<PAGE>
MFS(R) EMERGING GROWTH SERIES
MFS(R) RESEARCH SERIES
MFS(R) GROWTH WITH INCOME SERIES
MFS(R) HIGH INCOME SERIES
MFS(R) WORLD GOVERNMENTS SERIES
MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES
PROSPECTUS
September 30, 1997
- -------------------------------------------------------------------------------
MFS(R) 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"), six of which are offered pursuant
to this Prospectus.
- --MFS EMERGING GROWTH SERIES (the "Emerging Growth Series"), which seeks to
provide long-term growth of capital;
- --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 in-
come;
- --MFS HIGH INCOME SERIES (the "High Income Series"), which seeks high current
income by investing primarily in a professionally managed diversified port-
folio of fixed income securities, some of which may involve equity features;
- --MFS WORLD GOVERNMENTS SERIES (the "World Governments Series"), which seeks
not only preservation but also growth of capital, together with moderate
current income; and
- --MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES (the "Emerging Markets
Equity Series"), which seeks capital appreciation.
----------------
THE HIGH INCOME SERIES MAY INVEST UP TO 100% OF ITS NET ASSETS IN LOWER RATED
BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING
DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD
CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING (SEE "ADDITIONAL RISK FAC-
TORS -- LOWER RATED BONDS"). THE EMERGING GROWTH SERIES, THE RESEARCH SERIES,
THE GROWTH WITH INCOME SERIES AND THE EMERGING MARKETS EQUITY SERIES ARE IN-
TENDED FOR INVESTORS WHO UNDERSTAND AND ARE WILLING TO ACCEPT THE RISKS EN-
TAILED IN SEEKING LONG-TERM GROWTH OF CAPITAL OR CAPITAL APPRECIATION. BECAUSE
OF THEIR INVESTMENT POLICIES PERMITTING INVESTMENT IN FOREIGN SECURITIES, IN-
VESTMENTS IN EACH SERIES MAY BE SUBJECT TO A GREATER DEGREE OF RISK THAN IN-
VESTMENTS IN OTHER INVESTMENT COMPANIES WHICH INVEST ENTIRELY IN DOMESTIC SE-
CURITIES.
----------------
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.
----------------
SHARES OF THE TRUST ARE AVAILABLE AND ARE BEING MARKETED AS A POOLED FUNDING
VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF CONTRACTS.
<PAGE>
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
September 30, 1997, as amended or supplemented from time to time ("SAI"), 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 SAI, which is incorporated by reference into this
Prospectus, has been filed with the Securities and Exchange Commission (the
"SEC"). The SEC maintains an Internet World Wide Web site that contains the
SAI, materials that are incorporated by reference into this Prospectus and the
SAI, and other information regarding the Series. This Prospectus is available
on the Adviser's Internet World Wide Web site at http://www.mfs.com.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Expense Summary........................................................ 4
2. Investment Concept of the Trust........................................ 5
3. Condensed Financial Information........................................ 6
4. Investment Objectives and Policies..................................... 11
MFS Emerging Growth Series........................................... 11
MFS Research Series.................................................. 12
MFS Growth With Income Series........................................ 12
MFS High Income Series............................................... 12
MFS World Governments Series......................................... 13
MFS/Foreign & Colonial Emerging Markets Equity Series................ 15
5. Investment Techniques.................................................. 15
6. Additional Risk Factors................................................ 24
7. Management of the Series............................................... 29
8. Information Concerning Shares of Each Series........................... 32
Purchases and Redemptions............................................ 32
Net Asset Value...................................................... 33
Distributions........................................................ 33
Tax Status........................................................... 33
Description of Shares, Voting Rights and Liabilities................. 33
Performance Information.............................................. 34
Expenses............................................................. 35
Shareholder Communications........................................... 35
Appendix A -- Description of Bond Ratings................................. A-1
Appendix B -- Principal Sectors of the Utilities Industry................. B-1
</TABLE>
3
<PAGE>
1. EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
<TABLE>
<CAPTION>
MFS
MFS GROWTH
EMERGING MFS WITH
GROWTH RESEARCH INCOME
SERIES SERIES SERIES
-------- ----------- ---------
<S> <C> <C> <C>
Management Fee............................. 0.75% 0.75% 0.75%
Other Expenses (after expense
limitation)(/1/)(/2/)..................... 0.25% 0.25% 0.25%
---- ---- ----
Total Operating Expenses (after expense
limitation)(/2/).......................... 1.00% 1.00% 1.00%
<CAPTION>
MFS/
FOREIGN &
COLONIAL
EMERGING
MFS HIGH MFS WORLD MARKETS
INCOME GOVERNMENTS EQUITY
SERIES SERIES SERIES
-------- ----------- ---------
<S> <C> <C> <C>
Management Fee............................. 0.75% 0.75% 1.25%
Other Expenses (after expense
limitation)(/1/)(/2/)..................... 0.25% 0.25% 0.25%
---- ---- ----
Total Operating Expenses (after expense
limitation)(/2/).......................... 1.00% 1.00% 1.50%
</TABLE>
- --------------------
/1/ Each Series has an expense offset arrangement which reduces the Series' cus-
todian fee based upon the amount of cash maintained by the Series with its
custodian and dividend disbursing agent, and may enter into other such ar-
rangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
/2/ The Adviser has agreed to bear expenses for each Series, subject to reim-
bursement by each Series, such that each Series' "Other Expenses" shall not
exceed 0.25% of the average daily net assets of the Series during the cur-
rent fiscal year. See "Information Concerning Shares of Each Series--Ex-
penses." Otherwise, "Other Expenses" and "Total Operating Expenses" for each
Series would be:
<TABLE>
<CAPTION>
"OTHER EXPENSES" "TOTAL OPERATING
WITHOUT EXPENSES" WITHOUT
SERIES EXPENSE LIMITATION EXPENSE LIMITATION
------ ------------------ ------------------
<S> <C> <C>
Emerging Growth................... 0.41% 1.16%
Research.......................... 0.73% 1.48%
Growth With Income................ 1.32% 2.07%
High Income....................... 0.87% 1.62%
World Governments................. 1.28% 2.03%
Emerging Markets Equity
(estimate)....................... 0.48% 1.73%
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in each Series, assuming (a) 5% annual return and (b) redemption at
the end of each time periods indicated:
<TABLE>
<CAPTION>
PERIOD
-------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Growth........................... 10 32 55 122
Research.................................. 10 32 55 122
Growth With Income........................ 10 32 55 122
High Income............................... 10 32 55 122
World Governments......................... 10 32 55 122
Emerging Markets Equity................... 15 47 N/A N/A
</TABLE>
4
<PAGE>
The purpose of the expense table above is to assist investors in understand-
ing the various costs and expenses that a shareholder of the Series will bear
directly or indirectly. 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.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF ANY SERIES; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
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, Value Series, Research
Series, Growth With Income Series, Total Return Series, Utilities Series, High
Income Series, World Governments Series, Emerging Markets Equity Series, Bond
Series, Limited Maturity Series and Money Market Series. Each Series is a seg-
regated, separately managed portfolio of securities. All of the Series, except
the Utilities Series and the World Governments Series, are diversified. Addi-
tional 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 Decla-
ration of Trust dated February 1, 1994.
The Trust currently offers shares of each Series to insurance company sepa-
rate 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 re-
strictions 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 applica-
ble 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 dif-
ferences 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 with-
draw its investments in 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 Se-
ries. A majority of the Trustees of the Trust are not affiliated with the Ad-
viser. The Adviser is responsible for the management of the assets of each Se-
ries and the officers of the Trust are responsible for the operations. The Ad-
viser manages the Series' portfolios from day to day in accordance with the
investment objectives and policies of each Series. The selection of invest-
ments and the way they are managed depend on the conditions and trends in the
economy and the financial marketplaces.
5
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following financial information (presented for each Series which com-
menced investment operations prior to December 31, 1996) has been audited
since the commencement of investment operations of such Series and should be
read in conjunction with the financial statements included in the Series' An-
nual Reports to Shareholders. These financial statements are incorporated by
reference into the SAI in reliance upon the report of the Series' independent
auditors given upon their authority as experts in accounting and auditing. The
Series' current independent auditors are Deloitte & Touche llp. The Emerging
Markets Equity Series had not commenced investment operations prior to Decem-
ber 31, 1996.
