government
agencies.
Swaps and
Related Transactions:
Each of the High Income
Series, the World
Governments Series, the
Strategic Fixed Income
Series, the Bond Series
and the Limited Maturity
Series may enter into
interest rate swaps,
currency swaps and other
types of available swap
agreements, such as caps,
collars and floors.
Swap agreements
may be individually
negotiated and structured
to include exposure to
a variety of different
types of investments or
market factors. Depending
on their structure, swap
agreements may increase
or decrease a Series'
exposure to long or
short-term interest rates
(in the U.S. or abroad),
foreign currency values,
mortgage securities,
corporate borrowing
rates, or other factors
such as securities prices
or inflation rates. Swap
agreements can take many
different forms and are
known by a variety of
names. A Series is not
limited to any particular
form or variety of swap
agreement if MFS
determines it is
consistent with the
Series' investment
objective and policies.
Each of the High
Income Series, the World
Governments Series, the
Strategic Fixed Income
Series, the Bond Series
and the Limited Maturity
Series will maintain cash
or appropriate liquid
assets with its custodian
to cover its current
obligations under swap
transactions. If a Series
enters into a swap
agreement on a net basis
(i.e., the two payment
streams are netted out,
with the Series receiving
or paying, as the case
may be, only the net
amount of the two
payments), the Series
will maintain cash or
liquid assets with its
Custodian with a daily
value at least equal to
the excess, if any, of
the Series' accrued
obligations under the
swap agreement over the
accrued amount the Series
is entitled to receive
under the agreement. If a
Series enters into a swap
agreement on other than a
net basis, it will
maintain cash or liquid
assets with a value equal
to the full amount of the
Series' accrued
obligations under the
agreement.
The most
significant factor in the
performance of swaps,
caps, floors and collars
is the change in the
specific interest rate,
currency or other factor
that determines the
amount of payments to be
made under the
arrangement. If the
Adviser is incorrect in
its forecasts of such
factors, the investment
performance of a Series
would be less than what
it would have been if
these investment
techniques had not been
used. If a swap agreement
calls for payments by a
Series, the Series must
be prepared to make such
payments when due. In
addition, if the
counterparty's
creditworthiness
declined, the value of
the swap agreement would
be likely to decline,
potentially resulting in
losses.
If the
counterparty defaults, a
Series' risk of loss
consists of the net
amount of payments that
the Series is
contractually entitled to
receive. Each Series
anticipates that it will
be able to eliminate or
reduce its exposure under
these arrangements by
assignment or other
disposition or by
entering into an
offsetting agreement with
the same or another
counterparty.
Options on
Securities: Each of the
Emerging Growth Series,
the Growth Series, the
Total Return Series, the
Bond Series, the
Strategic Fixed Income
Series, the World
Governments Series, the
Growth With Income Series
and the High Income
Series may write (sell)
covered put and call
options, and purchase put
and call options, on
securities. Call and put
options written by a
Series may be covered in
the manner set forth
below.
A call option written by
a Series is "covered" if
the Series 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
a Series 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 Series in cash,
short-term money market
instruments or high
quality debt securities
in a segregated account
with its custodian. A put
option written by a
Series is "covered" if
the Series 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 Series
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 a
Series may also be
covered in such other
manner as may be in
accordance with the
requirements of the
exchange on which, or the
counter party with which,
the option is traded, and
applicable laws and
regulations. If the
writer's obligation is
not so covered, it is
subject to the risk of
the full change in value
of the underlying
security from the time
the option is written
until exercise.
Effecting a
closing transaction in
the case of a written
call option will permit a
Series 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 Series 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 a
Series 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 a
Series, provided that
another option on such
security is not written.
If a Series 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.
A Series will
realize a profit from a
closing transaction if
the premium paid in
connection with the
closing of an option
written by the Series 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 a
Series is more than the
premium paid for the
original purchase.
Conversely, a Series 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 a Series is likely to
be offset in whole or in
part by appreciation of
the underlying security
owned by the Series.
The Series may
write options in
connection with buy-and-
write transactions; that
is, a Series may purchase
a security and then write
a call option against
that security. The
exercise price of the
call a Series 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, a Series'
maximum gain will be the
premium received by it
for writing the option,
adjusted upwards or
downwards by the
difference between the
Series' 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 a
Series' 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,
a Series may elect to
close the position or
retain the option until
it is exercised, at which
time the Series will be
required to take delivery
of the security at the
exercise price; a Series'
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 a Series in the same
market environments that
call options are used in
equivalent buy-and-write
transactions.
A Series 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, a Series
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 Series
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,
a Series limits its
opportunity to profit
from any
increase in the market
value of the underlying
security above the
exercise price of the
option. By writing a put
option, a Series assumes
the risk that it may be
required to purchase the
underlying security for
an exercise price above
its then current market
value, resulting in a
capital loss unless the
security subsequently
appreciates in value. The
writing of options on
securities will not be
undertaken by a Series
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.
A Series 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 a
Series to sell the
securities at the
exercise price, or to
close out the options at
a profit. By using put
options in this way, a
Series 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.
A Series may purchase
call options to hedge
against an increase in
the price of
securities that the
Series anticipates
purchasing in the future.
If such increase occurs,
the call option will
permit the Series 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 a Series upon exercise
of the option, and,
unless the price of the
underlying security rises
sufficiently, the option
may expire worthless to
the Series.
In certain instances, the
Emerging Growth Series
and the Strategic Fixed
Income
Series may enter into
options on U.S. Treasury
securities which provide
for periodic adjustment
of the strike price and
may also provide for the
periodic adjustment of
the premium during the
term of each such option.
Like other types of
options, these
transactions, which may
be referred to as "reset"
options or "adjustable
strike options," grant
the purchaser the right
to purchase (in the case
of a "call") or sell (in
the case of a "put"), a
specified type and series
of U.S. Treasury security
at any time up to a
stated expiration date
(or, in certain
instances, on such date).
In contrast to other
types of options,
however, the price at
which the underlying
security may be purchased
or sold under a "reset"
option is determined at
various intervals during
the term of the option,
and such price fluctuates
from interval to interval
based on changes in the
market value of the
underlying security. As a
result, the strike price
of a "reset" option, at
the time of exercise, may
be less advantageous to
the Emerging Growth
Series than if the strike
price had been fixed at
the initiation of the
option. In addition, the
premium paid for the
purchase of the option
may be determined at the
termination, rather than
the initiation, of the
option. If the premium is
paid at termination, the
Series assumes the risk
that (i) the premium may
be less than the premium
which would otherwise
have been received at the
initiation of the option
because of such factors
as the volatility in
yield of the underlying
Treasury security over
the term of the option
and adjustments made to
the strike price of the
option, and (ii) the
option purchaser may
default on its obligation
to pay the premium at the
termination of the
option.
Options on Stock
Indices: Each of the
Emerging Growth Series,
the Growth Series, the
Total Return Series, the
Growth With Income Series
and the Utilities Series
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."
A Series may
cover call options on
stock indices by owning
securities whose price
changes, in the opinion
of the Adviser, are
expected to be similar to
those of the underlying
index, or by having an
absolute and immediate
right to acquire such
securities without
additional cash
consideration (or for
additional cash
consideration held in a
segregated account by its
custodian) upon
conversion or exchange of
other securities in its
portfolio. Where a Series
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 Series will
not be fully covered and
could be subject to risk
of loss in the event of
adverse changes in the
value of the index. A
Series 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 Series in cash,
short-term money market
instruments or high-
quality debt securities
in a segregated account
with its custodian. A
Series 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 Series
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.
A Series will
receive a premium from
writing a put or call
option, which increases
the Series' gross income
in the event the option
expires unexercised or is
closed out at a profit.
If the value of an index
on which a Series has
written a call option
falls or remains the
same, the Series will
realize a profit in the
form of the premium
received (less
transaction costs) that
could offset all or a
portion of any decline in
the value of the
securities it owns. If
the value of the index
rises, however, a Series
will realize a loss in
its call option position,
which will reduce the
benefit of any unrealized
appreciation in the
Series' stock
investments. By writing a
put option, a Series
assumes the risk of a
decline in the index. To
the extent that the price
changes of securities
owned by a Series
correlate with changes in
the value of the index,
writing covered put
options on indices will
increase a Series' losses
in the event of a market
decline, although such
losses will be offset in
part by the premium
received for writing the
option.
A Series 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, a
Series will seek to
offset a decline in the
value of securities it
owns through appreciation
of the put option. If the
value of a Series'
investments does not
decline as anticipated,
or if the value of the
option does not increase,
the Series' 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 Series'
security holdings.
The purchase of
call options on stock
indices may be used by a
Series 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 Series holds
uninvested cash or short-
term debt securities
awaiting investment. When
purchasing call options
for this purpose, a
Series will also bear the
risk of losing all or a
portion of the premium
paid if the value of the
index does not rise. The
purchase of call options
on stock indices when a
Series 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.
Yield Curve
Options: Each of the
Growth Series, the Total
Return Series, the Bond
Series, the Strategic
Fixed Income Series, the
World Governments Series
and the High Income
Series may also enter
into options on the
"spread," or yield
differential, between two
fixed income securities,
in transactions referred
to as "yield curve"
options. In contrast to
other types of options, a
yield curve option is
based on the difference
between the yields of
designated securities,
rather than the prices of
the individual
securities, and is
settled through cash
payments. Accordingly, a
yield curve option is
profitable to the holder
if this differential
widens (in the case of a
call) or narrows (in the
case of a put),
regardless of whether the
yields of the underlying
securities increase or
decrease.
Yield curve
options may be used for
the same purposes as
other options on
securities. Specially, a
Series may purchase or
write such options for
hedging purposes. For
example, a Series may
purchase a call option on
the yield spread between
two securities, if it
owns one of the
securities and
anticipates purchasing
the other security and
wants to hedge against an
adverse change in the
yield spread between the
two securities. A Series
may also purchase or
write yield curve options
for other than hedging
purposes (i.e., in an
effort to increase its
current income) if, in
the judgment of the
Adviser, the Series will
be able to profit from
movements in the spread
between the yields of the
underlying securities.
The trading of yield
curve options is subject
to all of the risks
associated with the
trading of other types of
options. In addition,
however, such options
present risk of loss even
if the yield of one of
the underlying securities
remains constant, if the
spread moves in a
direction or to an extent
which was not
anticipated. Yield curve
options written by a
Series will be "covered".
A call (or put) option is
covered if the Series
holds another call (or
put) option on the spread
between the same two
securities and maintains
in a segregated account
with its custodian cash
or cash equivalents
sufficient to cover the
Series' net liability
under the two options.
Therefore, a Series'
liability for such a
covered option is
generally limited to the
difference between the
amount of the Series'
liability under the
option written by the
Series less the value of
the option held by the
Series. Yield curve
options may also be
covered in such other
manner as may be in
accordance with the
requirements of the
counterparty with which
the option is traded and
applicable laws and
regulations. Yield curve
options are traded over-
the-counter and because
they have been only
recently introduced,
established trading
markets for these
securities have not yet
developed.
The staff of the
SEC has taken the
position that purchased
over-the-counter options
and assets used to cover
written over-the-counter
options are illiquid and,
therefore, together with
other illiquid
securities, cannot exceed
a certain percentage of a
Series' assets (the "SEC
illiquidity ceiling").
Although the Adviser
disagrees with this
position, the Adviser
intends to limit each
Series' writing of over-
the-counter options in
accordance with the
following procedure.
Except as provided below,
a Series intends to write
over-the-counter options
only with primary U.S.
Government securities
dealers recognized by the
Federal Reserve Bank of
New York. Also, the
contracts which a Series
has in place with such
primary dealers will
provide that the Series
has the absolute right to
repurchase an option it
writes at any time at a
price which represents
the fair market value, as
determined in good faith
through negotiation
between the parties, but
which in no event will
exceed a price determined
pursuant to a formula in
the contract. Although
the specific formula may
vary between contracts
with different primary
dealers, the formula will
generally be based on a
multiple of the premium
received by a Series 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-money. A
Series will treat all or
a part of the formula
price as illiquid for
purposes of the SEC
illiquidity ceiling. A
Series may also write
over-the-counter options
with non-primary dealers,
including foreign
dealers, and will
treat the assets used to
cover these options as
illiquid for purposes of
such SEC illiquidity
ceiling.
