As filed with the Securities and Exchange Commission on August 28, 1995
1933 Act File No. 2-50409
1940 Act File No. 811-2464
MFS SERIES TRUST IX
(FORMERLY KNOWN AS MFS FIXED INCOME TRUST)
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 617-954-5000 Stephen E. Cavan, Massachusetts Financial Services Company, 500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on [date] pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of its Shares of Beneficial Interest (without par value), under the Securities Act of 1933. The Registrant filed a Rule 24f-2 Notice for its fiscal year ended April 30, 1995 on June 28, 1995.
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
NUMBER PROPOSED PROPOSED
OF SHARES MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
Shares of Beneficial
Interest (without par value) 3,908,250 $7.16 $290,000 $100
- ---------------------------------------------------------------------------------------------------
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Registrant elects to calculate the maximum aggregate offering price pursuant to Rule 24e-2. 26,231,777 shares were redeemed during the fiscal year ended April 30, 1995. 22,364,029 shares were used for reductions pursuant to paragraph (c) of Rule 24f-2 during the current fiscal year. 3,867,748 shares is the amount of redeemed shares used for reduction in this Amendment. Pursuant to Rule 457(d) under the Securities Act of 1933, the maximum public offering price of $7.16 per share on August 23, 1995 (based on MFS Limited Maturity Fund Class A) is the price used as the basis for calculating the registration fee. While no fee is required for the 3,867,748 shares, Registrant has elected to register, for $100, an additional $290,000 of shares (40,502 shares at $7.16 per share).
MFS SERIES TRUST IX
MFS BOND FUND
MFS LIMITED MATURITY FUND
MFS MUNICIPAL LIMITED MATURITY FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of Additional Information of the responses to the Items in Parts A and B of Form N-1A)
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares *
of the Fund - Performance
Information
(d) Condensed Financial Information *
4 (a) The Fund; Investment *
Objective and Policies
(b), (c) Investment Objective and *
Policies
5 (a) The Fund; Management of the *
Fund - Investment Adviser
(b) Front Cover Page; *
Management of the Fund -
Investment Adviser; Back
Cover Page
(c) Management of the Fund - *
Investment Adviser
(d) Management of the Fund - *
Investment Adviser; Back
Cover Page
(e) Management of the Fund - *
Shareholder Servicing Agent;
Back Cover Page
(f) Expense Summary; Condensed *
Financial Information
(g) Investment Objective and *
Policies; Information Concerning
Shares of the Fund - Purchases
5A (a), (b), (c) ** **
6 (a) Information Concerning Shares *
of the Fund - Description of
Shares, Voting Rights and
Liabilities; Information
Concerning Shares of the
Fund - Redemptions and
Repurchases; Information
Concerning Shares of the
Fund - Purchases; Information
Concerning Shares of the Fund -
Exchanges
(b), (c), (d) * *
(e) Shareholder Services *
(f) Information Concerning Shares *
of the Fund - Distributions;
Shareholder Services -
Distribution Options
(g) Information Concerning Shares *
of the Fund - Tax Status;
Information Concerning
Shares of the Fund - Distributions
7 (a) Front Cover Page; *
Management of the Fund -
Distributor; Back Cover Page
(b) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Net Asset Value
(c) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Exchanges; Shareholder
Services
(d) Front Cover Page; Information *
Concerning Shares of the
Fund - Purchases; Shareholder
Services
(e) Information Concerning Shares *
of the Fund - Distribution Plans;
Information Concerning Shares
of the Fund - Purchases; Expense
Summary
(f) Information Concerning Shares *
of the Fund - Distribution Plans
8 (a) Information Concerning *
Shares of the Fund -
Redemptions and
Repurchases; Information
Concerning Shares of the
Fund - Purchases;
Shareholder Services
(b), (c), (d) Information Concerning Shares *
of the Fund - Redemptions
and Repurchases
9 * *
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STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 The Fund Definitions
13 (a), (b), (c) * Investment Objective, Policies
and Restrictions
(d) * *
14 (a), (b) * Management of the Fund -
Trustees and Officers
(c) * Management of the Fund -
Trustees and Officers;
Appendix A
15 (a) * *
(b), (c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Shares Distribution Plans
of the Fund - Distribution Plans
(g) * *
(h) * Management of the Fund -
Custodian; Independent
Accountants and Financial
Statements; Back Cover Page
(i) * Management of the Fund -
Shareholder Servicing Agent
17 (a), (b), (c), (d), (e) * Portfolio Transactions and
Brokerage Commissions
18 (a) Information Concerning Shares Description of Shares Voting
of the Fund - Description of Rights and Liabilities
Shares, Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shares Shareholder Services
of the Fund - Purchases;
Shareholder Services
(b) Information Concerning Shares Management of the Fund -
of the Fund - Net Asset Value; Distributor; Determination of
Information Concerning Shares Net Asset Value and
of the Fund - Purchases Performance - Net Asset Value
(c) * *
20 * Tax Status
21 (a), (b) * Management of the Fund -
Distributor; Distribution Plans
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
23 * Independent Accountants
and Financial Statements
- --------------------------
* Not Applicable
** Contained in Annual Report
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PROSPECTUS
September 1, 1995
MFS(R) BOND FUND Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