EMERGING GROWTH SERIES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period...... $ 11.41 $10.00
-------- ------
Income from investment operations#--
Net investment income (loss)(S).......... $ (0.01) $ 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions............................ 1.95 1.74
-------- ------
Total from investment operations........ $ 1.94 $ 1.75
-------- ------
Less distributions declared to
shareholders--
From net investment income............... $ -- $(0.01)
From net realized gain on investments and
foreign currency transactions........... (0.06) (0.26)
In excess of net realized gain on
investments and foreign currency
transactions............................ (0.05) --
Tax return of capital.................... -- (0.07)
-------- ------
Total distributions declared to
shareholders........................... $ (0.11) $(0.34)
-------- ------
Net asset value--end of period............ $ 13.24 $11.41
======== ======
Total return.............................. 17.02% 17.41%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................. 1.00% 1.00%+
Net investment income (loss)............. (0.08)% 0.10%+
Portfolio turnover........................ 96% 73%
Average commission rate###................ $ 0.0401 --
Net assets at end of period (000
omitted)................................. $104,956 $3,869
- --------------------
* For the period from the commencement of investment operations, July 24, 1995
to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for Series' with fiscal years begin-
ning on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment loss per share and the ra-
tios would have been:
Net investment loss................... $(0.03) $(0.18)
Ratios (to average net assets):
Expenses............................ 1.16% 2.91%+
Net investment loss.................. (0.23)% (1.78)%+
</TABLE>
6
<PAGE>
RESEARCH SERIES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period...... $ 10.89 $10.00
------- ------
Income from investment operations#--
Net investment income(S)................. $ 0.06 $ 0.05
Net realized and unrealized gain on
investments and foreign currency
transactions............................ 2.37 1.01
------- ------
Total from investment operations........ $ 2.43 $ 1.06
------- ------
Less distributions declared to
shareholders--
From net investment income............... $ (0.02) $(0.03)
From net realized gain on investments and
foreign currency transactions........... (0.16) (0.14)
In excess of net realized gain on
investments and foreign currency
transactions............................ (0.01) --
------- ------
Total distributions declared to
shareholders........................... $ (0.19) $(0.17)
------- ------
Net asset value--end of period............ $ 13.13 $10.89
======= ======
Total return.............................. 22.33% 10.62%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................. 1.00% 1.00%+
Net investment income.................... 0.47% 1.15%+
Portfolio turnover........................ 56% 28%
Average commission rate###................ $0.0295 --
Net assets at end of period (000
omitted)................................. $35,710 $2,530
- --------------------
* For the period from the commencement of investment operations, July 26,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual ex-
penses were over these limitations, the net investment loss per share and
the ratios would have been:
Net investment loss.................. -- $(0.08)
Ratios (to average net assets):
Expenses............................ 1.48% 3.90%+
Net investment loss................. -- (1.73)%+
</TABLE>
7
<PAGE>
GROWTH WITH INCOME SERIES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period...... $ 10.61 $ 10.00
------- -------
Income from investment operations#--
Net investment income(S)................. $ 0.18 $ 0.05
Net realized and unrealized gain on
investments and foreign currency
transactions............................ 2.42 0.61
------- -------
Total from investment operations........ $ 2.60 $ 0.66
------- -------
Less distributions declared to
shareholders--
From net investment income............... $ (0.09) $ (0.05)
From net realized gain on investments and
foreign currency transactions........... (0.13) --
In excess of net realized gain on
investments and foreign currency
transactions............................ (0.01) --
------- -------
Total distributions declared to
shareholders........................... $ (0.23) $ (0.05)
------- -------
Net asset value--end of period............ $ 12.98 $ 10.61
======= =======
Total return.............................. 24.46% 6.64%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................. 1.00% 1.00%+
Net investment income.................... 1.52% 2.20%+
Portfolio turnover........................ 41% 2%
Average commission rate###................ $0.0351 --
Net assets at end of period (000
omitted)................................. $ 9,174 $ 365
- --------------------
* For the period from the commencement of investment operations, October 9,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual ex-
penses were over these limitations, the net investment income (loss) per
share and the ratios would have been:
Net investment income (loss)......... $0.05 $ (0.41)
Ratios (to average net assets):
Expenses............................ 2.07% 21.44%+
Net investment income (loss)........ 0.46% (18.24)%+
</TABLE>
8
<PAGE>
HIGH INCOME SERIES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period..... $ 10.29 $10.00
------- ------
Income from investment operations#--
Net investment income(S)................ $ 0.89 $ 0.34
Net realized and unrealized gain on
investments............................ 0.32 0.18
------- ------
Total from investment operations....... $ 1.21 $ 0.52
------- ------
Less distributions declared to
shareholders--
From net investment income.............. $ (0.53) $(0.23)
From net realized gain on investments... (0.10) --
------- ------
Total distributions declared to
shareholders.......................... $ (0.63) $(0.23)
------- ------
Net asset value--end of period........... $ 10.87 $10.29
======= ======
Total return............................. 11.80% 5.25%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................ 1.00% 1.00%+
Net investment income................... 8.18% 8.17%+
Portfolio turnover....................... 135% 32%
Net assets at end of period (000
omitted)................................ $12,994 $1,946
- --------------------
* For the period from the commencement of investment operations, July 26, 1995
to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment income per share and the ra-
tios would have been:
Net investment income................. $0.82 $0.20
Ratios (to average net assets):
Expenses............................. 1.62% 4.38%+
Net investment income................ 7.56% 4.82%+
</TABLE>
9
<PAGE>
WORLD GOVERNMENTS SERIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994*
----------------- ----------------- ------------------
<S> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $ 10.17 $ 9.82 $10.00
------- ------ ------
Income from investment
operations#--
Net investment
income(S)............. $ 0.60 $ 0.63 $ 0.17
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... (0.19) 0.78 (0.09)
------- ------ ------
Total from investment
operations........... $ 0.41 $ 1.41 $ 0.08
------- ------ ------
Less distributions
declared to
shareholders--
From net investment
income................ $ -- $(0.42) $(0.17)
In excess of net
investment income..... -- (0.54) (0.09)
Tax return of capital.. -- (0.10) --
------- ------ ------
Total distributions
declared to
shareholders......... $ -- $(1.06) $(0.26)
------- ------ ------
Net asset value--end of
period................. $ 10.58 $10.17 $ 9.82
======= ====== ======
Total return............ 4.03% 14.38% 0.79%++
Ratios (to average net
assets)/Supplemental
data(S):
Expenses............... 1.00% 1.00% 1.00%+
Net investment income.. 5.84% 6.05% 4.68%+
Portfolio turnover...... 361% 211% 62%
Net assets at end of
period (000 omitted)... $26,023 $7,424 $2,881
- --------------------
* For the period from the commencement of investment operations, June 14, 1994
to December 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment income per share and the ra-
tios would have been:
Net investment
income.............. $0.50 $0.53 $0.16
Ratios (to average
net assets):
Expenses............ 2.03% 1.99% 1.10%+
Net investment
income............. 4.81% 5.09% 4.58%+
</TABLE>
10
<PAGE>
4. INVESTMENT OBJECTIVES AND POLICIES
Each Series has different investment objectives which it pursues through
separate investment policies, as described below. The differences in objec-
tives 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 as-
surance that the objectives of any Series will be achieved.
In addition to the specific investment practices described below, each Se-
ries may also engage in certain investment techniques as described under the
caption "Investment Techniques" below and in the SAI under the caption "In-
vestment Techniques." The Series' investments are subject to certain risks, as
described in the above-referenced sections of this Prospectus and the SAI and
as described below under the caption "Additional Risk Factors."
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 companies that MFS believes
are early in their life cycle but which have the potential to become major en-
terprises (emerging growth companies). Such companies generally would be ex-
pected 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,
technologies, management and market and other opportunities which are usually
necessary to become more widely recognized as growth companies. Emerging
growth companies can be of any size, and the Series may invest in larger or
more established companies whose rates of earnings growth are expected to ac-
celerate because of special factors, such as rejuvenated management, new prod-
ucts, changes in consumer demand, or basic changes in the economic environ-
ment. 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
fixed income securities (which may be unrated), 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.
The Series may invest in non-convertible fixed income securities rated lower
than "investment grade" (rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's Ratings Services ("S&P") or
Fitch Investors Service, Inc. ("Fitch")) (commonly known as "junk bonds") or
in comparable unrated securities, when, in the opinion of the Adviser, such an
investment presents a greater opportunity for appreciation with comparable
risk to an investment in "investment grade" securities. Under normal market
conditions, the Series will invest not more than 5% of its net assets in these
securities. For a description of these ratings, see Appendix A to this Pro-
spectus.
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 finan-
cial resources, and they may be dependent on one-person management. In addi-
tion, there may be less research available on many promising small and medium
sized emerging growth companies, making it more difficult to find and analyze
these companies. 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 av-
erages 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.
Consistent with its investment objective and policies described above, the
Series may also invest up to 25% (and generally expects to invest not more
than 15%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange.
11
<PAGE>
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 a committee
of investment research analysts. This committee includes investment analysts
employed not only by the Adviser but also by MFS International (U.K.) Limited,
a wholly owned subsidiary of MFS. The Series' assets are allocated among in-
dustries by the analysts acting together as a group. Individual analysts are
then responsible for selecting what they view as the securities best suited to
meet the Series' investment objective within their assigned industry responsi-
bility.
The Research Series' policy is to invest a substantial proportion of its as-
sets in equity securities of companies believed to possess better than average
prospects for long-term growth. Equity securities in which the Series may in-
vest include the following: common stocks, preferred stocks and preference
stocks; securities such as bonds, warrants or rights that are convertible into
stocks; and depositary receipts for those securities. These securities may be
listed on securities exchanges, traded in various over-the-counter markets or
have no organized markets. 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 securi-
ties 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 re-
spect to no more than 10% of the Series' net 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"). For a descrip-
tion of bond ratings, see Appendix A to this Prospectus.
Consistent with its investment objective and policies described above, the
Series may also invest up to 20% of its net assets in foreign securities (in-
cluding emerging market securities) which are not traded on a U.S. exchange.
MFS GROWTH WITH INCOME SERIES -- The Growth With Income Series' investment ob-
jectives are to provide reasonable current income and long-term growth of cap-
ital and income.
Under normal market conditions, the Growth With Income Series will invest at
least 65% of its assets in equity securities of companies that are believed to
have long-term prospects for growth and income. Equity securities in which the
Series may invest include the following: common stocks, preferred stocks and
preference stocks; securities such as bonds, warrants or rights that are con-
vertible into stocks; and depositary receipts for those securities. These se-
curities may be listed on securities exchanges, traded in various over-the-
counter markets or have no organized markets.
Consistent with its investment objective and policies described above, the
Series may also invest up to 75% (and generally expects to invest not more
than 15% ) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange.
MFS HIGH INCOME SERIES -- The investment objective of the High Income Series
is to seek high current income by investing primarily in a professionally man-
aged diversified portfolio of fixed income securities, some of which may in-
volve 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
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categories of recognized rating agencies). The Series may invest up to 100% of
its net assets in such securities. For a description of these rating catego-
ries, see Appendix A to this Prospectus and Appendix C for a chart showing the
Series' holdings of fixed income securities broken down by rating category as
of the end of its most recent fiscal year. (See "Additional Risk Factors" be-
low.) 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 in-
come 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 obliga-
tions), 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 ex-
change rights or warrants for the acquisition of stock of the same or a dif-
ferent issuer; participations based on revenues, sales or profits; or the pur-
chase 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.
Consistent with its investment objective and policies described above, the
Series may also invest up to 25% (and generally expects to invest not more
than 10%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange. The Se-
ries has authority to invest up to 25% of its total assets in securities is-
sued or guaranteed by foreign governments or their agencies or instrumentali-
ties. (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 rela-
tive risk, marketability, quality and availability of securities of such in-
dustry justifies such an investment.
When and if available, fixed income securities may be purchased at a dis-
count 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 ac-
quired if, in the opinion of the Adviser, such securities have the potential
for future income or capital appreciation.
MFS WORLD GOVERNMENTS SERIES -- The World Governments Series' investment ob-
jective 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 con-
sisting primarily of debt securities and to a lesser extent equity securities.
The
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Series attempts to provide investors with an opportunity to enhance the value
and increase the protection of their investment against inflation and other-
wise 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 securi-
ties 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 temporary defensive reasons or during times of international po-
litical or economic uncertainty or turmoil, most or all of the Series' invest-
ments 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 instrumentali-
ties, 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.