Futures
Contracts: Each of the
Bond Series, the
Strategic Fixed Income
Series, the World
Governments Series, the
Limited Maturity Series,
the High Income Series
and the Utilities Series
may purchase and sell
futures contracts
("Futures Contracts") on
foreign or domestic fixed
income securities or
indices of such
securities. Each of the
Emerging Growth Series,
the Growth Series, the
Total Return Series and
the Growth With Income
Series may purchase and
sell Futures Contracts on
stock indexes, while the
Emerging Growth Series,
the Growth Series, the
Total Return Series, the
World Governments Series,
the Growth With Income
Series, the Strategic
Fixed Income Series and
the Utilities Series may
purchase and sell Futures
Contracts on foreign
currencies or indices of
foreign currencies. Such
investment strategies
will be used for hedging
purposes and for non-
hedging purposes, subject
to applicable law.
A Futures
Contract is a bilateral
agreement providing for
the purchase and sale of
a specified type and
amount of a financial
instrument or foreign
currency, or for the
making and acceptance of
a cash settlement, at a
stated time in the future
for a fixed price. By its
terms, a Futures Contract
provides for a specified
settlement date on which,
in the case of the
majority of interest rate
and foreign currency
futures contracts, the
fixed income securities
or currency are delivered
by the seller and paid
for by the purchaser, or
on which, in the case of
stock index futures
contracts and certain
interest rate and foreign
currency futures
contracts, the difference
between the price at
which the contract was
entered into and the
contract's closing value
is settled between the
purchaser and seller in
cash. Futures Contracts
differ from options in
that they are bilateral
agreements, with both the
purchaser and the seller
equally obligated to
complete the transaction.
Futures Contracts call
for settlement only on
the expiration date and
cannot be "exercised" at
any other time during
their term.
The purchase or
sale of a Futures
Contract differs from the
purchase or sale of a
security or the purchase
of an option in that no
purchase price is paid or
received. Instead, an
amount of cash or cash
equivalents, which varies
but may be as low as 5%
or less of the value of
the contract, must be
deposited with the broker
as "initial margin."
Subsequent payments to
and from the broker,
referred to as "variation
margin," are made on a
daily basis as the value
of the index or
instrument underlying the
Futures Contract
fluctuates, making
positions in the Futures
Contract more or less
valuable - a process
known as "mark-to-
market."
Purchases or
sales of stock index
futures contracts are
used to attempt to
protect a Series' current
or intended stock
investments from broad
fluctuations in stock
prices. For example, a
Series 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 Series' 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 a Series
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 Series 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 Series
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.
Interest rate
Futures Contracts may be
purchased or sold to
attempt to protect
against the effects of
interest rate changes on
a Series' current or
intended investments in
fixed income securities.
For example, if a Series
owned long-term bonds and
interest rates were
expected to increase,
that Series might enter
into interest rate
futures contracts for the
sale of debt securities.
Such a sale would have
much the same effect as
selling some of the long-
term bonds in that
Series' portfolio. If
interest rates did
increase, the value of
the debt securities in
the portfolio would
decline, but the value of
that Series' interest
rate futures contracts
would increase at
approximately the same
rate, thereby keeping the
net asset value of that
Series from declining as
much as it otherwise
would have.
Similarly, if
interest rates were
expected to decline,
interest rate futures
contracts may be
purchased to hedge in
anticipation of
subsequent purchases of
long-term
bonds at higher prices.
Since the fluctuations in
the value of the interest
rate futures contracts
should be similar to that
of long-term bonds, a
Series could protect
itself against the
effects of the
anticipated rise in the
value of long-term bonds
without actually buying
them until the necessary
cash became available or
the market had
stabilized. At that time,
the interest rate futures
contracts could be
liquidated and that
Series' cash reserves
could then be used to buy
long-term bonds on the
cash market. A Series
could accomplish similar
results by selling bonds
with long maturities and
investing in bonds with
short maturities when
interest rates are
expected to increase.
However, since the
futures market is more
liquid than the cash
market, the use of
interest rate futures
contracts as a hedging
technique allows a Series
to hedge its interest
rate risk without having
to sell its portfolio
securities.
As noted in the
Prospectus, a Series may
purchase and sell foreign
currency futures
contracts for hedging
purposes, to attempt to
protect its current or
intended investments from
fluctuations in currency
exchange rates. Such
fluctuations could reduce
the dollar value of
portfolio securities
denominated in foreign
currencies, or increase
the cost of foreign-
denominated securities to
be acquired, even if the
value of such securities
in the currencies in
which they are
denominated remains
constant. A Series may
sell futures contracts on
a foreign currency, for
example, where it holds
securities denominated in
such currency and it
anticipates a decline in
the value of such
currency relative to the
dollar. In the event such
decline occurs, the
resulting adverse effect
on the value of foreign-
denominated securities
may be offset, in whole
or in part, by gains on
the futures contracts.
Conversely, a
Series could protect
against a rise in the
dollar cost of foreign-
denominated securities to
be acquired by purchasing
futures contracts on the
relevant currency, which
could offset, in whole or
in part, the increased
cost of such securities
resulting from a rise in
the dollar value of the
underlying currencies.
Where a Series purchases
futures contracts under
such circumstances,
however, and the prices
of securities to be
acquired instead decline,
the Series will sustain
losses on its futures
position which could
reduce or eliminate the
benefits of the reduced
cost of portfolio
securities to be
acquired.
Options on
Futures Contracts: Each
Series that may buy or
sell Futures Contracts
(see "Futures Contracts"
above) also may purchase
and write options to buy
or sell those 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 a Series 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 Commodities Futures
Trading Commission (the
"CFTC") and the
performance guarantee of
the exchange
clearinghouse. In
addition, Options on
Futures Contracts may be
traded on foreign
exchanges.
A Series 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 Series in cash or
securities in a
segregated account with
its custodian. A Series
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
Series 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 a Series, the
Series will be required
to sell the underlying
Futures Contract which,
if the Series 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 a Series is exercised,
the Series will be
required to purchase the
underlying Futures
Contract which, if the
Series 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, a Series
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
Series' portfolio
holdings. The writing of
a put option on a Futures
Contract constitutes a
partial hedge against
increasing prices of the
securities or other
instruments required to
be delivered under the
terms of the Futures
Contract. If the futures
price at expiration of
the option is higher than
the exercise price, a
Series will retain the
full amount of the option
premium which provides a
partial hedge against any
increase in the price of
securities which the
Series intends to
purchase. If a put or
call option a Series has
written is exercised, the
Series 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, a
Series' losses from
existing Options on
Futures Contracts may to
some extent be reduced or
increased by changes in
the value of portfolio
securities.
The Series may
purchase Options on
Futures Contracts for
hedging purposes instead
of purchasing or selling
the underlying Futures
Contracts. For example,
where a decrease in the
value of portfolio
securities is anticipated
as a result of a
projected market-wide
decline or changes in
interest or exchange
rates, a Series 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 in part, by a
profit on the option.
Conversely, where it is
projected that the value
of securities to be
acquired by a Series will
increase prior to
acquisition, due to a
market advance or changes
in interest or exchange
rates, a Series could
purchase call Options on
Futures Contracts, rather
than purchasing the
underlying Futures
Contracts.
Forward Contracts on
Foreign Currency: Each of
the Emerging Growth
Series, the
Growth Series, the
Research Series, the
Total Return Series, the
Bond Series, the
Strategic Fixed Income
Series, the World
Governments Series, the
Growth With Income
Series, the High Income
Series and the Utilities
Series may enter into
forward foreign currency
exchange contracts for
hedging and non-hedging
purposes (collectively,
"Forward Contracts").
Forward Contracts may be
used for hedging to
attempt to minimize the
risk to the Fund from
adverse changes in the
relationship between the
U.S. dollar and foreign
currencies. The Series
intend to enter into
Forward Contracts for
hedging purposes similar
to those described above
in connection with
foreign currency futures
contracts. In
particular, a Forward
Contract to sell a
currency may be entered
into in lieu of the sale
of a foreign currency
futures contract where a
Series seeks to protect
against an anticipated
increase in the exchange
rate for a specific
currency which could
reduce the dollar value
of portfolio securities
denominated in such
currency. Conversely, a
Series may enter into a
Forward Contract to
purchase a given currency
to protect against a
projected increase in the
dollar value of
securities denominated in
such currency which the
Series intends to
acquire. A Series also
may enter into a Forward
Contract in order to
assure itself of a
predetermined exchange
rate in connection with a
fixed income security
denominated in a foreign
currency. In addition,
the Series may enter into
Forward Contracts for
"cross hedging" purposes
(e.g., the purchase or
sale of a Forward
Contract on one type of
currency, as a hedge
against adverse
fluctuations in the value
of a second type of
currency).
If a hedging transaction
in Forward Contracts is
successful, the decline
in the
value of portfolio
securities or other
assets or the increase in
the cost of securities or
other assets to be
acquired may be offset,
at least in part, by
profits on the Forward
Contract. Nevertheless,
by entering into such
Forward Contracts, a
Series may be required to
forego all or a portion
of the benefits which
otherwise could have been
obtained from favorable
movements in exchange
rates or natural
resources prices. The
Series do not intend, in
most instances, to hold
Forward Contracts entered
into until maturity, at
which time they would be
required to deliver or
accept delivery of the
underlying currency, but
will usually seek to
close out positions in
such contracts by
entering into offsetting
transactions, which will
serve to fix a Series'
profit or loss based upon
the value of the
contracts at the time the
offsetting transaction is
executed.
The Series may also enter
into transactions in
Forward Contracts for
other than
hedging purposes, which
presents greater profit
potential but also
involves increased risk.
For example, a Series may
purchase a given foreign
currency through a
Forward Contract if, in
the judgment of the
Adviser, the value of
such currency is expected
to rise relative to the
U.S. dollar. Conversely,
the Series may sell the
currency through a
Forward Contract if the
Adviser believes that its
value will decline
relative to the dollar.
A Series
entering into such
transactions will profit
if the anticipated
movements in foreign
currency exchange rates
occurs, which will
increase its gross
income. Where exchange
rates do not move in the
direction or to the
extent anticipated,
however, the Series may
sustain losses, which
will reduce its gross
income. Such
transactions, therefore,
could be considered
speculative and could
involve significant risk
of loss.
Each Series has
established procedures
consistent with
statements by the SEC and
its staff regarding the
use of Forward Contracts
by registered investment
companies, which require
the use of segregated
assets or "cover " in
connection with the
purchase and sale of such
contracts. In those
instances in which the
Series satisfies this
requirement through
segregation of assets, it
will maintain, in a
segregated account, cash,
cash equivalents or high-
quality debt securities,
which will be marked to
market on a daily basis,
in an amount equal to the
value of its commitments
under Forward Contracts.
While these contracts are
not presently regulated
by the CFTC, the CFTC may
in the future assert
authority to regulate
Forward Contracts. In
such event, the Series'
ability to utilize
Forward Contracts in the
manner set forth above
may be restricted.
Options on
Foreign Currencies: Each
of the Emerging Growth
Series, the Growth
Series, the Total Return
Series, the Bond Series,
the Strategic Fixed
Income Series, the World
Governments Series, the
Growth With Income
Series, the High Income
Series and the Utilities
Series may purchase and
write options on foreign
currencies for hedging
purposes in a manner
similar to that in which
futures contracts on
foreign currencies, or
Forward Contracts, will
be utilized. For example,
a decline in the dollar
value of a foreign
currency in which
portfolio securities are
denominated will reduce
the dollar value of such
securities, even if their
value in the foreign
currency remains
constant. In order to
protect against such
diminutions in the value
of portfolio securities,
a Series may purchase put
options on the foreign
currency. If the value of
the currency does
decline, the Series will
have the right to sell
such currency for a fixed
amount in dollars and
will thereby offset, in
whole in part, the
adverse effect on its
portfolio which otherwise
would have resulted.