Class C Shares of Beneficial Interest
(A member of the MFS Family of Funds(R))
- --------------------------------------------------------------------------------
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Page
----
1. Expense Summary ....................................................... 2
2. The Fund .............................................................. 3
3. Condensed Financial Information ....................................... 4
4. Investment Objectives and Policies .................................... 5
5. Management of the Fund ................................................ 14
6. Information Concerning Shares of the Fund ............................. 15
Purchases ......................................................... 15
Exchanges ......................................................... 19
Redemptions and Repurchases ....................................... 20
Distribution Plans ................................................ 22
Distributions ..................................................... 24
Tax Status ........................................................ 24
Net Asset Value ................................................... 25
Description of Shares, Voting Rights and Liabilities .............. 25
Performance Information ........................................... 26
7. Shareholder Services .................................................. 26
Annex A ............................................................... 29
Appendix A ............................................................ 32
Appendix B ............................................................ 35
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.
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MFS BOND FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
This Prospectus pertains to the MFS Bond Fund (the "Fund"), a diversified series of MFS(R) Series Trust IX (the "Trust"), an open-end investment company presently consisting of three series. The primary investment objective of the Fund is to provide as high a level of current income as is believed to be consistent with prudent investment risk. The secondary objective of the Fund is to protect shareholders' capital. See "Investment Objectives and Policies." The minimum initial investment is generally $1,000 per account (see "Purchases").
The Fund's investment adviser and distributor of the Fund are Massachusetts Financial Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc. ("MFD"), respectively, both of which are located at 500 Boylston Street, Boston, Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
This Prospectus sets forth concisely the information concerning the Trust and the Fund that a prospective investor ought to know before investing. The Trust on behalf of the Fund has filed with the Securities and Exchange Commission ("SEC") a Statement of Additional Information, dated September 1, 1995, which contains more detailed information about the Fund and the Trust and is incorporated into this Prospectus by reference. See page 28 for a further description of the information set forth in the Statement of Additional Information. A copy of the Statement of Additional Information may be obtained without charge by contacting the Shareholder Servicing Agent (see back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
1. EXPENSE SUMMARY
CLASS A CLASS B CLASS C
------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares
(as a percentage of offering price) .......................... 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as applicable) See below<F1> 4.00% 0.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ................................................ 0.42% 0.42% 0.42%
Rule 12b-1 Fees (after applicable fee waiver) .................. 0.24%<F2> 1.00%<F3> 1.00%<F3>
Other Expenses ................................................. 0.33% 0.40% 0.33%
---- ---- ----
Total Operating Expenses (after applicable fee waiver) ......... 0.99% 1.82% 1.75%
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<F1> Purchases of $1 million or more are not subject to an initial sales charge; however, a contingent
deferred sales charge ("CDSC") of 1% will be imposed on such purchases in the event of certain
redemption transactions within 12 months following such purchases (see "Purchases").
<F2> The Fund has adopted a Distribution Plan for its Class A shares in accordance with Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"), which provides that it will pay
distribution/ service fees aggregating up to (but not necessarily all of) 0.35% per annum of the
average daily net assets attributable to Class A shares (see "Distribution Plans"). Currently, 0.10%
of the distribution/service fee is being waived. After a substantial period of time, distribution
expenses paid under this Plan, together with the initial sales charge, may total more than the
maximum sales charge that would have been permissible if imposed entirely as an initial sales
charge.
<F3> The Fund has adopted separate Distribution Plans for its Class B and its Class C shares in
accordance with Rule 12b-1 under the 1940 Act, which provide that it will pay distribution/service
fees aggregating up to (but not necessarily all of) 1.00% per annum of the average daily net assets
attributable to the Class B shares under the Class B Distribution Plan and the Class C shares under
the Class C Distribution Plan (see "Distribution Plans"). After a substantial period of time,
distribution expenses paid under these Plans, together with any CDSC payable upon redemption of
Class B shares, may total more than the maximum sales charge that would have been permissible if
imposed entirely as an initial sales charge.