Consistent with its investment objective and policies described above, the
Series may invest up to 100% (and generally expects to invest not more than
80%) of its net assets in foreign securities (including emerging market secu-
rities and Brady Bonds) which are not traded on a U.S. exchange. Although the
percentage of the Series' assets invested in foreign securities will vary, at
least 65% of the Series' assets will be invested in at least three different
countries, one of which may be the U.S., except when the Adviser believes that
investing for temporary defensive purposes is appropriate. The Adviser will
determine the amount of the World Governments Series' assets to be invested in
the U.S. and the amount to be invested abroad. The U.S. assets will be in-
vested 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 for-
eign 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 en-
hanced 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 da-
ta. In addition to the foregoing, interest rates are evaluated on the basis of
differentials or anomalies that may exist between different countries. The Se-
ries may hold foreign currency received in connection with investments in for-
eign 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.
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It is contemplated that the World Governments Series' long-term debt invest-
ments will consist primarily of securities which are believed by the Adviser
to be of relatively high quality. If after the Series purchases such a securi-
ty, the quality of the security deteriorates significantly, the security will
be sold only if the Adviser believes it is advantageous to do so.
MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES -- The Emerging Markets
Equity Series' investment objective is to seek capital appreciation. The se-
lection of securities is made solely on the basis of potential for capital ap-
preciation. Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of capital appreciation.
The Series seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of issuers
whose principal activities are located in emerging market countries. The Ad-
viser and the Sub-Adviser expect to take a global approach to portfolio man-
agement by weighting the Series' investments towards countries in Latin Ameri-
ca, Asia, Africa, the Middle East and the developing countries of Europe, pri-
marily in Eastern Europe. See "Investment Techniques--Emerging Market Securi-
ties" below. The Series may invest in all types of equity securities, includ-
ing the following: common stocks, preferred stocks and preference stocks; se-
curities such as bonds, warrants or rights that are convertible into stocks;
and depository receipts for those securities. These securities may be listed
on securities exchanges, traded in various over-the-counter markets or have no
organized markets.
While the Series intends to invest primarily in equity securities, the Se-
ries may also invest less than 35% of its net assets in non-convertible fixed
income securities of government, government-related, supranational and corpo-
rate issuers whose principal activities are outside the U.S., rated Ba or
lower by Moody's or BB or lower by S&P, Fitch or Duff & Phelps and comparable
unrated securities. See "Additional Risk Factors--Lower Rated Bonds" below.
The Adviser and the Sub-Adviser consider a variety of factors in selecting
fixed income securities to achieve capital appreciation, including the credit-
worthiness of issuers, interest rates and currency exchange rates.
The Series does not intend to emphasize any particular country or region in
making its investments, but under normal market conditions, the Series will be
invested in at least three countries (outside the U.S.) and will not invest
more than 50% of its net assets in issuers whose principal activities are lo-
cated in a single country. See "Risk Factors--Investments in One or a Limited
Number of Countries" below. Currently, the Series does not expect to invest
more than 25% of its net assets in issuers whose principal activities are lo-
cated in a single country. The Series will seek to reduce risk by investing
its assets in a number of markets and issuers, performing investment analyses
of potential investments and monitoring current developments and trends in
both the international economy and financial markets.
For temporary defensive reasons, such as during times of international po-
litical or economic uncertainty or turmoil, most or all of the Series' invest-
ments may be in cash (U.S. dollars, foreign currencies or multinational cur-
rency units) and/or securities that are denominated in U.S. dollars or whose
issuers are domiciled in the U.S. The Series is not restricted as to the por-
tions of its assets which may be invested in securities denominated in a par-
ticular currency and up to 100% of the Series' net assets may be invested in
securities denominated in foreign currencies and multinational currency units.
5. INVESTMENT TECHNIQUES
LENDING OF PORTFOLIO SECURITIES: Each of the Series may seek to increase its
income by lending portfolio securities. Such loans will usually be made to
member firms (and subsidiaries thereof) of the New York Stock Exchange (the
"Exchange") and to member banks of the Federal Reserve System, and would be
required to be secured continuously
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by collateral in cash, U.S. Treasury securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. If the Adviser determines to make securities
loans, it is intended that the value of the securities loaned would not exceed
10% of the value of the net assets of the Series making the loans.
EMERGING MARKET SECURITIES: Consistent with their respective objectives,
each of the Series may invest in securities of issuers whose principal activi-
ties are located in emerging market countries. Emerging market countries in-
clude any country determined by the Adviser or Sub-Adviser, as applicable, to
have an emerging market economy, taking into account a number of factors, in-
cluding whether the country has a low- to middle-income economy according to
the International Bank for Reconstruction and Development, the country's for-
eign currency debt rating, its political and economic stability and the devel-
opment of its financial and capital markets. The Adviser or Sub-Adviser, as
applicable, determines whether an issuer's principal activities are located in
an emerging market country by considering such factors as its country of or-
ganization, the principal trading market for its securities and the source of
its revenues and assets. The issuer's principal activities generally are
deemed to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies, authori-
ties or instrumentalities; (b) the issuer is organized under the laws of, and
maintains a principal office in that country; (c) the issuer has its principal
securities trading market in that country; (d) the issuer derives 50% or more
of its total revenues from goods sold or services performed in that country;
or (e) the issuer has 50% or more of its assets in that country.
BRADY BONDS: Each of the Series (except the Research Series) may invest in
Brady Bonds, which are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging mar-
kets for new bonds in connection with debt restructurings under a debt re-
structuring plan introduced by former U.S. Secretary of the Treasury, Nicholas
F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been imple-
mented to date in Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic,
Ecuador, Jordan, Mexico, Nigeria, Panama, the Philippines, Poland, Uruguay and
Venezuela. Brady Bonds have been issued only recently, and for that reason do
not have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets. U.S.
dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds
or floating-rate bonds, are generally collateralized in full as to principal
by U.S. Treasury zero coupon bonds having the same maturity as the bonds.
Brady Bonds are often viewed as having three or four valuation components: the
collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments
in Brady Bonds may be viewed as speculative.
REPURCHASE AGREEMENTS: Each of the Series may enter into repurchase agree-
ments in order to earn income on available cash or as a temporary defensive
measure. Under a repurchase agreement, a Series acquires securities subject to
the seller's agreement to repurchase at a specified time and price. If the
seller becomes subject to a proceeding under the bankruptcy laws or its assets
are otherwise subject to a stay order, the Series' right to liquidate the se-
curities may be restricted (during which time the value of the securities
could decline). As discussed in the SAI, each Series has adopted certain pro-
cedures intended to minimize risk.
"WHEN-ISSUED" SECURITIES: Each of the Series (except the Research Series and
the World Governments Series) may purchase securities on a "when-issued" or on
a "forward delivery" basis, which means that the securities will be delivered
to the Series at a future date usually beyond customary settlement time. The
commitment to purchase a security for which payment will be made on a future
date may be deemed a separate security. In general, a Series does
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<PAGE>
not pay for such securities until received, and does not start earning inter-
est on the securities until the contractual settlement date. While awaiting
delivery of securities purchased on such bases, a Series will normally invest
in liquid assets.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: Each of the World Governments Series
and the High Income Series may enter into mortgage "dollar roll" transactions
with selected banks and broker-dealers pursuant to which a Series sells mort-
gage-backed securities for delivery in the future (generally within 30 days)
and simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. The Series record
these transactions as sale and purchase transactions, rather than as borrowing
transactions. A Series will only enter into covered rolls. A "covered roll" is
a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. In the event that the party
with whom the 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.
RESTRICTED SECURITIES: Each of the Series (except the Growth With Income Se-
ries) may purchase securities that are not registered under the Securities Act
of 1933 (the "1933 Act") ("restricted securities"), including those that can
be offered and sold to "qualified institutional buyers" under Rule 144A under
the 1933 Act ("Rule 144A securities"). A determination is made based upon a
continuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to the Series' limitation
on investing not more than 15% of its net assets in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily func-
tion of determining and monitoring the liquidity of Rule 144A securities. The
Board, however, retains oversight, focusing on factors such as valuation, li-
quidity and availability of information. Investing in Rule 144A securities
could have the effect of decreasing the level of liquidity in a Series to the
extent that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities held in the Series' portfolio.
CORPORATE ASSET-BACKED SECURITIES: Each of the Emerging Growth Series and
the High Income 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, repre-
senting 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 pur-
chaser would acquire an interest superior to that of the holders of the re-
lated automobile receivables. In addition, because of the large number of ve-
hicles 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 rep-
resenting the obligations of a number of different parties. To lessen the ef-
fect of failures by obligors on underlying assets to make payments, the secu-
rities
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may contain elements of credit support which fall into two categories: (i) li-
quidity 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.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Each of the Emerg-
ing Markets Equity Series, the World Governments Series, the Growth With In-
come Series and the High Income Series may invest in zero coupon bonds. The
High Income Series may also invest in deferred interest bonds and PIK bonds.
Zero coupon and deferred interest bonds are debt obligations which are issued
or purchased at a significant discount from face value. The discount approxi-
mates the total amount of interest the bonds will accrue and compound over the
period until maturity or the first interest payment date at a rate of interest
reflecting the market rate of the security at the time of issuance. While zero
coupon bonds do not require the periodic payment of interest, deferred inter-
est bonds provide for a period of delay before the regular payment of interest
begins. PIK bonds are debt obligations which provide that the issuer thereof
may, at its option, pay interest on such bonds in cash or in the form of addi-
tional debt obligations. Such investments benefit the issuer by mitigating its
need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such in-
vestments may experience greater volatility in market value due to changes in
interest rates than debt obligations which make regular payments of interest.
Each Series will accrue income on such investments for tax and accounting pur-
poses, as required, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of
other portfolio securities to satisfy the Series' distribution obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
Each of the World Governments Series and the High Income 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. Typically, CMOs are collateralized by certificates issued by GNMA,
the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"), but also may be collateralized by whole loans
or private mortgage pass-through securities (such collateral collectively re-
ferred to as "Mortgage Assets"). Each of these Series may also invest a por-
tion of its assets in multiclass pass-through securities which are interests
in a trust composed of Mortgage Assets. CMOs (which include multiclass pass-
through securities) may be issued by agencies, authorities or instrumentali-
ties of the U.S. Government or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks, com-
mercial banks, investment banks and special purpose subsidiaries of the fore-
going. Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distributions on the multiclass pass-through securities. In
a CMO, a series of bonds or certificates are usually issued in multiple clas-
ses with different maturities. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the Mort-
gage Assets may cause the CMOs to be retired substantially earlier than their
stated maturities or final distribution dates, resulting in a loss of all or
part of the premium if any has been paid. Certain classes of CMOs have prior-
ity over others with respect to the receipt of prepayments on the mortgages.