Conversely,
where a rise in the
dollar value of a
currency in which
securities to be acquired
are denominated is
projected, thereby
increasing the cost of
such securities, the
Series may purchase call
options thereon. The
purchase of such options
could offset, at least
partially, the effects of
the adverse movements in
exchange rates. As in the
case of other types of
options, however, the
benefit to a Series
deriving from purchases
of foreign currency
options will be reduced
by the amount of the
premium and related
transaction costs. In
addition, where currency
exchange rates do not
move in the direction or
to the extent
anticipated, a Series
could sustain losses on
transactions in foreign
currency options which
would require it to
forego a portion or all
of the benefits of
advantageous changes in
such rates.
A Series may write
options on foreign
currencies for the same
types of hedging
purposes. For example,
where the Series
anticipates a decline in
the dollar value of
foreign-denominated
securities due to adverse
fluctuations in exchange
rates it could, instead
of purchasing a put
option, write a call
option on the relevant
currency. If the expected
decline occurs, the
option will most likely
not be exercised, and the
diminution in value of
portfolio securities will
be offset by the amount
of the premium received.
Similarly,
instead of purchasing a
call option to hedge
against an anticipated
increase in the dollar
cost of securities to be
acquired, a Series could
write a put option on the
relevant currency which,
if rates move in the
manner projected, will
expire unexercised and
allow the Series to hedge
such increased cost up to
the amount of the
premium. Foreign currency
options written by a
Series will generally be
covered in a manner
similar to the covering
of other types of
options. As in the case
of other types of
options, however, the
writing of a foreign
currency option will
constitute only a partial
hedge up to the amount of
the premium, and only if
rates move in the
expected direction. If
this does not occur, the
option may be exercised
and a Series would be
required to purchase or
sell the underlying
currency at a loss which
may not be offset by the
amount of the premium.
Through the writing of
options on foreign
currencies, a Series also
may be required to forego
all or a portion of the
benefits which might
otherwise have been
obtained from favorable
movements in exchange
rates.
Additional Risk Factors:
Options, Futures and
Forward Transactions
Risk of imperfect
correlation of hedging
instruments with a
Series' portfolio. The
Series' ability
effectively to hedge all
or a portion of their
portfolios through
transactions in options,
Futures Contracts,
Options on Futures
Contracts, Forward
Contracts and options on
foreign currencies depend
on the degree to which
price movements in the
underlying index or
instrument correlate with
price movements in the
relevant portion of the
Series' portfolios. In
the case of futures and
options based on an
index, the portfolio will
not duplicate the
components of the index,
and in the case of
futures and options on
fixed income securities,
the portfolio securities
which are being hedged
may not be the same type
of obligation underlying
such contract. The use of
Forward Contracts for
"cross hedging" purposes
may involve greater
correlation risks. As a
result, the correlation
probably will not be
exact. Consequently, the
Series bear 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
a Series purchases a put
option on an index and
the index decreases less
than the value of the
hedged securities, the
Series 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
Series has a position and
the portfolio securities
the Series is attempting
to hedge, which could
result in a loss on both
the portfolio and the
hedging instrument. In
addition, a Series may
enter into transactions
in Forward Contracts or
options on foreign
currencies in order to
hedge against exposure
arising from the
currencies underlying
such instruments. In such
instances, the Series
will be subject to the
additional risk of
imperfect correlation
between changes in the
value of the currencies
underlying such forwards
or options and changes in
the value of the
currencies being hedged.
It should be noted that
stock index futures
contracts or options
based upon a
narrower index of
securities, such as those
of a particular industry
group, may present
greater risk than options
or futures based on a
broad market index. This
is due to the fact that a
narrower index is more
susceptible to rapid and
extreme fluctuations as a
result of changes in the
value of a small number
of securities.
Nevertheless, where a
Series enters into
transactions in options,
or futures on narrow ly-
based indexes for hedging
purposes, movements in
the value of the index
should, if the hedge is
successful, correlate
closely with the portion
of the Series' portfolio
or the intended
acquisitions being
hedged.
The trading of
Futures Contracts,
options and Forward
Contracts for hedging
purposes entails the
additional risk of
imperfect correlation
between movements in the
futures or option price
and the price of the
underlying index or
obligation. The
anticipated spread
between the prices may be
distorted due to the
differences in the nature
of the markets such as
differences in margin
requirements, the
liquidity of such markets
and the participation of
speculators in the
options, futures and
forward markets. In this
regard, trading by
speculators in options,
futures and Forward
Contracts has in the past
occasionally resulted in
market distortions, which
may be difficult or
impossible to predict,
particularly near the
expiration of such
contracts.
The trading of
Options on Futures
Contracts also entails
the risk that changes in
the value of the
underlying Futures
Contracts will not be
fully reflected in the
value of the option. The
risk of imperfect
correlation, however,
generally tends to
diminish as the maturity
date of the Futures
Contract or expiration
date of the option
approaches.
Further, with
respect to options on
securities, options on
stock indexes, options on
currencies and Options on
Futures Contracts, the
Series are 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 a
Series in connection with
such transactions.
In writing a
covered call option on a
security, index or
futures contract, a
Series 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 a Series
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 Series may
not be fully covered. As
a result, the Series
could be subject to risk
of loss in the event of
adverse market movements.
The writing of
options on securities,
options on stock indexes
or Options on Futures
Contracts constitutes
only a partial hedge
against fluctuations in
the value of a Series'
portfolio. When a Series
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 Series
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 Series' 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 Series
will incur a loss which
may only be partially
offset by the amount of
the premium it received.
Moreover, by writing an
option, a Series may be
required to forego the
benefits which might
otherwise have been
obtained from an increase
in the value of portfolio
securities or other
assets or a decline in
the value of securities
or assets to be acquired.
In the event of the
occurrence of any of the
foregoing adverse market
events, a
Series' overall return
may be lower than if it
had not engaged in the
hedging transactions.
Those Series
that may enter
transactions in options
(except for Options on
Foreign Currencies),
Futures Contracts,
Options on Futures
Contracts and Forward
Contracts for hedging
purposes may also enter
into such transactions
for non-hedging purposes.
Non-hedging transactions
in such investments
involve greater risks and
may result in losses
which may not be offset
by increases in the value
of portfolio securities
or declines in the cost
of securities to be
acquired. The Series 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 a Series may
not fully protect it
against risk of loss and,
in any event, the Series
could suffer losses on
the option position which
might not be offset by
corresponding portfolio
gains. Entering into
transactions in Futures
Contracts, Options on
Futures Contracts and
Forward Contracts for
other than hedging
purposes could expose the
Series to significant
risk of loss if foreign
currency exchange rates
do not move in the
direction or to the
extent anticipated.
With respect to
the writing of straddles
on securities, a Series
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 a
Series with two
simultaneous premiums on
the same security, but
involve additional risk,
since the Series 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
Series 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 a
Series, and the Series
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
Series 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
Series' ability
effectively to hedge
their portfolios, 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 a Series
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
Series or decreases in
the prices of securities
or other assets the
Series intends to
acquire. Where a Series
enters into such
transactions for other
than hedging purposes,
the margin requirements
associated with such
transactions could expose
the Series to greater
risk.
Trading and
position limits. The
exchange 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 portfolios of the
Series.
Risks of Options
on Futures Contracts. The
amount of risk a Series
assumes when it purchases
an Option on a Futures
Contract is the premium
paid for the option, plus
related transaction
costs. In order to profit
from an option purchased,
however, it may be
necessary to exercise the
option and to liquidate
the underlying Futures
Contract, subject to the
risks of the availability
of a liquid offset market
described herein. The
writer of an Option on a
Futures Contract is
subject to the risks of
commodity futures
trading, including the
requirement of initial
and variation margin
payments, as well as the
additional risk that
movements in the price of
the option may not
correlate with movements
in the price of the
underlying security,
index, currency or
Futures Contract.
Risks of
transactions related to
foreign currencies and
transactions not
conducted on U.S.
exchanges. Transactions
in Forward Contracts on
foreign currencies, as
well as futures and
options on foreign
currencies and
transactions executed on
foreign exchanges, are
subject to all of the
correlation, liquidity
and other risks outlined
above. In addition,
however, such
transactions are subject
to the risk of
governmental actions
affecting trading in or
the prices of currencies
underlying such
contracts, which could
restrict or eliminate
trading and could have a
substantial adverse
effect on the value of
positions held by a
Series. Further, the
value of such positions
could be adversely
affected by a number of
other complex political
and economic factors
applicable to the
countries issuing the
underlying currencies.
Further, unlike
trading in most other
types of instruments,
there is no systematic
reporting of last sale
information with respect
to the foreign currencies
underlying contracts
thereon. As a result, the
available information on
which trading systems
will be based may not be
as complete as the
comparable data on which
a Series makes investment
and trading decisions in
connection with other
transactions. Moreover,
because the foreign
currency market is a
global, 24-hour market,
events could occur in
that market which will
not be reflected in the
forward, futures or
options market until the
following day, thereby
making it more difficult
for the Series to respond
to such events in a
timely manner.
Settlements of
exercises of over-the-
counter Forward Contracts
or foreign currency
options generally must
occur within the country
issuing the underlying
currency, which in turn
requires traders to
accept or make delivery
of such currencies in
conformity with any U.S.
or foreign restrictions
and regulations regarding
the maintenance of
foreign banking
relationships, fees,
taxes or other charges.
Unlike
transactions entered into
by the Series in Futures
Contracts and exchange-
traded options, options
on foreign currencies,
Forward Contracts and
over-the-counter options
on securities are not
traded on contract
markets regulated by the
CFTC or (with the
exception of certain
foreign currency options)
the SEC. To the contrary,
such instruments are
traded through financial
institutions acting as
market-makers, although
foreign currency options
are also traded on
certain national
securities exchanges,
such as the Philadelphia
Stock Exchange and the
Chicago Board Options
Exchange, subject to SEC
regulation. In an over-
the-counter trading
environment, many of the
protections afforded to
exchange participants
will not be available.
For example, there
are no daily price
fluctuation limits, and
adverse market movements
could therefore continue
to an unlimited extent
over a period of time.
Although the purchaser of
an option cannot lose
more than the amount of
the premium plus related
transaction costs, this
entire amount could be
lost. Moreover, the
option writer and a
trader of Forward
Contracts could lose
amounts substantially in
excess of their initial
investments, due to the
margin and collateral
requirements associated
with such positions.
In addition,
over-the-counter
transactions can only be
entered into with a
financial institution
willing to take the
opposite side, as
principal, of a Series'
position unless the
institution acts as
broker and is able to
find another counterparty
willing to enter into the
transaction with the
Series. Where no such
counterparty is
available, it will not be
possible to enter into a
desired transaction.
There also may be no
liquid secondary market
in the trading of over-
the-counter contracts,
and a Series could be
required to retain
options purchased or
written, or Forward
Contracts entered into,
until exercise,
expiration or maturity.
This in turn could limit
the Series' ability to
profit from open
positions or to reduce
losses experienced, and
could result in greater
losses.
Further, over-
the-counter transactions
are not subject to the
guarantee of an exchange
clearinghouse, and a
Series will therefore be
subject to the risk of
default by, or the
bankruptcy of, the
financial institution
serving as its
counterparty. One or more
of such institutions also
may decide to discontinue
their role as market-
makers in a particular
currency or security,
thereby restricting the
Series' ability to enter
into desired hedging
transactions. A Series
will enter into an over-
the-counter transaction
only with parties whose
creditworthiness has been
reviewed and found
satisfactory by the
Adviser.
Options on
securities, options on
stock indexes, Futures
Contracts, Options on
Futures Contracts and
options on foreign
currencies may be traded
on exchanges located in
foreign countries. Such
transactions may not be
conducted in the same
manner as those entered
into on U.S. exchanges,
and may be subject to
different margin,
exercise, settlement or
expiration procedures. As
a result, many of the
risks of over-the-counter
trading may be present in
connection with such
transactions.