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An investor would pay the following dollar amounts of expenses on a $1,000 investment in the Fund, assuming (a) 5% annual return and (b) redemption at the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
------ ------- ------------------------ -------
<F1>
1 year ............................................... $ 57 $ 58 $ 18 $ 18
3 years ............................................... 78 87 57 55
5 years ............................................... 100 119 99 95
10 years ............................................... 163 192<F2> 192<F2> 206
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<F1> Assumes no redemption.
<F2> Class B shares convert to Class A shares approximately eight years after purchase; therefore, years
nine and ten reflect Class A expenses.
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The purpose of the expense table above is to assist investors in understanding the various costs and expenses that a shareholder of the Fund will bear directly or indirectly. More complete descriptions of the following expenses are set forth in the following sections of the Prospectus: (i) varying sales charges on share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii) management fees -- "Investment Adviser"; and (iv) Rule 12b-1 (i.e., distribution plan) fees -- "Distribution Plans."
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2. THE FUND
The Fund is a diversified series of the Trust, an open-end management investment company which was organized as a trust under the laws of The Commonwealth of Massachusetts in 1985. The Trust presently consists of three series, each of which represents a portfolio with separate policies. Shares of the Fund are continuously sold to the public and the Fund uses the proceeds to buy securities for its portfolio. Three classes of shares of the Fund currently are offered to the general public. Class A shares are offered at net asset value plus an initial sales charge (or a CDSC in the case of certain purchases of $1 million or more) and subject to a Distribution Plan providing for an annual distribution and service fee. Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC and a Distribution Plan providing for an annual distribution and service fee which are greater than the Class A distribution and service fee. Class B shares will convert to Class A shares approximately eight years after purchase. Class C shares are offered at net asset value without an initial sales charge or a CDSC but subject to a Distribution Plan providing for an annual distribution and service fee which are equal to the Class B annual distribution and service fee. Class C shares do not convert to any other class of shares of the Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of the Fund. A majority of the Trustees are not affiliated with the Adviser. The Adviser is responsible for the management of the Fund's assets and the officers of the Trust are responsible for the Fund's operations. The Adviser manages the portfolio from day to day in accordance with the investment objectives and policies of the Fund. The selection of investments and the way they are managed depend on the conditions and trends in the economy and the financial marketplaces. The Fund also offers to buy back (redeem) its shares from its shareholders at any time at net asset value, less any applicable CDSC.
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial statements included in the Fund's Annual Report to shareholders which are incorporated by reference into the Statement of Additional Information in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing.
FINANCIAL HIGHLIGHTS
CLASS A
YEAR ENDED APRIL 30,
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ... $12.75 $14.39 $13.70 $13.25 $12.69 $12.80 $13.20 $14.04
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations<F2> --
Net investment income<F3> .............. $ 0.98 $ 1.02 $ 1.04 $ 1.13 $ 1.14 $ 1.20 $ 1.15 $ 1.16
Net realized and unrealized gain (loss)
on investments ....................... (0.05) (0.63) 0.74 0.45 0.59 (0.14) (0.38) (0.42)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ..... $ 0.93 $ 0.39 $ 1.78 $ 1.58 $ 1.73 $ 1.06 $ 0.77 $ 0.74
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ............. $(0.89) $(1.06) $(1.04) $(1.13) $(1.17) $(1.17) $(1.17) $(1.15)
In excess of net investment income ..... -- (0.02) -- -- -- -- -- --
From net realized gain on investments .. -- (0.80) (0.05) -- -- -- -- (0.43)
In excess of net realized gain on
investments .......................... -- (0.01) -- -- -- -- -- --
From paid-in capital ................... (0.08) (0.14) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders ....................... $(0.97) $(2.03) $(1.09) $(1.13) $(1.17) $(1.17) $(1.17) $(1.58)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period ......... $12.71 $12.75 $14.39 $13.70 $13.25 $12.69 $12.80 $13.20
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN<F1> ......................... 7.78% 2.12% 13.42% 12.39% 13.65% 7.69% 5.49% 5.18%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA<F3>:
Expenses ............................... 1.00% 0.96% 0.88% 0.91% 0.79% 0.75% 0.83% 0.76%
Net investment income .................. 7.91% 7.17% 7.82% 8.39% 8.82% 9.10% 8.93% 8.85%
PORTFOLIO TURNOVER ....................... 306% 410% 330% 243% 189% 186% 160% 287%
NET ASSETS AT END OF PERIOD (000 OMITTED) $477,056 $459,311 $490,417 $448,261 $315,722 $293,242 $299,485 $310,403
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<F1> Total returns for Class A shares do not include the applicable sales charge (except for reinvestment dividends prior to
March 1, 1991). If the charge had been included, the results would have been lower.