Therefore, depending on the type of CMOs in which a Series invests, the in-
vestment may be subject to a greater or lesser risk of prepayments than other
types of mortgage-related securities.
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Each of the World Governments Series and the High Income Series may also in-
vest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds").
Parallel pay CMOs are structured to provide payments of principal on each pay-
ment date to more than one class. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always par-
allel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes. For a fur-
ther description of CMOs, parallel pay CMOs and PAC Bonds and the risks re-
lated to transactions therein, see the SAI.
STRIPPED MORTGAGE-BACKED SECURITIES: Each of 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 usually structured with two classes that receive different propor-
tions of interest and principal distributions from an underlying pool of mort-
gage assets. For a further description of SMBS and the risks related to trans-
actions therein, see the SAI.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: Each of the Emerging
Growth Series, the High Income Series and the Emerging Markets Equity Series
may invest a portion of its assets in "loan participations" and other direct
indebtedness. By 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 cor-
porate borrower. Many such loans are secured, and most impose restrictive cov-
enants which must be met by the borrower. These loans are made generally to
finance internal growth, mergers, acquisitions, stock repurchases, leveraged
buy-outs and other corporate activities. Such loans may be in default at the
time of purchase. A Series may also purchase other direct indebtedness such as
trade or other claims against companies, which generally represent money owed
by the company to a supplier of goods and services. These claims may also be
purchased at a time when the company is in default. Certain of the loan par-
ticipations and other direct indebtedness acquired by a Series may involve re-
volving credit facilities or other standby financing commitments which obli-
gate a Series to pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans and other direct indebtedness
may make such loans especially vulnerable to adverse changes in economic or
market conditions. Loan participations and other direct indebtedness 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 re-
sult, 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. For a further discus-
sion of loan participations, other direct indebtedness and the risks related
to transactions therein, see the SAI.
MORTGAGE PASS-THROUGH SECURITIES: Each of the World Governments Series and
the High Income Series may invest in mortgage pass-through securities. Mort-
gage pass-through securities are securities representing interests in "pools"
of mortgage loans. The Utilities Series may invest in mortgage pass-through
securities that are securities issued or guaranteed as to principal and inter-
est by the U.S. Government, its agencies, authorities or instrumentalities.
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 un-
derlying mortgage pools are paid off. Payment of principal and interest on
some mortgage pass-through securities (but not the market value of the securi-
ties themselves) may be guaranteed by the full faith and credit of the U.S.
Government (in the case of securities guaranteed by GNMA); or guaranteed by
U.S. Government-sponsored corporations (such as FNMA or FHLMC, which are sup-
ported 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 insti-
tutions, private mortgage insurance companies, mortgage bankers and other sec-
ondary market issuers). See the SAI for a further discussion of these securi-
ties.
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FOREIGN GROWTH SECURITIES: The Emerging Markets Equity Series may invest in
securities of foreign growth companies, including established foreign compa-
nies, whose rates of earnings growth are expected to accelerate because of
special factors, such as rejuvenated management, new products, changes in con-
sumer demand, or basic changes in the economic environment or which otherwise
represent opportunities for long-term growth. See "Risk Factors" below. It is
anticipated that these companies will primarily be in nations with more devel-
oped securities markets, such as Japan, Australia, Canada, New Zealand and
most Western European countries, including Great Britain.
FIXED INCOME SECURITIES: Fixed income securities in which the Emerging Mar-
kets Equity Series may invest include all types of long- or short-term debt
obligations, such as bonds, notes, bills, debentures, loans, loan assignments
and commercial paper. The Series may invest in emerging market fixed income
securities, which, in addition to the securities identified above, may take
the form of interests issued by entities organized and operated for the pur-
pose of restructuring the investment characteristics of instruments issued by
emerging market country issuers. Fixed income securities in which the Series
may invest include securities in the lower rating categories of recognized
rating agencies and comparable unrated securities. See "Additional Risk Fac-
tors" below. The Series will not invest 35% or more of its net assets, in non-
convertible fixed income securities rated Ba or lower by Moody's or BB or
lower by S&P, Fitch or Duff & Phelps and comparable unrated securities. See
"Additional Risk Factors -- Fixed Income Securities" below. However, because
most foreign fixed income securities are not rated, the Series will invest in
foreign fixed income securities primarily based on the Adviser's or the Sub-
Adviser's credit analysis without relying on published ratings.
INVESTMENT IN OTHER INVESTMENT COMPANIES: The Emerging Markets Equity Series
may invest in other investment companies to the extent permitted by the 1940
Act (i) as a means by which the Series may invest in securities of certain
countries which do not otherwise permit investment, (ii) as a means to pur-
chase thinly traded securities of emerging market companies, or (iii) when the
Adviser or the Sub-Adviser believes such investments may be more advantageous
to the Series than a direct market purchase of securities. If the Series in-
vests in such investment companies, the Series' shareholders will bear not
only their proportionate share of the expenses of the Series (including oper-
ating expenses and the fees of the Adviser) but also will indirectly bear sim-
ilar expenses of the underlying investment companies.
PRIVATIZATIONS: The governments in some countries, including emerging market
countries, have been engaged in programs of selling part or all of their
stakes in government owned or controlled enterprises ("privatizations"). The
Emerging Markets Equity Series may invest in privatizations. In certain coun-
tries, the ability of foreign entities to participate in privatizations may be
limited by local law and the terms on which the foreign entities may be per-
mitted to participate may be less advantageous than those afforded local in-
vestors.
DEPOSITARY RECEIPTS: The Emerging Markets Equity Series may invest in Ameri-
can Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
other types of depositary receipts. ADRs are certificates issued by a U.S. de-
positary (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. GDRs
and other types of depositary receipts are typically issued by foreign banks
or trust companies and evidence ownership of underlying securities issued by
either a foreign or a U.S. company. Generally, ADRs are in registered form and
are designed for use in U.S. securities markets and GDRs are in bearer form
and are designed for use in foreign securities markets. For the purposes of
the Series' policy to invest a certain percentage of its assets in foreign se-
curities, the investments of the Series in ADRs, GDRs and other types of de-
positary receipts are deemed to be investments in the underlying securities.
STRUCTURED SECURITIES: The Emerging Markets Equity Series may invest a por-
tion of its assets in entities organized and operated solely for the purpose
of restructuring the investment characteristics of sovereign debt obligations.
This type of restructuring involves the deposit with, or purchase by, an enti-
ty, such as a corporation or trust, of specified instruments (such as commer-
cial bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of
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securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
appointed among the newly issued Structured Securities to create securities
with different investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type
in which the Series anticipates it will invest typically involve no credit en-
hancement, their credit risk generally will be equivalent to that of under-
lying instruments. The Series is permitted to invest in a class of Structured
Securities that is either subordinated or unsubordinated to the right of pay-
ment of another class. Subordinated Structured Securities typically have
higher yields and present greater risks than unsubordinated Structured Securi-
ties. Structured Securities are typically sold in private placement transac-
tions, and there currently is no active trading market for Structured Securi-
ties.
INDEXED SECURITIES: Each of the High Income Series, the World Governments
Series and the Emerging Markets Equity Series may invest in indexed securities
whose value is linked to foreign currencies, interest rates, commodities, in-
dices or other financial indicators. Most indexed securities are short- to in-
termediate-term fixed income securities whose values at maturity (i.e., prin-
cipal value) and/or interest rates rise or fall according to the change in one
or more specified underlying instruments. Indexed securities may be positively
or negatively indexed (i.e., their principal value or interest rates may in-
crease or decrease if the underlying instrument appreciates), and may have re-
turn characteristics similar to direct investments in the underlying instru-
ment or to one or more options on the underlying instrument. Indexed securi-
ties may be more volatile than the underlying instrument itself.
SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to dif-
ferent types of investments, each of the High Income Series, the World Govern-
ments Series and the Emerging Markets Equity Series may enter into interest
rate swaps, currency swaps and other types of available swap agreements, such
as caps, collars and floors. Swaps involve the exchange by a Series with an-
other party of cash payments based upon different interest rate indexes, cur-
rencies, and other prices or rates, such as the value of mortgage prepayment
rates. For example, in the typical interest rate swap, a Series might exchange
a sequence of cash payments based on a floating rate index for cash payments
based on a fixed rate. Payments made by both parties to a swap transaction are
based on a principal amount determined by the parties.
Each of the High Income Series, the World Governments Series and the Emerg-
ing Markets Equity Series may also purchase and sell caps, floors and collars.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal
amount from the counterparty selling such interest rate cap. The sale of an
interest rate floor obligates the seller to make payments to the extent that a
specified interest rate falls below an agreed-upon level. A collar arrangement
combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Series' investment exposure from one
type of investment to another. For example, if a Series agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease a Series' exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of a Series' investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
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Series' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Series may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its expo-
sure through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which in-
volve certain risks. See the SAI for further information on, and the risks in-
volved in, these activities.
OPTIONS ON SECURITIES: Each of the Emerging Growth Series, the Emerging Mar-
kets Equity Series, the World Governments Series, the Growth With Income Se-
ries and the High Income Series may write (sell) covered put and call options
and purchase put and call options on securities. Each of these Series will
write options on securities for the purpose of increasing its return and/or to
protect the value of its portfolio. In particular, where a Series writes an
option that expires unexercised or is closed out by the Series at a profit, it
will retain the premium paid for the option which will increase its gross in-
come and will offset in part the reduced value of the portfolio security un-
derlying the option, or the increased cost of portfolio securities to be ac-
quired. In contrast, however, if the price of the underlying security moves
adversely to the Series' position, the option may be exercised and the Series
will be required to purchase or sell the underlying security at a disadvanta-
geous price, which may only be partially offset by the amount of the premium.
The Series may also write combinations of put and call options on the same se-
curity, known as "straddles." Such transactions can generate additional pre-
mium income but also present increased risk.
By writing a call option on a security, a Series limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Se-
ries retains the risk of depreciation in value of securities on which it has
written call options.
Each of these Series may also purchase put or call options in anticipation
of market fluctuations which may adversely affect the value of its portfolio
or the prices of securities that a Series wants to purchase at a later date.