Options on
foreign currencies traded
on national securities
exchanges are within the
jurisdiction of the SEC,
as are other securities
traded on such exchanges.
As a result, many of the
protections provided to
traders on organized
exchanges will be
available with respect to
such transactions. In
particular, all foreign
currency option positions
entered into on a
national securities
exchange are cleared and
guaranteed by the Options
Clearing Corporation (the
"OCC"), thereby reducing
the risk of counterparty
default. Further, a
liquid secondary market
in options traded on a
national securities
exchange may be more
readily available than in
the over-the-counter
market, potentially
permitting a Series to
liquidate open positions
at a profit prior to
exercise or expiration,
or to limit losses in the
event of adverse market
movements.
The purchase and
sale of exchange-traded
foreign currency options,
however, is subject to
the risks of the
availability of a liquid
secondary market
described above, as well
as the risks regarding
adverse market movements,
margining of options
written, the nature of
the foreign currency
market, possible
intervention by
governmental authorities
and the effects of other
political and economic
events. In addition,
exchange-traded options
on foreign currencies
involve certain risks not
presented by the over-
the-counter market. For
example, exercise and
settlement of such
options must be made
exclusively through the
OCC, which has
established banking
relationships in
applicable foreign
countries for this
purpose. As a result, the
OCC may, if it determines
that foreign governmental
restrictions or taxes
would prevent the orderly
settlement of foreign
currency option
exercises, or would
result in undue burdens
on the OCC or its
clearing member, impose
special procedures on
exercise and settlement,
such as technical changes
in the mechanics of
delivery of currency, the
fixing of dollar
settlement prices or
prohibitions on exercise.
Policies on the
use of futures and
options on futures
contracts. In order to
assure that the Series
will not be deemed to be
a "commodity pool" for
purposes of the Commodity
Exchange Act, regulations
of the CFTC require that
a Series 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 Series'
assets. In addition, the
Series must comply with
the
requirements of various
state securities laws in
connection with such
transactions.
Each Series 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 such
Series' total assets.
Moreover, a Series will
not purchase put and call
options if as a result
more than 5% of its total
assets would be invested
in such options.
When a Series
purchases a Futures
Contract, an amount of
cash or securities will
be deposited in a
segregated account with
the Series custodian so
that the amount so
segregated will at all
times equal the value of
the Futures Contract,
thereby insuring that the
use of such futures is
unleveraged.
Risks of investing in
Lower Rated Bonds
Each of the Emerging
Growth Series, the Growth
Series, the Growth With
Income Series, the
Research Series, the
Total Return Series, the
Bond Series, the Limited
Maturity Series, the
Strategic Fixed Income
Series, the High Income
Series and the Utilities
Series may invest in
fixed income securities
rated Baa by Moody's
Investors Service, Inc.
("Moody's") or BBB by
Standard & Poor's Ratings
Group ("S&P") or Fitch
Investors Service, Inc.
("Fitch") and comparable
unrated securities. These
securities, while
normally exhibiting
adequate protection
parameters, have
speculative
characteristics and
changes in economic
conditions or other
circumstances are more
likely to lead to a
weakened capacity to make
principal and interest
payments than in the case
of higher grade fixed
income securities.
Each of these
Series (except the
Limited Maturity Series)
may also invest in fixed
income securities rated
Ba or lower by Moody's or
BB or lower by S&P or
Fitch and comparable
unrated securities
(commonly known as "junk
bonds") to the extent
described in the
Prospectus. No minimum
rating standard is
required by the Series.
These securities are
considered speculative
and, while generally
providing greater income
than investments in
higher rated securities,
will involve greater risk
of principal and income
(including the
possibility of default or
bankruptcy of the issuers
of such securities) and
may involve greater
volatility of price
(especially during
periods of economic
uncertainty or change)
than securities in the
higher rating categories
and because yields vary
over time, no specific
level of income can ever
be assured. These lower
rated high yielding fixed
income securities
generally tend to reflect
economic changes (and the
outlook for economic
growth), short-term
corporate and industry
developments and the
market's perception of
their credit quality
(especially during times
of adverse publicity) to
a greater extent than
higher rated securities
which react primarily to
fluctuations in the
general level of interest
rates (although these
lower rated fixed income
securities are also
affected by changes in
interest rates). In the
past, economic downturns
or an increase in
interest rates have,
under certain
circumstances, caused a
higher incidence of
default by the issuers of
these securities and may
do so in the future,
especially in the case of
highly leveraged issuers.
The prices for these
securities may be
affected by legislative
and regulatory
developments. The market
for these lower rated
fixed income securities
may be less liquid than
the market for investment
grade fixed income
securities. Furthermore,
the liquidity of these
lower rated securities
may be affected by the
market's perception of
their credit quality.
Therefore, the Adviser's
judgment may at times
play a greater role in
valuing these securities
than in the case of
investment grade fixed
income securities, and it
also may be more
difficult during times of
certain adverse market
conditions to sell these
lower rated securities to
meet redemption requests
or to respond to changes
in the market.
While the
Adviser may refer to
ratings issued by
established credit rating
agencies, it is not the
Series' policy to rely
exclusively on ratings
issued by these rating
agencies, but rather to
supplement such ratings
with the Adviser's own
independent and ongoing
review of credit quality.
To the extent the Series
invests in these lower
rated securities, the
achievement of its
investment objectives may
be more dependent on the
Adviser's own credit
analysis than in the case
of a fund investing in
higher quality fixed
income securities. These
lower rated securities
may also include zero
coupon bonds, deferred
interest bonds and PIK
bonds.
Foreign Securities:
The Limited Maturity
Series may invest in
dollar-denominated
foreign debt securities.
The Money Market Series
may invest in the
securities of foreign
issuers and in the
securities
of foreign branches of
U.S. banks, such as
negotiable certificates
of deposit (Eurodollars).
The remaining Series may
invest in dollar-
denominated and non
dollar-denominated
foreign securities. As
discussed in the
Prospectus, investing in
foreign securities
generally represents a
greater degree of risk
than investing in
domestic securities due
to possible exchange rate
fluctuations, less
publicly available
information, more
volatile markets, less
securities regulation,
less favorable tax
provisions, war or
expropriation. As a
result of its investments
in foreign securities, a
Series may receive
interest or dividend
payments, or the proceeds
of the sale or redemption
of such securities,in the
foreign currencies in
which such securities are
denominated. Under
certain circumstances,
such as where the Adviser
believes that the
applicable exchange rate
is unfavorable at the
time the currencies are
received or the Adviser
anticipates, for any
other reason, that the
exchange rate will
improve, a Series may
hold such currencies for
an indefinite period of
time. While the holding
of currencies will permit
a Series to take
advantage of favorable
movements in the
applicable exchange rate,
such strategy also
exposes the Series to
risk of loss if exchange
rates move in a direction
adverse to the Series'
position. Such losses
could reduce any profits
or increase any losses
sustained by the Series
from the sale or
redemption of securities
and could reduce the
dollar value of interest
or dividend payments
received.
American Depositary
Receipts
Each of the Series except
the Limited Maturity
Series and the Money
Market Series may invest
in American Depositary
Receipts ("ADRs") which
are certificates issued
by a U.S. depositary
(usually a bank) and
represent a specified
quantity of shares of an
underlying non-U.S. stock
on deposit with a
custodian bank as
collateral. ADRs may be
sponsored or unsponsored.
A sponsored ADR is issued
by a depository which has
an exclusive relationship
with the issuer of the
underlying security. An
unsponsored ADR may be
issued by any number of
U.S. depositories. A
Series may invest in
either type of ADR.
Although the U.S.
investor holds a
substitute receipt of
ownership rather than
direct stock
certificates, the use of
the depositary receipts
in the United States can
reduce costs and delays
as well as potential
currency exchange and
other difficulties. A
Series may purchase
securities in local
markets and direct
delivery of these
ordinary shares to the
local depository of an
ADR agent bank in the
foreign country.
Simultaneously, the ADR
agents create a
certificate which settles
at the Series' custodian
in five days. A Series
may also execute trades
on the U.S. markets using
existing ADRs. A foreign
issuer of the security
underlying an ADR is
generally not subject to
the same reporting
requirements in the
United States as a
domestic issuer.
Accordingly the
information available to
a U.S. investor will be
limited to the
information the foreign
issuer is required to
disclose in its own
country and the market
value of an ADR may not
reflect undisclosed
material information
concerning the issuer of
the underlying security.
ADRs may also be subject
to exchange rate risks if
the underlying foreign
securities are
denominated in foreign
currency.
Portfolio Trading
The Emerging Growth
Series, the Growth
Series, the Research
Series, the Total Return
Series, the Bond Series,
the Strategic Fixed
Income Series, the Growth
With Income Series, the
Limited Maturity Series,
the High Income Series
and the Utilities Series
expect to have a
portfolio turnover rate
of up to 82%, 50%, 79%,
66%, 144%, 153%, 78%,
262%, 59%, and 115%
respectively, during the
current fiscal year. The
World Governments Series
had a portfolio turnover
rate of 62% for the
fiscal year ended
December 31, 1994.
_________
A Series'
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
Each Series has adopted
the following
restrictions which cannot
be changed without the
approval of the holders
of a majority of the
Series' shares (which, as
used in this Statement of
Additional Information,
means the lesser of (i)
more than 50% of the
outstanding shares of the
Trust or a Series, as
applicable, or (ii) 67%
or more of the
outstanding shares of the
Trust or a Series, as
applicable, present at a
meeting if holders of
more than 50% of the
outstanding shares of the
Trust or a Series, as
applicable, are
represented in person or
by proxy). Except for
Investment Restriction
(1), these investment
restrictions and policies
are adhered to at the
time of purchase or
utilization of assets; a
subsequent change in
circumstances will not be
considered to result in a
violation of any of the
restrictions.
The Trust, on
behalf of any Series, may
not:
(1) borrow amounts in excess of 331_3% of its assets including amounts
borrowed and then only as
a temporary measure for
extraordinary or
emergency
purposes;
(2) underwrite securities issued by other persons except insofar as the
Series may
technically be
deemed an
underwriter
under the
Securities Act
of 1933, as
amended (the
"1933 Act") 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
currencies and
any type of
option, Futures
Contracts and
Forward
Contracts) in
the ordinary
course of its
business. The
Series reserves
the freedom of
action to hold
and to sell real
estate, mineral
leases,
commodities or
commodity
contracts
(including
currencies and
any type of
option, Futures
Contracts and
Forward
Contracts)
acquired as a
result of the
ownership of
securities;
(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this
restriction,
collateral
arrangements
with respect to
any type of
swap, option,
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
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 Series'
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, more
than 25% of its
gross assets
would be
invested in
securities of
issuers whose
principal
business
activities are
in the same
industry (except
(i) there is no
limitation with
respect to
obligations
issued or
guaranteed by
the U.S.
Government or
its agencies and
instrumentalitie
s and repurchase
agreements
collateralized
by such
obligations,
(ii) the High
Income Series
may invest up to
40% of its gross
assets in each
of the electric
utility and
telephone
industries,
(iii) the Money
Market Series
may invest up to
75% of its
assets in all
finance
companies as a
group, all banks
and bank holding
companies as a
group and all
utility
companies as a
group when in
the opinion of
management yield
differentials
and money market
conditions
suggest and when
cash is
available for
such investment
and instruments
are available
for purchase
which fulfill
that Series'
objective in
terms of quality
and
marketability,
(iv) the
Strategic Fixed
Income Series
may invest up to
40% of its
assets in each
of the electric
utility and
telephone
industries and
(v) the
Utilities Series
will invest at
least 25% of its
gross assets in
the utilities
industry).
In addition,
each Series has adopted
the following
nonfundamental policies
which may be changed by
the vote of the Trust's
Board of Trustees without
shareholder approval. The
Trust, on behalf of any
Series, 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
Series' assets
(taken at market
value) (10% of
assets in the
case of the
Money Market
Series) would be
invested in such
securities.
Repurchase
agreements
maturing in more
than seven days
will be deemed
to be illiquid
for purposes of
the Series'
limitation on
investment in
illiquid
securities.
Securities that
are not
registered under
the 1933 Act and
sold
in reliance on Rule 144A
thereunder, but are
determined to be liquid
by the Trust's Board of
Trustees (or its
delegee), will not be
subject to this 15% (10%
in the case of the Money
Market Series)
limitation;
(2) purchase
securities issued by any
other investment company
in excess of
the amount permitted by
the 1940 Act, except when
such purchase is part of
a plan of merger or
consolidation;
(3) purchase
any securities or
evidences of interest
therein on margin,
except that the Series
may obtain such short-
term credit as may be
necessary for the
clearance of any
transaction and except
that the Series may make
margin deposits in
connection with any type
of swap, option, Futures
Contracts and Forward
Contracts;
(4) sell any
security which the Series
does not own unless by
virtue of its
ownership of other
securities the Series 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;
(5)
pledge, mortgage
or hypothecate
in excess of
331_3% of its
gross assets.
For purposes of
this
restriction,
collateral
arrangements
with respect to
any type of
swap, option,
Futures
Contracts and
Forward
Contracts and
payments of
initial and
variation margin
in connection
therewith, are
not considered a
pledge of
assets;
(6)
purchase or sell
any put or call
option or any
combination
thereof,
provided that
this shall not
prevent the
purchase,
ownership,
holding or sale
of
(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,
indices of
securities,
swaps, foreign
currencies and
Futures
Contracts;
(7)
invest for the purpose of
exercising control or
management;
(8)
hold obligations
issued or
guaranteed by
any one U.S.
Governmental
agency or
instrumentality,
at the end of
any calendar
quarter (or
within 30 days
thereafter), to
the extent such
holdings would
cause the Series
to fail to
comply with the
diversification
requirements
imposed by
Section 817(h)
of the Internal
Revenue Code of
1986, as amended
(the "Code"),
and the Treasury
regulations
issued
thereunder on
segregated asset
accounts that
fund variable
contracts.
In addition, as
nonfundamental policies
which may be changed by
vote of the Trust's Board
of Trustees: (i) each
Series, to the extent
that it invests in
foreign securities
(excluding ADRs), will be
invested in a minimum of
five different foreign
countries at all times,
provided that this
minimum is reduced to
four when foreign country
investments comprise less
than 80% of the Series'
net assets, to three when
less than 60% of such
value, to two when less
than 40% of such value,
and to one when less than
20% of such value; (ii)
no Series will have more
than 20% of its net
assets invested in
securities of issuers
located in any one
foreign country, provided
that a Series may have up
to 35% of its net assets
invested in securities of
issuers located in
Australia, Canada,
France, Japan, the United
Kingdom or West Germany;
and (iii) no Series may
borrow amounts in excess
of 10% of its net assets
when borrowing for any
general purpose or in
excess of 25% of net
assets when borrowing as
a temporary measure to
facilitate redemptions.
4. MANAGEMENT OF THE
TRUST
The Board of Trustees of
the Trust provides broad
supervision over the
affairs of each Series.
MFS is responsible for
the investment management
of each Series' assets
and the officers of the
Trust are responsible for
its operations. The
Trustees and officers of
the Trust are listed
below, together with
their principal
occupations during the
past five years. (Their
titles may have varied
during that period.)
Trustees
A. KEITH BRODKIN*,
Chairman
Massachusetts Financial
Services Company,
Chairman.
NELSON J.
DARLING, JR.
Director or Trustee of
several corporations or
trusts, including:
Eastern Enterprises
(diversified holding
company), Trustee.
Address: 18 Tremont
Street, Boston,
Massachusetts
WILLIAM R. GUTOW
Private Investor; Real
Estate Consultant;
Capitol Entertainment
(Blockbuster Video
Franchise), Senior Vice
President (since 1989).
Address: 3102 Maple
Avenue, #100, Dallas,
Texas
Officers
W. THOMAS LONDON*,
Treasurer
Massachusetts Financial
Services Company, Senior
Vice President and
Assistant Treasurer.
STEPHEN E.
CAVAN*, Secretary and
Clerk
Massachusetts Financial
Services Company, Senior
Vice President, General
Counsel and Assistant
Secretary.
JAMES R.
BORDEWICK, JR.*,
Assistant Secretary
Massachusetts Financial
Services Company, Vice
President and Associate
General Counsel
(since September
1990);
associated with
a major law firm
(prior to August
1990). JAMES O.
YOST*, Assistant
Treasurer
Massachusetts Financial
Services Company.
_______
* "Interested
persons" (as defined in
the Investment Company
Act of 1940, as amended
(the "1940
Act")) of the
Adviser, whose
address is 500
Boylston Street,
Boston,
Massachusetts
02116.
Mr. Brodkin and
each officer hold
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.
As of December
31, 1994, Massachusetts
Financial Service Company
Inc., 500 Boylston
Street, Boston,
Massachusetts 02116-3740
was the owner of
approximately 30% of the
outstanding shares of the
World Governments Series.
As of December
31, 1994, Century Life of
America, on behalf of its
Century Variable Annuity
Account, 2000 Heritage
Way, Waverly, Iowa 50677-
9208 was the owner of 69%
of the outstanding shares
of the World Governments
Series.
The Trust pays
the compensation of non-
interested Trustees (who
will receive a fee of
$217 per year per Series
plus $100 per meeting and
committee meeting
attended per Series,
together with such
trustee's out-of-pocket
expenses).
Set forth in Exhibit A
hereto is certain
information concerning
the cash
compensation paid to non-
interested Trustees.
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 subsidiary of Sun Life
Assurance Company of
Canada ("Sun Life").
Investment Advisory
Agreement
MFS manages the assets of
each Series pursuant to
an Investment Advisory
Agreement with the Trust
on behalf of each Series
dated as of April 14,
1994 (the "Advisory
Agreement"). MFS provides
the Series 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 Series.
For these services and
facilities, the
Adviser receives an
annual management fee,
computed and paid
monthly, as disclosed in
the Prospectus under the
heading "Management of
the Series."
For the Fund's
fiscal year ended
December 31, 1994, MFS
received management fees
for the World Governments
Series under the Advisory
Agreement of $7,604 and
assumed $36,473 of the
World Governments Series'
expenses. See "Expenses"
in the Prospectus.
In order to
comply with the expense
limitations of certain
state securities
commissions, MFS will
reduce its management fee
or otherwise reimburse a
Series for any expenses,
exclusive of interest,
taxes and brokerage
commissions, incurred by
the Series in any fiscal
year to the extent such
expenses exceed the most
restrictive of such state
expense limitations. MFS
will make appropriate
adjustments to such
reductions and
reimbursements in
response to any amendment
or rescission of the
various state
requirements.
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
each Series' investments,
effecting its portfolio
transactions and, in
general, administering
its affairs.
The Advisory
Agreement with the Trust
will remain in effect
until August 1, 1995, and
will continue in effect
thereafter with respect
to any Series only if
such continuance is
specifically approved at
least annually by the
Board of Trustees or by
vote of a majority of the
Series' 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 with respect
to any Series without
penalty by vote of a
majority of the Series'
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 with respect to
each Series provides that
if MFS ceases to serve as
the investment adviser to
the Series, the Series
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 Series, 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
Investors Bank & Trust
Company (the "Custodian")
is the custodian of the
Trust's assets. The
Custodian's
responsibilities include
safekeeping and
controlling each Series'
cash and securities,
handling the receipt and
delivery of securities,
determining income and
collecting interest and
dividends on a Series'
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 Series.
The Custodian does not
determine the investment
policies of the Series or
decide which securities
the Series will buy or
sell. Each Series may,
however, invest in
securities of the
Custodian and may deal
with the Custodian as
principal in securities
transactions. 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. State Street Bank
and Trust Company serves
as the dividend and
distribution disbursing
agent of the Series.
Shareholder Servicing
Agent
MFS Service Center, Inc.
(the "Shareholder
Servicing Agent"), a
wholly owned subsidiary
of MFS and a registered
transfer agent, is each
Series' shareholder
servicing agent, pursuant
to a Shareholder
Servicing Agent Agreement
with the Trust on behalf
of the Series, dated as
of April 14, 1994 (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 Series.
For these services, the
Shareholder Servicing
Agent will receive a fee
based on the net assets
of each Series, computed
and paid monthly. In
addition, the Shareholder
Servicing Agent will be
reimbursed by a Series
for certain expenses
incurred by the
Shareholder Servicing
Agent on behalf of the
Series. For the fiscal
year ended December 31,
1994, the World
Governments Fund incurred
fees of $992 under the
Agency Agreement. State
Street Bank and Trust
Company, the dividend and
distribution disbursing
agent for the Series, has
contracted with the
Shareholder Servicing
Agent to administer and
perform certain dividend
and distribution
disbursing functions for
the Series.
Distributor
MFD, a wholly owned
subsidiary of MFS, serves
as the distributor for
the continuous offering
of shares of the Trust
pursuant to a
Distribution Agreement
dated as of April 14,
1994 (the "Distribution
Agreement").
As agent, MFD
currently offers shares
of each Series on a
continuous basis to the
separate accounts of
Participating Insurance
Companies in all states
in which the Series or
the Trust may from time
to time be registered or
where permitted by
applicable law. The
Distribution Agreement
provides that MFD accepts
orders for shares at net
asset value as no sales
commission or load is
charged. MFD has made no
firm commitment to
acquire shares of any
Series.
The Distribution
Agreement will remain in
effect until August 1,
1995 and will
continue in effect
thereafter only if such
continuance is
specifically approved at
least annually by the
Board of Trustees or by
vote of a majority of the
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 a Series
are made by employees of
MFS, who are appointed
and supervised by its
senior officers. Changes
in a Series' investments
are reviewed by the
Trust's Board of
Trustees. A Series'
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 Series 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,
such as fixed income
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 a
Series' portfolio
securities in so-called
tender or exchange
offers. Such soliciting
dealer fees are in effect
recaptured for the Series
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, as
amended, MFS may cause a
Series to pay a broker-
dealer which provides
brokerage and research
services to MFS an amount
of commission for
effecting a securities
transaction for a Series
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
Series or to its other
clients. Not all of such
services are useful or of
value in advising a
Series.
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 Series' 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
through such broker-
dealers, but at present,
unless otherwise directed
by a Series, a commission
higher than one charged
elsewhere will not be
paid to such a firm
solely because it
provided Research to MFS.
The Trustees (together
with the Trustees of the
other MFS Funds) have
directed MFS to allocate
a total of $20,000 of
commission business from
the various MFS Funds to
the Pershing Division of
Donaldson, Lufkin &
Jenrette as consideration
for the annual renewal of
the Lipper Directors'
Analytical Data Service
(which provides
information useful to the
Trustees in reviewing the
relationship between each
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 each Series pays
to MFS will not be
reduced as a consequence
of the receipt of
brokerage and research
services by MFS. To the
extent a Series'
portfolio transactions
are used to obtain such
services, the brokerage
commissions paid by the
Series 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 a Series 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 Series. 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
Series'
portfolio as well as for
that of one or more of
the other clients of MFS.
Investment decisions for
a Series and for such
other clients are made
with a view to achieving
their respective
investment objectives. It
may develop that a
particular security is
bought or sold for only
one client even though it
might be held by, or
bought or sold for, other
clients. Likewise, a
particular security may
be bought for one or more
clients when one or more
other clients are selling
that same security. Some
simultaneous transactions
are inevitable when
several clients receive
investment advice from
the same investment
adviser, particularly
when the same security is
suitable for the
investment objectives of
more than one client.
When two or more clients
are simultaneously
engaged in the purchase
or sale of the same
security, the securities
are allocated among
clients in a manner
believed to be equitable
to each. It is recognized
that in some cases this
system could have a
detrimental effect on the
price or volume of the
security as far as a
Series is concerned. In
other cases, however, it
is believed that a
Series' ability to
participate in volume
transactions will produce
better executions for the
Series.