In the event that the expected market fluctuations occur, the Series may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The premium paid for a put or call option
plus any transaction costs will reduce the benefit, if any, realized by the
Series upon exercise or liquidation of the option, and, unless the price of
the underlying security changes sufficiently, the option may expire without
value to the Series.
In certain instances, the Emerging Markets Equity Series and the Emerging
Growth Series may enter into options on Treasury securities that are "reset"
options or "adjustable strike" options. These options provide for periodic ad-
justment of the strike price and may also provide for the periodic adjustment
of the premium during the term of the option. The SAI contains a further dis-
cussion of these investments.
OPTIONS ON STOCK INDICES: Each of the Emerging Growth Series, the Growth
With Income Series and the Emerging Markets Equity Series may write (sell)
covered call and put options and purchase call and put options on stock indi-
ces. Each of these Series may write options on stock indices for the purpose
of increasing its gross income and to protect its portfolio against declines
in the value of securities it owns or increases in the value of securities to
be acquired. When a Series writes an option on a stock index, and the value of
the index moves adversely to the holder's position, the option will not be ex-
ercised, and the Series will either close out the option at a profit or allow
it to expire unexercised. A Series will thereby retain the amount of the pre-
mium, less related transaction costs, which will increase its gross income and
offset part of the reduced value of portfolio securities or the increased cost
of securities to be acquired. Such transactions, however, will constitute only
partial hedges against adverse price fluctuations, since any such fluctuations
will be offset only to the extent of the premium received by a Series for the
writing of the option, less related transaction costs. In addition, if the
value of an underlying index moves adversely to a Series' option position,
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the option may be exercised, and the Series will experience a loss which may
only be partially offset by the amount of the premium received.
Each of these Series may also purchase put or call options on stock indices
in order, respectively, to hedge its investments against a decline in value or
to attempt to reduce the risk of missing a market or industry segment advance.
A Series' possible loss in either case will be limited to the premium paid for
the option, plus related transaction costs.
"YIELD CURVE" OPTIONS: Each of the World Governments Series and the High In-
come Series may enter into options on the yield "spread," or yield differen-
tial, between two securities, a transaction referred to as a "yield curve" op-
tion, for hedging and non-hedging (an effort to increase current income) pur-
poses. 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 ac-
tual prices of the individual securities, and is settled through cash pay-
ments. 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 de-
crease. Yield curve options written by a Series will be covered as described
in the SAI. The trading of yield curve options is subject to all the risks as-
sociated with trading other types of options, as discussed below under "Addi-
tional Risk Factors" and in the SAI. In addition, such options present risks
of loss even if the yield on one of the underlying securities remains con-
stant, if the spread moves in a direction or to an extent which was not antic-
ipated.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: Each of the Emerging
Markets Equity Series, the World Governments Series and the High Income Series
may purchase and sell futures contracts on foreign or domestic fixed income
securities or indices of such securities, including municipal bond indices and
any other indices of foreign or domestic fixed income securities that may be-
come available for trading ("Futures Contracts"). Each of these Series may
also purchase and write options on such Futures Contracts ("Options on Futures
Contracts"). Each of the Emerging Growth Series, the Growth With Income Series
and the Emerging Markets Equity Series may purchase and sell Futures Contracts
on stock indices, while the Emerging Growth Series, the Emerging Markets Eq-
uity Series, the World Governments Series and the Growth With Income Series
may purchase and sell Futures Contracts on foreign currencies or indices of
foreign currencies. Each of these Series may also purchase and write Options
on such Futures Contracts.
Such transactions will be entered into for hedging purposes or for non-hedg-
ing purposes to the extent permitted by applicable law. Each Series will incur
brokerage fees when it purchases and sells Futures Contracts, and will be re-
quired to maintain margin deposits. In addition, Futures Contracts entail
risks. Although the Adviser believes that use of such Contracts will benefit a
Series, if its investment judgment about the general direction of exchange
rates or the stock market is incorrect, the Series' overall performance may be
poorer than if it had not entered into any such contract and the Series may
realize a loss. A Series will not enter into any Futures Contract if immedi-
ately thereafter the value of securities and other obligations underlying all
such Futures Contracts held by such Series would exceed 50% of the value of
its total assets.
Purchases of Options on Futures Contracts may present less risk in hedging a
Series' portfolio than the purchase or sale of the underlying Futures Con-
tracts since the potential loss is limited to the amount of the premium plus
related transaction costs, although it may be necessary to exercise the option
to realize any profit, which results in the establishment of a futures posi-
tion. The writing of Options on Futures Contracts, however, does not present
less risk than the trading of Futures Contracts and will constitute only a
partial hedge, up to the amount of the premium received. In addition, if an
option is exercised, a Series may suffer a loss on the transaction.
Futures Contracts and Options on Futures Contracts that are entered into by
a Series will be traded on U.S. and foreign exchanges.
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FORWARD CONTRACTS: Each of the Series may enter into forward foreign cur-
rency exchange contracts for the purchase or sale of a fixed quantity of a
foreign currency at a future date ("Forward Contracts"). Each of these Series
may enter into Forward Contracts for hedging purposes and (except for the High
Income Series) for non-hedging purposes (i.e., speculative purposes). By en-
tering into transactions in Forward Contracts for hedging purposes, a Series
may be required to forego the benefits of advantageous changes in exchange
rates and, in the case of Forward Contracts entered into for non-hedging pur-
poses, a Series may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative. Forward Contracts
are traded over-the-counter and not on organized commodities or securities ex-
changes. As a result, Forward Contracts operate in a manner distinct from ex-
change-traded instruments, and their use involves certain risks beyond those
associated with transactions in Futures Contracts or options traded on ex-
changes. A Series may choose to, or be required to, receive delivery of the
foreign currencies underlying Forward Contracts it has entered into. Under
certain circumstances, such as where the Adviser or Sub-Adviser, as applica-
ble, believes that the applicable exchange rate is unfavorable at the time the
currencies are received or the Adviser or Sub-Adviser, as applicable, antici-
pates, for any other reason, that the exchange rate will improve, the Series
may hold such currencies for an indefinite period of time. A Series may also
enter into a Forward Contract on one currency to hedge against risk of loss
arising from fluctuations in the value of a second currency (referred to as a
"cross hedge") if, in the judgment of the Adviser or Sub-Adviser, as applica-
ble, a reasonable degree of correlation can be expected between movements in
the values of the two currencies. Each of these Series has established proce-
dures consistent with statements of the SEC and its staff regarding the use of
Forward Contracts by registered investment companies, which requires use of
segregated assets or "cover" in connection with the purchase and sale of such
contracts.
OPTIONS ON FOREIGN CURRENCIES: Each of the Emerging Growth Series, the
Emerging Markets Equity Series, the World Governments Series, the Growth With
Income Series and the High Income Series may purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of pro-
tecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and a Series may be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of
an Option on Foreign Currency may constitute an effective hedge against fluc-
tuations in exchange rates although, in the event of rate movements adverse to
a Series' position, it may forfeit the entire amount of the premium paid for
the option plus related transaction costs. A Series may also choose to, or be
required to, receive delivery of the foreign currencies underlying Options on
Foreign Currencies it has entered into. Under certain circumstances, such as
where the Adviser believes that the applicable exchange rate is unfavorable at
the time the currencies are received or the Adviser anticipates, for any other
reason, that the exchange rate will improve, a Series may hold such currencies
for an indefinite period of time.
6. ADDITIONAL RISK FACTORS
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although certain Series
will enter into transactions in options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and Options on Foreign Currencies for hedging
purposes, such transactions nevertheless involve certain risks. For example, a
lack of correlation between the instrument underlying an option or Futures
Contract and the assets being hedged, or unexpected adverse price movements,
could render a Series' hedging strategy unsuccessful and could result in loss-
es. Certain Series also may enter into transactions in options, Futures Con-
tracts, Options on Futures Contracts and Forward Contracts for other than
hedging purposes, which involves greater risk. In particular, such transac-
tions may result in losses for a Series which are not offset by gains on other
portfolio positions, thereby reducing gross income. In addition, foreign cur-
rency markets may be extremely volatile from time to time. There also can be
no assurance that a liquid secondary market will exist for any
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contract purchased or sold, and a Series may be required to maintain a posi-
tion until exercise or expiration, which could result in losses. The SAI con-
tains a description of the nature and trading mechanics of options, Futures
Contracts, Options on Futures Contracts, Forward Contracts and Options on For-
eign Currencies, and includes a discussion of the risks related to transac-
tions therein.
Transactions in Forward Contracts may be entered into only in the over-the-
counter market. Futures Contracts and Options on Futures Contracts may be en-
tered into on U.S. exchanges regulated by the Commodity Futures Trading Com-
mission and on foreign exchanges. In addition, the securities and indexes un-
derlying options, Futures Contracts and Options on Futures Contracts traded by
the Series will include both domestic and foreign securities.
LOWER RATED BONDS: Each of the Emerging Growth Series, the Research Series,
the Emerging Markets Equity Series and the High Income Series may invest in
fixed income securities rated Baa by Moody's or BBB by S&P or Fitch and compa-
rable unrated securities. These securities, while normally exhibiting adequate
protection parameters, have speculative characteristics and changes in eco-
nomic 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 securities.
Each of these Series may also invest in securities rated Ba or lower by
Moody's or BB or lower by S&P or Fitch and comparable unrated securities (com-
monly known as "junk bonds") to the extent described above. See Appendix A to
this Prospectus for a description of these ratings. These securities are con-
sidered speculative and, while generally providing greater income than invest-
ments 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 dur-
ing periods of economic uncertainty or change) than securities in the higher
rating categories. However, since yields vary over time, no specific level of
income can ever be assured. These lower rated high yielding fixed income secu-
rities generally tend to reflect economic changes and short-term corporate and
industry developments to a greater extent than higher rated securities which
react primarily to fluctuations in the general level of interest rates (al-
though these lower rated fixed income securities are also affected by changes
in interest rates, the market's perception of their credit quality, and the
outlook for economic growth). In the past, economic downturns or an increase
in interest rates have, under certain circumstances, caused a higher incidence
of default by the issuers of these securities and may do so in the future, es-
pecially in the case of highly leveraged issuers. During certain periods, the
higher yields on a Series' lower rated high yielding fixed income securities
are paid primarily because of the increased risk of loss of principal and in-
come, arising from such factors as the heightened possibility of default or
bankruptcy of the issuers of such securities. Due to the fixed income payments
of these securities, a Series may continue to earn the same level of interest
income while its net asset value declines due to portfolio losses, which could
result in an increase in the Series' yield despite the actual loss of princi-
pal. The market for these lower rated fixed income securities may be less liq-
uid than the market for investment grade fixed income securities, and judgment
may at times play a greater role in valuing these securities than in the case
of investment grade fixed income securities. Changes in the value of securi-
ties subsequent to their acquisition will not affect cash income or yield to
maturity to a Series but will be reflected in the net asset value of shares of
the Series. See the SAI for more information on lower rated securities.