6. TAX STATUS
Shares of the Series are
offered only to the
separate accounts of the
Participating Insurance
Companies that fund
Contracts. See the
applicable Contract
prospectus for a
discussion of the special
taxation of those
companies with respect to
those accounts and of the
Contract holders.
Each Series of
the Trust intends to
elect and qualify each
year for treatment 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 each Series'
gross income, the amount
of each Series'
distributions, and the
composition and holding
period of each Series'
portfolio assets. Because
each Series intends to
distribute all of its net
investment income and net
realized capital and
foreign currency gains to
shareholders in
accordance with the
timing and certain other
requirements imposed by
the Code, it is not
expected that any of the
Series will be required
to pay any federal income
or excise taxes, although
a Series which has
foreign-source income may
be subject to foreign
withholding taxes. If any
of the Series should fail
to qualify as a
"regulated investment
company" in any year,
that Series would incur a
regular corporate federal
income tax upon its
taxable income.
Each Series
intends to diversify its
assets as required by
section 817(h) of the
Code and the regulations
thereunder. These
requirements, which are
in addition to the
diversification
requirements of
Subchapter M, place
certain limitations on
the proportion of each
Series' assets that may
be represented by any
single investment and
securities from the same
issuer. If a Series
should fail to comply
with these requirements,
variable annuity and
variable life insurance
contracts that invest in
the Series would not be
treated as annuity,
endowment or life
insurance contracts under
the Code.
Distributions of
net capital gains,
whether made in cash or
in additional shares, are
taxable to shareholders
as long-term capital
gains without regard to
the length of time the
shareholders have held
their shares. Certain
distributions of a Series
which are declared in
October, November, or
December, to shareholders
of record in such month
and paid the following
January, will be taxable
to shareholders as if
received on December 31
of the year in which they
are declared.
Any investment
by a Series in zero
coupon bonds, deferred
interest bonds, payment-
in-kind bonds, certain
stripped securities, and
certain securities
purchased at a market
discount will cause the
Series to recognize
income prior to the
receipt of cash payments
with respect to those
securities. In order to
distribute this income
and avoid a tax on the
Series, the Series may be
required to liquidate
portfolio securities that
it might otherwise have
continued to hold,
potentially resulting in
additional taxable gain
or loss to the Series.
A Series'
transactions in options,
Futures Contracts,
Forward Contracts,
foreign currencies, swaps
and related transactions,
to the extent allowed by
its investment
objectives, will be
subject to special tax
rules that may affect the
amount, timing, and
character of Series
income and distributions
to shareholders. For
example, certain
positions held by a
Series on the last
business day of each
taxable year will be
marked to market (i.e.,
treated as if closed out)
on that day, and any gain
or loss associated with
the positions, will be
treated as 60% long-term
and 40% short-term
capital gain or loss.
Certain positions held by
a Series that
substantially diminish
its risk of loss with
respect to other
positions in its
portfolio may constitute
"straddles," and may be
subject to special tax
rules that would cause
deferral of Series
losses, adjustments in
the holding periods of
Series securities, and
conversion of short-term
into long-term capital
losses. Certain tax
elections exist for
straddles which may alter
the effects of these
rules. Each Series will
limit its activities in
options, Futures
Contracts, Forward
Contracts and foreign
currencies to the extent
necessary to meet the
requirements of
Subchapter M of the Code.
Special tax
considerations apply with
respect to a Series that
invests in foreign
securities. Foreign
exchange gains and losses
realized by the Series
will generally be treated
as ordinary income and
losses. Use of foreign
currencies for non-
hedging purposes may be
limited in order to avoid
a tax on a Series.
Investment by a Series in
certain "passive foreign
investment companies" may
also be limited in order
to avoid a tax on the
Series.
Investment
income received by a
Series from sources
within foreign countries
may be subject to foreign
income taxes withheld at
the source. The United
States has entered into
tax treaties with many
foreign countries that
may entitle a Series to a
reduced rate of tax or an
exemption from tax on
such income; the Series'
intend to qualify for
treaty reduced rates
where available. It is
impossible, however, to
determine a Series
effective rate of foreign
tax in advance since the
amount of the Series'
assets to be invested
within various countries
is not known.
7. NET INCOME AND
DISTRIBUTIONS
Money Market
Series: The net income
attributable to the Money
Market Series is
determined each day
during which the Exchange
is open for trading. (As
of the date of this
Statement of Additional
Information, 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, Christmas Day.) (For
taxation information on
distributions, see "Tax
Status" above.)
For this
purpose, the net income
attributable to shares of
the Money Market Series
(from the time of the
immediately preceding
determination thereof)
shall consist of
(i) all interest income
accrued on the portfolio
assets of the Money
Market Series, (ii) less
all actual and accrued
expenses of Money Market
Series determined in
accordance with generally
accepted accounting
principles, and (iii)
plus or minus net
realized gains and losses
and net unrealized
appreciation or
depreciation on the
assets of the Money
Market Series. Interest
income shall include
discount earned
(including both original
issue and market
discount) on discount
paper accrued ratably to
the date of maturity.
Since the net
income is declared as a
dividend each time the
net income is determined,
the net asset value per
share (i.e., the value of
the net assets of the
Money Market Series
divided by the number of
shares outstanding)
remains at $1.00 per
share immediately after
each such determination
and dividend declaration.
Any increase in the value
of a shareholder's
investment, representing
the reinvestment of
dividend income, is
reflected by an increase
in the number of shares
in its account.
It is expected
the shares of the Money
Market Series will have a
positive net income at
the time of each
determination thereof. If
for any reason the net
income determined at any
time is a negative
amount, which could
occur, for instance, upon
default by an issuer of a
portfolio security, the
Money Market Series would
first offset the negative
amount with respect to
each shareholder account
from the dividends
declared during the month
with respect to each such
account. If and to the
extent that such negative
amount exceeds such
declared dividends at the
end of the month (or
during the month in the
case of an account
liquidated in its
entirety), the Money
Market Series could
reduce the number of its
outstanding shares by
treating each shareholder
of the Money Market
Series as having
contributed to its
capital that number of
full and fractional
shares of the Money
Market Series in the
account of such
shareholder which
represents its proportion
of such excess. Each
shareholder the Money
Market Series will be
deemed to have agreed to
such contribution in
these circumstances by
its investment in the
Money Market Series. This
procedure would permit
the net asset value per
share of the Money Market
Series to be maintained
at a constant $1.00 per
share.
All Other
Series: Each Series other
than the Money Market
Series intends to
distribute to its
shareholders annually
dividends substantially
equal to all of its net
investment income. Such
Series' net investment
income consists of non-
capital gain income less
expenses. Such Series'
intend to distribute net
realized short- and long-
term capital gains, if
any, at least annually.
Shareholders will be
informed of the tax
consequences of such
distributions, including
whether any portion
represents a return of
capital, after the end of
each calendar year. (For
additional taxation
information, see "Tax
Status" above.)
8. DETERMINATION OF
NET ASSET VALUE;
PERFORMANCE
INFORMATION
Net Asset Value
The net asset
value per share of each
Series is determined each
day during which the
Exchange is open for
trading. This
determination is made
once during each such day
as of the close of
regular trading on the
Exchange by deducting the
amount of a Series'
liabilities from the
value of its assets and
dividing the difference
by the number of shares
of the Series
outstanding.
Money Market
Series: Portfolio
securities of the Money
Market Series are valued
at amortized cost, which
the Trustees have
determined in good faith
constitutes fair value
for the purposes of
complying with the 1940
Act. This valuation
method will continue to
be used until such time
as the Trustees determine
that it does not
constitute fair value for
such purposes. The Money
Market Series will limit
its portfolio to those
investments in U.S.
dollar-denominated
instruments which the
Board of Trustees
determines present
minimal credit risks, and
which are of high qualify
as determined by any
major rating service or,
in the case of any
instrument that is not so
rated, of comparable
quality as determined by
the Board of Trustees.
The Money Market Series
has also agreed to
maintain a dollar-
weighted average maturity
of 90 days or less and to
invest only in securities
maturing in 13 months or
less. The Board of
Trustees has established
procedures designed to
stabilize the net asset
value per share of the
Money Market Series, as
computed for the purposes
of sales and redemptions,
at $1.00 per share. If
the Trustees determine
that a deviation from the
$1.00 per share price may
exist which may result in
a material dilution or
other unfair result to
investors or existing
shareholders, they will
take corrective action as
they regard as necessary
and appropriate, which
action could include the
sale of instruments prior
to maturity (to realize
capital gains or losses);
shortening average
portfolio maturity;
withholding dividends; or
using market quotations
for valuation purposes.
All Other
Series: Securities,
futures contracts and
options in a Series'
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 a
Series' 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 a Series'
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.
Performance Information
Money Market Series: The
Money Market Series will
provide current
annualized and effective
annualized yield
quotations based on the
daily dividends of shares
of the Money Market
Series. These quotations
may from time to time be
used in advertisements,
shareholder reports or
other communications to
shareholders.
Any current
yield quotation of the
Money Market Series which
is used in such a manner
as to be subject to the
provisions of Rule 482(d)
under the 1933 Act shall
consist of an annualized
historical yield, carried
at least to the nearest
hundredth of one percent,
based on a specific seven
calendar day period and
shall be calculated by
dividing the net change
in the value of an
account having a balance
of one share of that
class at the beginning of
the period by the value
of the account at the
beginning of the period
and multiplying the
quotient by 365/7. For
this purpose the net
change in account value
would reflect the value
of additional shares
purchased with dividends
declared on the original
share and dividends
declared on both the
original share and any
such additional shares,
but would not reflect any
realized gains or losses
from the sale of
securities or any
unrealized appreciation
or depreciation on
portfolio securities. In
addition, any effective
yield quotation of the
Money Market Series so
used shall be calculated
by compounding the
current yield quotation
for such period by
multiplying such
quotation by 7/365,
adding 1 to the product,
raising the sum to a
power equal to 365/7, and
subtracting 1 from the
result. These yield
quotations should not be
considered as
representative of the
yield of the Money Market
Series in the future
since the yield will vary
based on the type,
quality and maturities of
the securities held in
its portfolio,
fluctuations in short-
term interest rates and
changes in the Money
Market Series expenses.
All Other
Series:
Total Rate of Return _
Each Series, other than
the Money Market Series,
will calculate its total
rate of return of its
shares for certain
periods by determining
the average annual
compounded rates of
return over those periods
that would cause an
investment of $1,000
(made with all
distributions reinvested)
to reach the value of
that investment at the
end of the periods. Each
Series may also calculate
total rates of return
which represent aggregate
performance over a period
or year-by-year
performance. The
aggregate total rate of
return for shares of the
World Governments Series
for the period from June
14, 1994 (commencement of
investment operations) to
December 31, 1994 was
0.79%. The aggregate
total rate of return
would have been lower had
fee waivers not been in
effect.
Yield _ Any yield
quotation for a Series,
other than the Money
Market Series, is based
on the annualized net
investment income per
share of that Series for
the 30-day period. The
yield for such a Series
is calculated by dividing
its net investment income
earned during the period
by the offering price per
share of that Series on
the last day of the
period. The resulting
figure is then
annualized. Net
investment income per
share is determined by
dividing (i) the
dividends and interest of
that Series during the
period, minus accrued
expenses of that Series
for the period by (ii)
the average number of
shares of that Series
entitled to receive
dividends during the
period multiplied by the
offering price per share
on the last day of the
period. The yield
calculation for shares of
the World Governments
Series for the 30-day
period ended December 31,
1994 was 5.23% taking
into account all fee
waivers and 4.85% without
any fee waivers.
From time to
time each Series 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., Variable
Annuity Research Data
Service, 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.
Series' performance may
also be compared to the
performance of other
mutual funds tracked by
financial or business
publications or
periodicals.
The Series may
also quote evaluations
mentioned in independent
radio or television
broadcasts.
From time to time the
Series may use charts and
graphs to illustrate the
past
performance of various
indices such as those
mentioned above.
MFS Firsts: MFS
has a long history of
innovations.
_ 1924 _
Massachusetts Investors
Trust is established as
the first 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 1933 Act.
_ 1936 _
Massachusetts Investors
Trust is the first mutual
fund to let
sharehol
ders
take
capital
gain
distribu
tions
either
in
addition
al
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
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
companie
s deemed
to be
union-
friendly
by an
Advisory
Board of
senior
labor
official
s,
senior
managers
of
companie
s with
signific
ant
labor
contract
s,
academic
s and
other
national
labor
leaders
or
experts.
9. DESCRIPTION OF
SHARES, VOTING RIGHTS AND
LIABILITIES
The Trust's Declaration
of Trust permits the
Trustees of the Trust to
issue an unlimited number
of full and fractional
Shares of Beneficial
Interest (without par
value) of one or more
separate series and to
divide or combine the
shares of any series into
a greater or lesser
number of shares without
thereby changing the
proportionate beneficial
interests in that series.
The Trustees have
currently authorized
shares of the twelve
series identified on page
2 hereof. 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 a
Series represents an
equal proportionate
interest in the assets of
the Series. Upon
liquidation of a Series,
shareholders of the
Series are entitled to
share pro rata in the net
assets of the Series
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
ACCOUNTANTS AND FINANCIAL
STATEMENTS
Deloitte & Touche llp are
the Trust's independent
certified public
accountants. The
Statements of Assets and
Liabilities for the MFS
OTC Series (currently
known as the MFS Emerging
Growth Series), MFS
Growth Series, MFS
Research Series, MFS
Growth With Income
Series, MFS Total Return
Series, MFS Utilities
Series, MFS High Income
Series, MFS Strategic
Fixed Income Series, MFS
Bond Series, MFS Limited
Maturity Series, and MFS
Money Market Series at
December 31, 1994, the
Notes thereto and the
Independent Auditors'
Report dated February 3,
1995, have been included
in this Statement of
Additional Information in
reliance upon the report
of Deloitte and Touche
llp, independent
certified public
accountants, as experts
in accounting and
auditing. With respect to
the MFS World Governments
Series, the Portfolio of
Investments at December
31, 1994, the Statement
of Assets and Liabilities
at December 31, 1994, the
Statement of Operations
for the period ended
December 31, 1994, the
Statement of Changes in
Net Assets for the period
ended December 31, 1994,
the Notes to Financial
Statements and the
Independent Auditors'
Report, each of which is
included in the Annual
Report to shareholders of
the MFS World Governments
Series, are incorporated
by reference into this
Statement of Additional
Information 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
World Governments Series'
Annual Report accompanies
this Statement of
Additional Information.
MFS VARIABLE
INSURANCE TRUST
STATEMENTS OF ASSETS AND
LIABILITIES
December 31,
1994
MFS*
OTC
Series
MFS
Growth
Series
MFS
Research
Series
MFS
Growth
With
Income
Series
MFS
Total
Return
Series
MFS
Utilities
Series
MFS
High
Income
Series
MFS
Strategic
Fixed
Income
Series
MFS
Bond
Series
MFS
Limited
Maturity
Series
MFS
Money
Market
Series
Assets:
Cash
$2,796
$2,796
$2,796
$2,796
$2,796
$2,796
$2,796
$2,796
$2,796
$2,796
$2,796
Deferred
organizat
ion
expenses
5,985
5,985
5,985
5,985
5,985
5,985
5,985
5,985
5,985
5,985
5,985
Total
assets
$8,781
$8,781
$8,781
$8,781
$8,781
$8,781
$8,781
$8,781
$8,781
$8,781
$8,781
Liabilities:
Accrued
expenses
181
181
181
181
181
181
181
181
181
181
181
Net
assets
$8,600
$8,600
$8,600
$8,600
$8,600
$8,600
$8,600
$8,600
$8,600
$8,600
$8,600
Net Asset
Value,
Redemption
Price and
Offering
Price Per
Share of
Beneficial
Interest
(860 shares
outstanding
for each
Series, except
the MFS Money
Market Series,
8,600 shares
outstanding
for the MFS
Money Market
Series) . .
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$1.00
Notes:
(1) The MFS Variable
Insurance Trust (the
"Trust") was organized on
February 1, 1994 as
a business trust
under the laws
of The
Commonwealth of
Massachusetts.
The Trust
currently
consists of
twelve series of
shares or funds
(the "Series"):
MFS OTC Series,
MFS Growth
Series, MFS
Research Series,
MFS Growth with
Income Series,
MFS Total Return
Series, MFS
Utilities
Series, MFS High
Income Series,
MFS World
Governments
Series, MFS
Strategic Fixed
Income Series,
MFS Bond Series,
MFS Limited
Maturity Series
and MFS Money
Market Series.
Each Series,
except for the
World
Governments
Series, has been
inactive since
that date except
for matters
relating to its
organization and
the Trust's
registration as
an investment
company under
the Investment
Company Act of
1940 and the
sale of 860
shares of
beneficial
interest (except
the MFS Money
Market Series)
and of 8,600
shares of
beneficial
interest of the
MFS Money Market
Series (the
"initial
shares") to
Massachusetts
Financial
Services
Company.
(2) Organization
expenses are being
deferred and will be
amortized over five years
beginning with
the commencement
of investment
operations. The
amount paid by
any Series on
any redemption
by Massachusetts
Financial
Services
Company, or any
current holder
of any Series'
initial shares,
will be reduced
by the pro rata
portion of any
unamortized
organization
expenses which
the number of
initial shares
redeemed bears
to the total
number of
initial shares
outstanding
immediately
prior to such
redemption.
* (Currently known as
the MFS Emerging Growth
Series)
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
of MFS Variable Insurance
Trust and Shareholders of
MFS OTC Series, MFS
Growth Series, MFS
Research Series, MFS
Growth with Income
Series, MFS Total Return
Series, MFS Utilities
Series, MFS High Income
Series, MFS Strategic
Fixed Income Series, MFS
Bond Series, MFS Limited
Maturity Series and MFS
Money Market Series:
We have audited
the accompanying
statements of assets and
liabilities of MFS OTC
Series, MFS Growth
Series, MFS Research
Series, MFS Growth with
Income Series, MFS Total
Return Series, MFS
Utilities Series, MFS
High Income Series, MFS
Strategic Fixed Income
Series, MFS Bond Series,
MFS Limited Maturity
Series and MFS Money
Market Series (the
"Series") (each a series
of the MFS Variable
Insurance Trust (the
"Trust")) as of December
31, 1994. These financial
statements are the
responsibility of the
Trust's management. Our
responsibility is to
express an opinion on
these financial
statements 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
statements of assets and
liabilities are free of
material misstatement. An
audit includes examining,
on a test basis, evidence
supporting the amounts
and disclosures in the
statement of assets and
liabilities. 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 of the
statements of assets and
liabilities provide a
reasonable basis for our
opinion.
In our opinion,
such statements of assets
and liabilities present
fairly, in all material
respects, the financial
position of each of the
Series at December 31,
1994 in conformity with
generally accepted
accounting principles.
Deloitte & Touche llp
Boston, Massachusetts
February 3, 1995
Investment Adviser
Massachusetts Financial
Services Company 500
Boylston Street, Boston,
MA 02116 (617) 954-5000
(800) 637-8730
Distributor
MFS Fund Distributors,
Inc.
500 Boylston Street,
Boston, MA 02116 (617)
954-5000
Custodian
Investors Bank & Trust
Company
89 South Street, Boston,
Massachusetts 02110
Dividend Disbursing Agent
State Street Bank and
Trust Company
225 Franklin Street,
Boston, MA 02110
Shareholder Servicing
Agent
MFS Service Center, Inc.
500 Boylston Street,
Boston, MA 02116
Toll free: (800) 637-8730
Mailing Address
P.O. Box 1400, Boston, MA
02104-9985
Independent Accountants
Deloitte & Touche, LLP
125 Summer Street,
Boston, MA 02110
EXHIBIT A
Trustee Compensation
Table
Name of Trustee
Trustee Fees from
World Governments
Series (1)
Trustee Fees from
each Series
other than
World Governments
Series (1)
Total Trustee Fees from
the Fund Complex (2)
William R. Gutow . .
$517
$417
$10,618
Nelson J. Darling
$517
$417
$10,618
Notes:
(1) For fiscal year ended December 31, 1994.
(2) Information provided is for calendar year ended December
31, 1994. All Trustees
served as Trustees of 16 funds advised by MFS (having
aggregate net assets at December 31, 1994, of
approximately $143 million).
MFS_ Variable
Insurance Trust-
500 Boylston Street
Boston, MA 02116
LOGO
PART C
Item 24. Financial Statements and Exhibits
MFS World Governments Series
(a) Financial Statements Included in Part A
For the period from commencement of investment
operations on June 10, 1994 to December 31,
1994 of the World Governments Series:
Financial Highlights
Included in Part B of this Registration
Statement:
At December 31, 1994:
Portfolio of Investments [TO BE PROVIDED BY
AMENDMENT]
Statement of Assets and Liabilities [TO BE
PROVIDED BY AMENDMENT]
For the period from commencement of investment
operations on June 10, 1994 to December 31,
1994:
Statement of Operations [TO BE PROVIDED BY
AMENDMENT]
Statement of Changes in Net Assets [TO BE
PROVIDED BY AMENDMENT]
All Series Except World Government Series
(b) Financial Statements Included in Part A
None
Included in Part B of this Registration
Statement:
At December 31, 1994:
Statement of Assets and Liabilities
Opinion of Independent Auditors
________________________
(b) Exhibits
1 (a) Declaration of Trust dated January 28,
1994. (1)
(b) Amendment to Declaration of Trust -
Designation of Series dated January 31,
1994. (1)
2 By-Laws, dated January 28, 1994. (1)
3 Not Applicable.
4 Not Applicable.
5 Investment Advisory Agreement by and
between Registrant and Massachusetts
Financial Services Company dated April 14,
1994. (1)
6 Distribution Agreement between Registrant
and Massachusetts Investors Services, Inc.
dated April 14, 1994. (1)
7 Not Applicable.
8 Custodian Agreement between Registrant and
Investors Bank & Trust Company dated April
14, 1994. (1)
9 (a) Shareholder Servicing Agent Agreement
between Registrant and MFS Service Center
dated April 14, 1994. (1)
(b) Dividend Disbursing Agency Agreement
between Registrant and State Street Bank
and Trust dated April 14, 1994. (1)
10 Opinion and Consent of Counsel filed with
Registrant's Rule 24f-2 Notice for fiscal
year ended December 31, 1994 on February
28, 1995.
11 Consent of Deloitte & Touche [TO BE
PROVIDED BY AMENDMENT]
12 Not Applicable.
13 Investment Representation Letter is
incorporated by reference to the
Registrant's Pre-Effective Amendment No. 1
(File No. 33-74668) filed on March 25,
1994.
14 Not Applicable.
15 Not Applicable.
16 Schedule of Computation for Performance
Quotations - Total Return and Yield. (1)
Power of Attorney dated August 12, 1994. (1)
____________________________
(1) Incorporated by reference to Registrant's Post-Effective
Amendment No. 1 filed with the SEC on October 20, 1994.
Item 25. Persons Controlled by or under Common Control with
Registrant
Not applicable.
Item 26. Number of Holders of Securities
MFS OTC Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Growth Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Research Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Growth With Income Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Total Return Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Utilities Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS High Income Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS World Governments Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 2
(without par value) (as of January 31,
1995)
MFS Strategic Fixed Income Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Bond Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Limited Maturity Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
MFS Money Market Series
(1) (2)
Title of Class Number of Record
Holders
Shares of Beneficial Interest 1
(without par value) (as of January 31,
1995)
Item 27. Indemnification
Section 5.3 of the Registrant's Declaration of Trust
(filed with Registrant's Registration Statement on February 1,
1994) 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;
(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 form of Shareholder Servicing Agent
Agreement between the Registrant and MFS Service Center, Inc.