FOREIGN SECURITIES: Each of the Series may invest in dollar-denominated and
non-dollar-denominated foreign securities. Investing in securities of foreign
issuers generally involves risks not ordinarily associated with investing in
securities of domestic issuers. These include changes in currency rates, ex-
change control regulations, governmental administration or economic or mone-
tary policy (in the U.S. or abroad) or circumstances in dealings between na-
tions. Costs may be incurred in connection with conversions between various
currencies. Special considerations may also include more limited information
about foreign issuers, higher brokerage costs, different accounting standards
and
25
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thinner trading markets. Foreign securities markets may also be less liquid,
more volatile and less subject to government supervision than in the United
States. Investments in foreign countries could be affected by other factors
including expropriation, confiscatory taxation and potential difficulties in
enforcing contractual obligations and could be subject to extended settlement
periods. Each of the Series may hold foreign currency received in connection
with investments in foreign securities when, in the judgment of the Adviser,
it would be beneficial to convert such currency into U.S. dollars at a later
date, based on anticipated changes in the relevant exchange rate. Such Series
may also hold foreign currency in anticipation of purchasing foreign securi-
ties. See the SAI for further discussion of foreign securities and the holding
of foreign currency, as well as the associated risks.
AMERICAN DEPOSITARY RECEIPTS: Each of 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. Because ADRs trade on U.S. securities exchanges,
the Adviser does not treat them as foreign securities (except with respect to
the Emerging Markets Equity Series). However, they are subject to many of the
risks of foreign securities such as changes in exchange rates and more limited
information about foreign issuers.
EMERGING MARKET SECURITIES: Each of the Series may invest in emerging mar-
kets. In addition to the general risks of investing in foreign securities, in-
vestments in emerging markets involve special risks. Securities of many is-
suers in emerging markets may be less liquid and more volatile than securities
of comparable domestic issuers. These securities may be considered speculative
and, while generally offering higher income and the potential for capital ap-
preciation, may present significantly greater risk. Emerging markets may have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of a Series is uninvested and no return is earned thereon. The inabil-
ity of a Series to make intended security purchases due to settlement problems
could cause a Series to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result in
losses to a Series due to subsequent declines in value of the portfolio secu-
rities, a decrease in the level of liquidity in a Series' portfolio, or if a
Series has entered into a contract to sell the security, possible liability to
the purchaser. Certain markets may require payment for securities before de-
livery, and in such markets a Series bears the risk that the securities will
not be delivered and that the Series' payments will not be returned. Securi-
ties prices in emerging markets can be significantly more volatile than in the
more developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the
risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions of repatriation of assets, ad may have less protection of prop-
erty rights than more developed countries. The economies of countries with
emerging markets may be predominantly based on only a few industries, may be
highly vulnerable to changes in local or global trade conditions, and may suf-
fer from extreme and volatile debt burdens or inflation rates. Local securi-
ties markets may trade a small number of securities and may be unable to re-
spond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times. Securi-
ties of issuers located in countries with emerging markets may have limited
marketability and may be subject to more abrupt or erratic movements.
Certain emerging markets may require governmental approval for the repatria-
tion of investment income, capital or the proceeds of sales of securities by
foreign investors. In addition, if a deterioration occurs in an emerging mar-
ket's balance of payments or for other reasons, a country could impose tempo-
rary restrictions on foreign capital remittances. A Series could be adversely
affected by delays in, or a refusal to grant, any required governmental ap-
proval for repatriation of capital, as well as by the application to the Se-
ries of any restrictions on investments.
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Investment in certain foreign emerging market debt obligations may be re-
stricted or controlled to varying degrees. These restrictions or controls may
at times preclude investment in certain foreign emerging market debt obliga-
tions and increase the expenses of a Series.
ALLOCATION AMONG EMERGING MARKETS: The Emerging Markets Equity Series may
allocate all or a portion of its investments in emerging market securities
among the emerging markets of Latin America, Asia, Africa, the Middle East and
the developing countries of Europe, primarily in Eastern Europe. The Series
will allocate its investments among these emerging markets in accordance with
the Adviser's and the Sub-Adviser's determination as to the allocation most
appropriate with respect to the Series' investment objective and policies. The
Series may invest its assets allocated to investment in emerging markets with-
out limitation in any particular region, and, in accordance with the Adviser's
and the Sub-Adviser's investment discretion, at times may invest all of its
assets allocated to investment in emerging markets in securities of emerging
market issuers located in a single region (e.g., Latin America). To the extent
that the Series' investments are concentrated in one or a few emerging market
regions, the Series' investment performance correspondingly will be more de-
pendent upon the economic, political and social conditions and changes in
those regions. The ability of the Series to allocate its investments among
emerging market regions without restriction may have the effect of increasing
the volatility of the Series, as compared to a series which limits such allo-
cations.
INVESTMENTS IN ONE OR A LIMITED NUMBER OF COUNTRIES: The Emerging Markets
Equity Series will seek to reduce risk by investing its assets in a number of
markets and issuers. However, the Series may invest up to 50% of its net as-
sets in issuers located in a single country. To the extent that the Series in-
vests a significant portion of its assets in a single or limited number of
countries, the Series' investment performance correspondingly will be more de-
pendent upon the economic, political and social conditions and changes in that
country or countries, and the risks associated with investments in such coun-
try or countries will be particularly significant. The ability of the Series
to focus its investments in one or a limited number of countries may have the
effect of increasing the volatility of the Series.
FOREIGN CURRENCIES: Because the Emerging Markets Equity Series may invest up
to 100% of its assets in securities denominated in currencies other than the
U.S. dollar, and because the Series may hold foreign currencies, the value of
the Series' investments, and the value of dividends and interest earned by the
Series, may be significantly affected by changes in currency exchange rates.
Some foreign currency values may be volatile, and there is the possibility of
governmental controls on currency exchange or governmental intervention in
currency markets, which could adversely affect the Series. Although the Ad-
viser and Sub-Adviser may attempt to manage currency exchange rate risks,
there is no assurance that the Adviser and Sub-Adviser will do so at an appro-
priate time or that the Adviser and Sub-Adviser will be able to predict ex-
change rates accurately. For example, if the Adviser and Sub-Adviser hedge the
Series' exposure to a foreign currency, and that currency's value rises, the
Series will lose the opportunity to participate in the currency's apprecia-
tion. The Series may hold foreign currency received in connection with invest-
ments in foreign securities, and enter into Forward Contracts, Futures Con-
tracts and Options on Foreign Currencies when, in the judgment of the Adviser
or Sub-Adviser, it would be beneficial to convert such currency into U.S. dol-
lars at a later date, based on anticipated changes in the relevant exchange
rates. While the holding of foreign currencies will permit the Series to take
advantage of favorable movements in the applicable exchange rate, it also ex-
poses the Series to risk of loss if such rates move in a direction adverse to
the Series' position. Such losses could also adversely affect the Series'
hedging strategies. See the SAI for further discussion of the holding of for-
eign currencies as well as the associated risks.
NON-DIVERSIFICATION: The World Governments Series is "non-diversified," as
that term is defined in the Investment Company Act of 1940 ( the "1940 Act"),
but intends to qualify as a "regulated investment company" ("RIC") for federal
income tax purposes. This means, in general, that although more than 5% of the
Series' total assets may be invested
27
<PAGE>
in the securities of one issuer (including a foreign government), at the close
of each quarter of its taxable year the aggregate amount of such holdings may
not exceed 50% of the value of its total assets, and no more than 25% of the
value of its total assets may be invested in the securities of a single issu-
er. To the extent that a non-diversified Series at times may hold the securi-
ties of a smaller number of issuers than if it were "diversified" (as defined
in the 1940 Act), the Series will at such times be subject to greater risk
with respect to its portfolio securities than a fund that invests in a broader
range of securities, because changes in the financial condition or market as-
sessment of a single issuer may cause greater fluctuations in the Series' to-
tal return and the net asset value of its shares.
----------------
SHORT-TERM INVESTMENTS FOR TEMPORARY DEFENSIVE PURPOSES -- During periods of
unusual market conditions when the Adviser or Sub-Adviser, as applicable, be-
lieves that investing for temporary defensive purposes is appropriate, or in
order to meet anticipated redemption requests, a large portion or all of the
assets of each Series may be invested in cash (including foreign currency) or
cash equivalents including, but not limited to, obligations of banks (includ-
ing certificates of deposit, bankers' acceptances, time deposits and repur-
chase agreements), commercial paper, short-term notes, U.S. Government Securi-
ties and related repurchase agreements.
PORTFOLIO TRADING
Each Series intends to manage its portfolio by buying and selling securi-
ties, as well as holding securities to maturity, to help attain its investment
objectives and policies.
Each Series will engage in portfolio trading if it believes a transaction,
net of costs (including custodian charges), will help in attaining its invest-
ment objectives. In trading portfolio securities, a Series seeks to take ad-
vantage of market developments, yield disparities and variations in the cred-
itworthiness of issuers. For a description of the strategies which may be used
by the Series in trading portfolio securities, see "Portfolio Transactions and
Brokerage Commissions" in the SAI. The Total Return Series' portfolio will be
managed actively with respect to the Series' fixed income securities and the
asset allocations modified as the Adviser deems necessary. Although the Series
does not intend to seek short-term profits, fixed income securities in its
portfolio will be sold whenever the Adviser believes it is appropriate to do
so without regard to the length of time the particular asset may have been
held. With respect to its equity securities, the Total Return Series does not
intend to trade in securities for short-term profits and anticipates that
portfolio securities ordinarily will be held for one year or longer. However,
the Series will effect trades whenever it believes that changes in its portfo-
lio securities are appropriate.
Because each of the High Income Series and the World Governments Series is
expected to have a portfolio turnover rate of over 100%, transaction costs in-
curred by the Series and the realized capital gains and losses of the Series
may be greater than that of a fund with a lesser portfolio turnover rate. The
Emerging Markets Equity Series is not anticipated to have a portfolio turnover
rate in excess of 100%.