("MFSC"), which was filed with the Securities and Exchange
Commission on October 20, 1994, 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 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
Massachusetts Financial Services Company ("MFS")
serves as investment adviser to the following open-end funds
comprising the MFS Family of Funds: Massachusetts Investors
Trust, Massachusetts Investors Growth Stock Fund, MFS Growth
Opportunities Fund, MFS Government Securities Fund, MFS Government
Mortgage Fund, MFS Government Limited Maturity Fund, MFS Series
Trust I (which has three series: MFS Managed Sectors Fund, MFS
Cash Reserve Fund and MFS World Asset Allocation Fund), MFS Series
Trust II (which has four series: MFS Emerging Growth Fund, MFS
Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold &
Natural Resources Fund), MFS Series Trust III (which has two
series: MFS High Income Fund and MFS Municipal High Income Fund),
MFS Series Trust IV (which has four series: MFS Money Market Fund,
MFS Government Money Market Fund, MFS Municipal Bond Fund and MFS
OTC Fund), MFS Series Trust V (which has two series: MFS Total
Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and
MFS World Equity Fund), MFS Series Trust VII (which has two
series: MFS World Governments Fund and MFS Value Fund), MFS Series
Trust VIII (which has two series: MFS Strategic Income Fund and
MFS World Growth Fund), MFS Municipal Series Trust (which has 19
series: MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal
Bond Fund, MFS California Municipal Bond Fund, MFS Florida
Municipal Bond Fund, MFS Georgia Municipal Bond Fund, MFS
Louisiana Municipal Bond Fund, MFS Maryland Municipal Bond Fund,
MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal
Bond Fund, MFS New York Municipal Bond Fund, MFS North Carolina
Municipal Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS
South Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond
Fund, MFS Texas Municipal Bond Fund, MFS Virginia Municipal Bond
Fund, MFS Washington Municipal Bond Fund, MFS West Virginia
Municipal Bond Fund and MFS Municipal Income Fund) and MFS Series
Trust IX (which has three series: MFS Bond Fund, MFS Limited
Maturity Fund and MFS Municipal Limited Maturity Fund) (the "MFS
Funds"). The principal business address of each of the
aforementioned funds is 500 Boylston Street, Boston, Massachusetts
02116.
MFS also serves as investment adviser of the following
no-load, open-end funds: MFS Institutional Trust ("MFSIT") (which
has two series), MFS Variable Insurance Trust ("MVI") (which has
twelve series) and MFS Union Standard Trust ("UST") (which has two
series). The principal business address of each of the
aforementioned funds is 500 Boylston Street, Boston, Massachusetts
02116.
In addition, MFS serves as investment adviser to the
following closed-end funds: MFS Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust and MFS
Special Value Trust (the "MFS Closed-End Funds"). The principal
business address of each of the aforementioned funds is 500
Boylston Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun
Life Series Trust ("MFS/SL"), Sun Growth Variable Annuity Fund,
Inc. ("SGVAF"), Money Market Variable Account, High Yield Variable
Account, Capital Appreciation Variable Account, Government
Securities Variable Account, World Governments Variable Account,
Total Return Variable Account and Managed Sectors Variable
Account. The principal business address of each is One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability
company organized under the laws of the Republic of Ireland and a
subsidiary of MFS, whose principal business address is 41-45 St.
Stephen's Green, Dublin 2, Ireland, serves as investment adviser
to and distributor for MFS International Funds (which has four
portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International
Funds-International Governments Fund and MFS International Fund-
Charter Income Fund) (the "MIL Funds"). The MIL Funds are
organized in Luxembourg and qualify as an undertaking for
collective investments in transferable securities (UCITS). The
principal business address of the MIL Funds is 47, Boulevard
Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and
distributor for MFS Meridian U.S. Government Bond Fund, MFS
Meridian Charter Income Fund, MFS Meridian Global Government Fund,
MFS Meridian U.S. Emerging Growth Fund, MFS Meridian Global Equity
Fund, MFS Meridian Limited Maturity Fund, MFS Meridian World
Growth Fund, MFS Meridian Money Market Fund and MFS Meridian U.S.
Equity Fund (collectively the "MFS Meridian Funds"). Each of the
MFS Meridian Funds is organized as an exempt company under the
laws of the Cayman Islands. The principal business address of
each of the MFS Meridian Funds is P.O. Box 309, Grand Cayman,
Cayman Islands, British West Indies.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned
subsidiary of MFS, serves as distributor for the MFS Funds, MVI,
UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly
owned subsidiary of MFS, serves as distributor for certain life
insurance and annuity contracts issued by Sun Life Assurance
Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned
subsidiary of MFS, serves as shareholder servicing agent to the
MFS Funds, the MFS Closed-End Funds, MFS Institutional Trust, MFS
Variable Insurance Trust and MFS Union Standard Trust.
MFS Asset Management, Inc. ("AMI"), a wholly owned
subsidiary of MFS, provides investment advice to substantial
private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned
subsidiary of MFS, markets MFS products to retirement plans and
provides administrative and record keeping services for retirement
plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L.
Shames, Arnold D. Scott, John R. Gardner and John D. McNeil. Mr.
Brodkin is the Chairman, Mr. Shames is the President, Mr. Scott is
a Senior Executive Vice President and Secretary, James E. Russell
is a Senior Vice President and the Treasurer, Stephen E. Cavan is
a Senior Vice President, General Counsel and an Assistant
Secretary, and Robert T. Burns is a Vice President and an
Assistant Secretary of MFS.
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
MFS Government Securities Fund
MFS Government Mortgage Fund
MFS Series Trust I
MFS Series Trust V
MFS Government Limited Maturity Fund
MFS Series Trust VI
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 Assistant
Treasurer, James R. Bordewick, Jr., Vice President and Associate
General Counsel of MFS, is 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 Assistant Treasurer, and James R.
Bordewick, Jr., is Assistant Secretary.
MFS Government Markets Income Trust
MFS Intermediate Income Trust
A. Keith Brodkin is the Chairman and President,
Patricia A. Zlotin, Executive Vice President of MFS and Leslie J.
Nanberg, Senior Vice President of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost is Assistant Treasurer, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS Series Trust III
A. Keith Brodkin is the Chairman and President, James
T. Swanson, Robert J. Manning, Cynthia M. Brown and Joan S.
Batchelder, Senior Vice Presidents of MFS, Bernard Scozzafava,
Vice President of MFS, and Matthew Fontaine, Assistant Vice
President of MFS, are Vice Presidents, Sheila Burns-Magnan and
Daniel E. McManus, Assistant Vice Presidents of MFS, are Assistant
Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, James O. Yost is Assistant Treasurer, and
James R. Bordewick, Jr., is 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 Assistant Treasurer and
James R. Bordewick, Jr., is 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 Assistant Treasurer and
James R. Bordewick, Jr., is 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 Assistant Treasurer and
James R. Bordewick, Jr., is 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, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost is Assistant
Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS Variable Insurance Trust
MFS Institutional Trust
A. Keith Brodkin is the Chairman and President,
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost is the Assistant Treasurer and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS Union Standard Trust
A. Keith Brodkin is the Chairman and President,
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost and Karen C. Jordan are Assistant
Treasurers and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS Municipal Income Trust
A. Keith Brodkin is the Chairman and President,
Cynthia M. Brown and Robert J. Manning are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, is Assistant Treasurer and James R.
Bordewick, Jr., is Assistant Secretary.
MFS Multimarket Income Trust
MFS Charter Income Trust
A. Keith Brodkin is the Chairman and President,
Patricia A. Zlotin, Leslie J. Nanberg and James T. Swanson are
Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, James O. Yost, Vice President of MFS, is
Assistant Treasurer and James R. Bordewick, Jr., is Assistant
Secretary.
MFS Special Value Trust
A. Keith Brodkin is the Chairman and President,
Jeffrey L. Shames, Patricia A. Zlotin and Robert J. Manning are
Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, and James O. Yost, is Assistant Treasurer
and James R. Bordewick, Jr., is Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the President,
Arnold D. Scott, Jeffrey L. Shames are Directors, Ziad Malek,
Senior Vice President of MFS, is a Senior Vice President and
Managing Director, Thomas J. Cashman, Jr., a Vice President of
MFS, is a Senior Vice President, Stanley T. Kwok is a Vice
President, Anthony F. Clarizio is an Assistant Vice President,
Stephen E. Cavan is a Director, Senior Vice President and the
Clerk, James R. Bordewick, Jr. is a Director, Senior Vice
President and an Assistant Clerk, Robert T. Burns is an Assistant
Clerk and James E. Russell is the Treasurer.
MIL Funds
A. Keith Brodkin is the Chairman, President and a
Director, Arnold D. Scott and Jeffrey L. Shames 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, Arnold D. Scott and Jeffrey L. Shames are Directors,
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James R. Bordewick, Jr., is the Assistant Secretary and
Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman, 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, and James E. Russell is the Treasurer.
CIAI
A. Keith Brodkin is the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President,
Bruce C. Avery, Executive Vice President of MFS, is the Vice
President, James E. Russell is the Treasurer, Stephen E. Cavan is
the Secretary, and Robert T. Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, Senior Vice
President of MFS, is the President, James E. Russell is the
Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns
is the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director,
Jeffrey L. Shames, Leslie J. Nanberg and Arnold D. Scott are
Directors, Thomas J. Cashman is the President and a Director,
James E. Russell is the Treasurer and Robert T. Burns is the
Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce
C. Avery are Directors, Arnold D. Scott is the Chairman, Douglas
C. Grip, a Senior Vice President of MFS, is the President, James
E. Russell is the Treasurer, Stephen E. Cavan is the Secretary,
Robert T. Burns is the Assistant Secretary and Henry A. Shea is an
Executive Vice President.
In addition, the following persons, Directors or
officers of MFS, have the affiliations indicated:
A. Keith Brodkin Director, Sun Life
Assurance Company of
Canada (U.S.), One Sun
Life Executive Park,
Wellesley Hills,
Massachusetts
Director, Sun Life
Insurance and Annuity
Company of New York, 67
Broad Street, New York,
New York
John R. Gardner President and a Director,
Sun Life Assurance Company
of Canada, Sun Life
Centre, 150 King Street
West, Toronto, Ontario,
Canada (Mr. Gardner is
also an officer and/or
Director of various
subsidiaries and
affiliates of Sun Life)
John D. McNeil Chairman, Sun Life
Assurance Company of
Canada, Sun Life Centre,
150 King Street West,
Toronto, Ontario, Canada
(Mr. McNeil is also an
officer and/or Director of
various subsidiaries and
affiliates of Sun Life)
Item 29. Principal Underwriters
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above.
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts and records of the Registrant are
located, in whole or in part, at the office of the Registrant and
the following locations:
NAME ADDRESS
Massachusetts Financial Services 500 Boylston
Street
Company Boston, MA 02116
(investment adviser)
MFS Fund Distributors, Inc. 500 Boylston
Street
(distributor) Boston, MA
02116
Investors Bank & Trust 89 South Street
Company Boston, MA 02111
(custodian)
MFS Service Center, Inc. 500 Boylston
Street
(transfer agent) 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 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 Investors Bank & Trust Company, 89
South Street, Boston, MA 02111.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(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.
(d) Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without
charge.
EXHIBIT NO. 11
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in this Post-
Effective Amendment No. 2 to the Registration Statement No. 811-
4096 of MFS Variable Insurance Trust of our report dated February
3, 1995 appearing in the annual report to shareholders of MFS
World Governments Series for the period ended December 31, 1994,
and to the inclusion in such Registration Statement of our report
dated February 3, 1995 relating to the statements of assets and
liabilities of MFS OTC Series, MFS Growth Series, MFS Research
Series, MFS Growth with Income Series, MFS Total Return Series,
MFS Utilities Series, MFS High Income Series, MFS World Government
Series, MFS Strategic Fixed Income Series, MFS Bond Series, MFS
Limited Maturity Series and MFS Money Market Series as of December
31, 1994. We also consent to the references to us under the
headings Condensed Financial Information in the Prospectus and
Independent Accountants and Financial Statements in the
Statement of Additional Information, both of which are part of
such Registration Statement.
Boston, Massachusetts
April 17, 1995