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 possi-
ble. Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD")
and such other policies as the Trustees of the Trust may determine, the Ad-
viser may consider sales of Contracts for which the Trust is an investment op-
tion, together with sales of shares of other investment company clients of MFS
Fund Distributors, Inc., the distributor of shares of the Trust and of the MFS
Family of Funds, as a factor in the selection of broker-dealers to execute
each Series' portfolio transactions. From time to time the Adviser may direct
certain portfolio transactions to broker-dealer firms which, in turn, have
agreed to pay a portion
28
<PAGE>
of the Series' operating expenses (e.g., fees charged by the custodian of the
Series' assets). For a further discussion of portfolio trading, see the SAI.
----------------
The SAI includes a discussion of other investment policies and listing of
specific investment restrictions which govern the investment policies of each
Series. The specific investment restrictions listed in the SAI may be changed
without shareholder approval unless indicated otherwise (see the SAI). The Se-
ries' investment limitations, policies and rating standards are adhered to at
the time of purchase or utilization of assets; a subsequent change in circum-
stances will not be considered to result in a violation of policy.
7.MANAGEMENT OF THE SERIES
The Trust's Board of Trustees, as part of its overall management responsi-
bility, oversees various organizations responsible for each Series' day-to-day
management.
INVESTMENT ADVISER -- MFS manages each Series pursuant to an Amended and Re-
stated Investment Advisory Agreement with the Trust on behalf of each Series
dated April 14, 1994, as amended and restated on October 16, 1997 (the "Advi-
sory Agreement"). Under the Advisory Agreement, MFS provides the Series with
overall investment advisory services. Subject to such policies as the Trustees
may determine, MFS makes investment decisions for each Series. For its serv-
ices 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 as-
sets of each Series:
<TABLE>
<CAPTION>
PERCENTAGE OF THE AVERAGE
DAILY NET ASSETS
SERIES OF EACH SERIES
- ------ -------------------------
<S> <C>
Emerging Growth Series................................ 0.75%
Research Series....................................... 0.75%
Growth With Income Series............................. 0.75%
High Income Series.................................... 0.75%
World Governments Series.............................. 0.75%
Emerging Markets Equity Series........................ 1.25%
</TABLE>
For the fiscal year ended December 31, 1996, MFS received the following man-
agement fees from the Series under the Advisory Agreement and assumed the fol-
lowing amounts of the Series' expenses (see "Expenses" below):
<TABLE>
<CAPTION>
MANAGEMENT FEE EXPENSES ASSUMED
SERIES PAID TO MFS BY MFS
- ------ -------------- ----------------
<S> <C> <C>
Emerging Growth Series.......................... $314,262 $ 62,962
Research Series................................. 92,348 56,859
Growth With Income Series....................... 30,792 42,658
High Income Series.............................. 56,169 45,293
World Governments Series........................ 126,898 172,556
</TABLE>
FCM--The Emerging Markets Equity Series Advisory Agreement permits the Ad-
viser from time to time to engage one or more sub-advisers to assist in the
performance of its services. Pursuant to the Advisory Agreement, the Adviser
has engaged Foreign & Colonial Management Ltd., a company incorporated under
the laws of England and Wales ("FCM"), located at Exchange House, Primrose
Street, London EC2A 2NY, United Kingdom, as sub-adviser to render advisory
services to the Series. FCM is a wholly owned subsidiary of Hypo Foreign & Co-
lonial Management (Holdings) Ltd. ("Hypo F&C"). Sixty-Five percent of the out-
standing voting securities of Hypo F&C is owned by Hypo (U.K.)
29
<PAGE>
Holdings Ltd., which is a wholly owned subsidiary of HYPO-BANK (Bayerische
Hypotheken-und Wechsel-Bank AG), the oldest publicly listed, and fifth larg-
est, commercial bank in Germany, founded in 1835. The remaining 35% of the
outstanding voting securities of Hypo F&C is owned by 4 closed-end publicly
listed investment trusts managed by FCM, including Foreign & Colonial Invest-
ment Trust PLC. FCM has a history of money management dating from 1868 and the
establishment of the world's oldest closed-end fund, Foreign & Colonial In-
vestment Trust PLC. As of May 31, 1997, FCM managed approximately U.S. $45.64
billion of assets, including approximately U.S. $35.85 billion of assets in
equity securities and approximately U.S. $9.79 billion of assets in fixed in-
come securities.
Under a separate Sub-Advisory Agreement between the Adviser and FCM, dated
October 16, 1997 (the "Sub-Advisory Agreement"), the Adviser may delegate to
FCM the authority to make investment decisions for the Series. It is presently
intended that FCM will provide portfolio management services for the Series.
For its services, the Adviser pays FCM a management fee, computed and paid
monthly, in an amount equal to 0.65% of the average daily net assets managed
by FCM of the Series on an annualized basis. The Adviser and FCM have agreed
to cooperate in distributing, advising and managing investment products
throughout the world. In this arrangement they anticipate that certain
expenses and revenues relating to their cooperative activities, including
investment advisory fees received from the Series and certain expenses
incurred by MFS, FCM and their affiliates attributable to their services to
the Series, will be shared.
FCEM--The Emerging Markets Equity Series Sub-Advisory Agreement permits FCM
from time to time to engage one or more sub-advisers to assist in the perfor-
mance of its services. Pursuant to the Sub-Advisory Agreement, FCM has engaged
Foreign & Colonial Emerging Markets Limited, a company incorporated under the
laws of England and Wales ("FCEM"), located at Exchange House, Primrose
Street, London EC2A 2NY, United Kingdom, as sub-adviser to render advisory
services to the Series. FCEM is a wholly owned subsidiary of FCM. FCEM serves
as the investment adviser to public closed-end and open-end funds and segre-
gated accounts specializing in emerging markets. As of May 31, 1997, FCEM man-
aged approximately U.S. $4.92 billion of assets invested in emerging markets.
Under a separate Sub-Advisory Agreement between FCM and FCEM, dated October
16, 1997, FCM may delegate to FCEM the authority to make investment decisions
for the Series. It is presently intended that FCEM will provide management
services for the portion of the assets of the Series invested in emerging mar-
kets securities. For its services, FCM pays FCEM a management fee, computed
and paid monthly, in an amount equal to 0.65% of the average daily net assets
managed by FCEM of the Series on an annualized basis.
The identity and background of the portfolio managers for each Series is set
forth below. Unless indicated otherwise, each portfolio manager has acted in
that capacity since the commencement of investment operations of each Series.
<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGERS
------ ------------------
<C> <S>
Emerging Growth Series John W. Ballen, a Senior Vice President of MFS, has
been employed by the Adviser as a portfolio manager
since 1984. Toni Y. Shimura, a Vice President of
MFS, has been employed by the Adviser as a portfolio
manager since 1987. Ms. Shimura became a portfolio
manager of the Series on November 30, 1995.
Research Series The Series is currently managed by a committee
comprised of various equity research analysts
employed by the Adviser.
Growth With Income Series Kevin R. Parke, a Senior Vice President of MFS, has
been employed by the Adviser as a portfolio manager
since 1985. John D. Laupheimer, a Senior Vice
President of MFS, has been employed by the Adviser
as a portfolio manager since 1981.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGERS
------ ------------------
<C> <S>
High Income Series Joan S. Batchelder, a Senior Vice President of the
Adviser, has been employed by the Adviser as a
portfolio manager since 1984.
World Governments Series Stephen C. Bryant, a Senior Vice President of the
Adviser, has been employed by the Adviser as a
portfolio manager since 1987.
Emerging Markets Dr. Arnab Kumar Banerji, Chief Investment Officer of
Equity Series FCEM, has been employed by FCEM as a portfolio
manager since 1993. Prior to 1993, Mr. Banerji served
as Joint Head of Emerging Markets for Citibank Global
Asset Management. Jeffery Chowdhry, a Director of
FCEM, has been employed by FCEM as a portfolio
manager since 1994. Prior to 1994, Mr. Chowdry was a
portfolio manager at BZW Investment Management.
</TABLE>
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermedi-
ate Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS In-
stitutional Trust, MFS Union Standard Trust, MFS/Sun Life Series Trust, and
seven variable accounts, each of which is a registered investment company es-
tablished by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)") in connection with the sale of various fixed/variable annuity con-
tracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc., pro-
vide 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 Invest-
ors Trust. Net assets under the management of the MFS organization were ap-
proximately $52.8 billion on behalf of approximately 2.3 million investor ac-
counts as of February 28, 1997. As of such date, the MFS organization managed
approximately $28.9 billion of assets invested in equity securities and ap-
proximately $19.4 billion of assets invested in fixed income securities. Ap-
proximately $4.0 billion of the assets managed by MFS are invested in securi-
ties of foreign issuers and non-U.S. dollar-denominated securities of U.S. is-
suers. MFS is a subsidiary of Sun Life of Canada (U.S.), which in turn is a
wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott,
John D. McNeil and Donald A. Stewart. Mr. Brodkin is the Chairman, Mr. Shames
is the President and Mr. Scott is the Secretary and a Senior Executive Vice
President of MFS. Messrs. McNeil and Stewart are the Chairman and President,
respectively, of Sun Life. Sun Life, a mutual life insurance company, is one
of the largest international life insurance companies and has been operating
in the United States since 1895, establishing a headquarters office here in
1973. The executive officers of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman 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.
MFS has established a strategic alliance with FCM. As part of this alliance,
the portfolio managers and investment analysts of MFS and FCM share their
views on a variety of investment related issues, such as the economy, securi-
ties markets, portfolio securities and their issuers, investment recommenda-
tions, strategies and techniques, risk analysis, trading strategies and other
portfolio management matters. MFS has access to the extensive international
equity investment expertise of FCM, and FCM has access to the extensive U.S.
equity investment expertise of MFS. MFS and FCM each have investment personnel
working in each other's offices in Boston and London, respectively.
31
<PAGE>
In certain instances there may be securities which are suitable for a Se-
ries' portfolio as well as for portfolios of other clients of MFS or clients
of FCM or FCEM. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and FCM or FCEM, particularly when
the same security is suitable for more than one client. While in some cases
this arrangement could have a detrimental effect on the price or availability
of the security as far as a Series is concerned, in other cases, however, it
may produce increased investment opportunities for the Series.
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 ef-
fect of lowering that Series' expense ratio, while the redemption by the Ad-
viser of shares of a Series may have the effect of increasing that Series' ex-
pense ratio.
DISTRIBUTOR -- MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidi-
ary 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.
ADMINISTRATOR -- MFS provides the Series with certain administrative serv-
ices pursuant to a Master Administrative Services Agreement dated March 1,
1997. Under this Agreement, MFS provides the Series with certain financial,
legal, compliance, shareholder communications and other administrative servic-
es. As a partial reimbursement for the cost of providing these services, the
Series pays MFS an administrative fee up to 0.015% per annum of the Series'
average daily net assets, provided that the administrative fee is not assessed
on a Series' assets that exceed $3 billion.
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 re-
ceived by the Trust before the close of regular trading on the Exchange (nor-
mally 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 deter-
mined 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 re-
ceipt 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. Pur-
chase 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 holi-
day 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
32
<PAGE>
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 pay-
ment 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 port-
folio management could be disrupted to the potential detriment of such Con-
tract.
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 Mar-
ket Series), as described in the SAI. All investments, assets and liabilities
are expressed in U.S. dollars based upon current currency exchange rates.
DISTRIBUTIONS
Substantially all of each 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 dur-
ing the calendar year to its shareholders from any 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 Series' investment restrictions, premiums from options
written), over a longer term, rather than its actual net investment income for
the period.
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 in-
vestment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended ("the Code"). Because each Series intends to distribute all of its net
investment income and net capital gains to its shareholders in accordance with
the timing requirements imposed by the Code, it is 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 Compa-
nies' separate accounts that fund Contracts. See the applicable Contract pro-
spectus for a discussion of the federal income tax treatment of (1) the sepa-
rate accounts that purchase and hold Series shares and (2) the holders of the
Contracts that are funded through those accounts. In addition to the diversi-
fication 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 SAI.
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.
33
<PAGE>
Shareholders are entitled to one vote for each share held, and shares of each
Series are entitled to vote separately to approve investment advisory agree-
ments 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 an-
nual shareholder meetings. The Declaration of Trust provides that a Trustee
may be removed from office in certain instances. See "Description of Shares,
Voting Rights and Liabilities" in the SAI.
Each share of a Series represents an equal proportionate interest in the Se-
ries 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 certif-
icates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts busi-
ness trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its obliga-
tions. 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.
United of Omaha Life Insurance Company, Omaha, NE, owns 50.75% of the Re-
search Series' shares, 75.63% of the High Income Series' shares and 33.02% of
the World Governments Series' shares, and, therefore, controls such Series;
Union Central Life Insurance Company--Group Annuity and Union Central Life In-
surance Company--Individual Annuity, Cincinnati, OH, own 28.17% and 52.03%,
respectively, of the Growth With Income Series' shares, and, therefore, each
controls the Series; Century Life of America--Century Variable Annuity Ac-
count, Waverly, IA, owns 45.82% of the World Governments Series' shares, and,
therefore, controls the Series; and Massachusetts Financial Services Company,
Boston, MA, owns 98.84% of the Emerging Markets Equity Series' shares, and,
therefore, controls the Series.
PERFORMANCE INFORMATION
Each Series' performance may be quoted in advertising in terms of yield and
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 ex-
penses 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 Series'
performance for the fiscal year ended December 31, 1996, please see the Se-
ries' Annual Reports. A copy of these Annual Reports may be obtained without
charge by contacting the Shareholder Servicing Agent (see back cover for ad-
dress and phone number).
From time to time, quotations of a Series' total return and yield may be in-
cluded in advertisements, sales literature or reports to shareholders or pro-
spective 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 reinvest-
ed. The yield of a Series refers to net investment income generated by a Se-
ries over a specified 30-day (or one month) period. This income is then
"annualized." That is, the
34
<PAGE>
amount of income generated by the Series during that 30-day (or one month) pe-
riod is assumed to be generated over a 12-month period and is shown as a per-
centage 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 repurchas-
ing and redeeming shares and servicing shareholder accounts; expenses of pre-
paring, printing and mailing prospectuses, periodic reports, notices and proxy
statements to shareholders and to governmental officers and commissions; bro-
kerage and other expenses connected with the execution, recording and settle-
ment 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 re-
quired 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 pro-
spectuses 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.
Subject to termination or revision at the sole discretion of MFS, MFS has
agreed to bear expenses of each of the Series such that the respective Series'
"Other Expenses," which are defined to include all expenses of the Series ex-
cept for management fees, do not exceed 0.25% of the average daily net assets
of the Series (the "Maximum Percentage"). The obligation of MFS to bear these
expenses for a Series terminates on the last day of the Series' fiscal year in
which its "Other Expenses" are less than or equal to the Maximum Percentage.
The payments made by MFS on behalf of each Series under this arrangement are
subject to reimbursement by the Series to MFS, which will be accomplished by
the payment of an expense reimbursement fee by the Series to MFS computed and
paid monthly at a percentage of the Series' average daily net assets for its
then current fiscal year, with a limitation that immediately after such pay-
ment the Series' "Other Expenses" will not exceed the Maximum Percentage. This
expense reimbursement by each Series to MFS terminates on the earlier of the
date on which payments made by the Series equal the prior payment of such re-
imbursable 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 SAI for the Trust, dated September 30, 1997, as amended or supplemented
from time to time, contains more detailed information about each of the Se-
ries, including information related to: (i) the investment policies and re-
strictions 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 cal-
culate yield and total rate of return quotations of each Series; (vi) the de-
termination of net asset value of shares of each Series; and (vii) certain
voting rights of shareholders of each Series.
35
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
The ratings of Moody's, S&P and Fitch represent their opinions as to the qual-
ity of various debt instruments. It should be emphasized, however, that rat-
ings 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 exception-
ally stable margin and principal is secure. While the various protective ele-
ments are likely to change, such changes as can be visualized are most un-
likely to impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all stan-
dards. 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 protec-
tive elements may be of greater amplitude or there may be other elements pres-
ent which make the long-term risks appear somewhat larger than in Aaa securi-
ties.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving secu-
rity 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 pay-
ments and principal security appear adequate for the present but certain pro-
tective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteris-
tics 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 char-
acterizes 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 shortcom-
ings.
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.
A-1
<PAGE>
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; or
4. the issue was privately placed, in which case the rating is not pub-
lished 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 SERVICES
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay prin-
cipal and differs from the highest 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 inter-
est and repay principal. Whereas it normally exhibits adequate protection pa-
rameters, 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 in-
adequate capacity to meet timely interest and principal payments. The BB rat-
ing category is also used for debt subordinated to senior debt that is as-
signed 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.
A-2
<PAGE>
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are jeopar-
dized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the ad-
dition of a plus or minus sign to show relative standing within the major rat-
ing categories.
NR: Indicates that no public rating has been requested, that there is insuf-
ficient 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 indi-
cates that the degree of safety regarding timely payment is either overwhelm-
ing 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 capac-
ity 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 reli-
ance on debt and ample asset protection; (4) broad margins in earnings cover-
age of fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of al-
ternate liquidity.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit qual-
ity. The obligor has an exceptionally strong ability to pay interest and pre-
pay 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, al-
though not quite as strong as bonds rated "AAA". Because bonds rated in the
"AA" and "AA" categories are not significantly vulnerable to foreseeable fu-
ture 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.
A-3
<PAGE>
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is consid-
ered 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 as-
sist 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 through-
out 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 in-
dicate 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 oc-
currence that is likely to result in a rating change and the likely direction
of such change. These are designated a "Positive," indicating a potential up-
grade, "Negative," for potential downgrade, or "Evolving," where ratings may
be lowered. FitchAlert is relatively short-term and should be resolved within
12 months.
DUFF & PHELPS CREDIT RATING CO.
AAA: Bonds considered to be investment grade and of the highest credit qual-
ity. The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and or very high credit quality.
The obligor's ability to pay interest and repay principal is very strong, al-
though not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable fu-
ture developments, short-term debt of these issuers is generally rated "D-1+".
A-4
<PAGE>
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is consid-
ered 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 through-
out 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.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within a rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Duff & Phelps does not rate the specific issue.
DUFF & PHELPS SHORT-TERM RATINGS
D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operation factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term obli-
gations.
D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1: High certainty of timely payment. Liquidity factors are strong and sup-
ported by good fundamental protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company funda-
mentals are sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.
D-3: Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
D-5: Issuer failed to meet scheduled principal and/or interest payments.
A-5
<PAGE>
APPENDIX B
MFS HIGH INCOME SERIES
PORTFOLIO COMPOSITION CHART
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
The table below shows the percentages of the Series' assets at December 31,
1996 invested in bonds assigned to the various rating categories by S&P,
Moody's (provided only for bonds not rated by S&P), Fitch (provided only for
bonds not rated by S&P or Moody's) and Duff & Phelps (provided only for bonds
not rated by S&P, Moody's or Fitch) and in unrated bonds determined by MFS to
be of comparable quality. For split rated bonds, the S&P rating is used. When
an S&P rating is unavailable, secondary sources are selected in the following
order: Moody's, Fitch and Duff & Phelps.
<TABLE>
<CAPTION>
UNRATED BONDS
COMPILED OF COMPARABLE
RATING RATINGS QUALITY TOTAL
------ -------- ------------- -----
<S> <C> <C> <C>
AAA/Aaa
AA/Aa
A/A
BBB/Baa
BB/Ba 12.02 12.02
B/B 69.41 3.93 73.34
CCC/Caa 4.49 4.49
CC/Ca
C/C
Default .58 .58
----- ---- -----
TOTAL 86.50 3.93 90.43
</TABLE>
The chart does not necessarily indicate what the composition of the Series'
portfolio will be in subsequent years. Rather, the Series' investment objec-
tive, policies and restrictions indicate the extent to which the Series may
purchase securities in the various categories.
B-1
<PAGE>
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)
343-2829, ext. 3500
MAILING ADDRESS:
P.O. Box 1400, Boston, MA 02104-9985
INDEPENDENT AUDITORS
Deloitte & Touche llp 125 Summer Street, Boston, MA 02110
LOGO
MFS(R) VARIABLE INSURANCE TRUST
500 Boylston Street, Boston, MA 02116
--------------------------
MFS(R) EMERGING GROWTH SERIES
MFS(R) RESEARCH SERIES
MFS(R) GROWTH WITH INCOME SERIES
MFS(R) HIGH INCOME SERIES
MFS(R) WORLD GOVERNMENTS SERIES
MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES
LOGO
PROSPECTUS
SEPTEMBER 30, 1997
--------------------------