<F2> Per share data for the periods subsequent to April 30, 1993 are based on average shares outstanding.
<F3> The distributor did not impose a portion of its distribution fee attributable to Class A shares for the periods indicated.
If this fee had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income ........... $ 0.97 $ 1.01 -- -- -- -- -- --
RATIOS (TO AVERAGE NET ASSETS):
Expenses ...................... 1.10% 1.02% -- -- -- -- -- --
Net investment income ......... 7.81% 7.10% -- -- -- -- -- --
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FINANCIAL HIGHLIGHTS -- CONTINUED
YEAR ENDED APRIL 30,
-----------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------ ------------------ --------------------
1987 1986 1995 1994<F1> 1995 1994<F2>
------ ------ ------ ------ ------ ------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ... $14.62 $12.69 $12.73 $14.99 $12.72 $13.57
------ ------ ------ ------ ------ ------
Income from investment operations<F6> --
Net investment income .................. $ 1.24 $ 1.43 $ 0.88 $ 0.56 $ 0.88 $ 0.29
Net realized and unrealized gain (loss)
on investments ....................... (0.27) 1.94 (0.05) (1.30) (0.05) (0.90)
------ ------ ------ ------ ------ ------
Total from investment operations ..... $ 0.97 $ 3.37 $ 0.83 $(0.74) $ 0.83 $(0.61)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ............. $(1.15) $ (1.44) $(0.80) $(0.59) $(0.80) $(0.22)
In excess of net investment income ..... -- -- -- (0.02) -- --
From net realized gain on investments .. (0.40) -- -- (0.80) -- --
In excess of net realized gain on
investments .......................... -- -- -- (0.01) -- --
From paid-in capital ................... -- -- (0.07) (0.10) (0.07) (0.02)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders ....................... $(1.55) $ (1.44) $(0.87) $(1.52) $(0.87) $(0.24)
------ ------ ------ ------ ------ ------
Net asset value -- end of period ......... $14.04 $14.62 $12.69 $12.73 $12.68 $12.72
====== ------ ------ ------ ------ ------
TOTAL RETURN<F5> ......................... 6.15% 26.73% 6.90% (5.42%)<F4> 7.00% (4.57%)<F4>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ............................... 0.68% 0.79% 1.84% 1.83%<F3> 1.75% 1.80%<F3>
Net investment income .................. 8.84% 10.29% 7.17% 6.39%<F3> 7.17% 6.57%<F3>
PORTFOLIO TURNOVER ....................... 334% 218% 306% 410% 306% 410%
NET ASSETS AT END OF PERIOD (000 OMITTED) $318,329 $319,316 $75,451 $33,413 $8,171 $7,627
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<F1> For the period from the commencement of offering of Class B shares, September 7, 1993 to April 30, 1994.
<F2> For the period from the commencement of offering of Class C shares, January 3, 1994 to April 30, 1994.
<F3> Annualized.
<F4> Not annualized.
<F5> Total returns for Class A shares do not include the applicable sales charge (except for reinvestment dividends
prior to March 1, 1991). If the charge had been included, the results would have been lower.
<F6> Per share data for the periods subsequent to April 30, 1993 are based on average shares outstanding.
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4. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES -- The Fund's primary investment objective is to provide as high a level of current income as is believed to be consistent with prudent investment risk. The Fund's secondary objective is to protect shareholders' capital. Any investment involves risk and there can be no assurance that the Fund will achieve its investment objectives. The investment objectives and policies are not fundamental and may be changed without shareholder approval.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective by investing, under normal market conditions, at least 65% of its total assets in:
(1) convertible and non-convertible debt securities and preferred stocks;
(2) debt securities issued or guaranteed by the United States ("U.S.") Government or its agencies, authorities or instrumentalities ("U.S. Government Securities");
(3) commercial paper, repurchase agreements and cash or cash equivalents (such as certificates of deposit and bankers' acceptances);
Not more than 20% of the Fund's net assets will be invested in securities rated below the four highest grades of Standard & Poors Ratings Group ("S&P"), Fitch Investors Services, Inc. ("Fitch") (AAA, AA, A or BBB) or Moody's Investors Service, Inc. (Aaa, Aa, A or Baa) and comparable unrated securities. For a description of these ratings see Appendix A to this Prospectus and for a chart indicating the composition of the Fund's portfolio for the fiscal year ended April 30, 1995 with the debt securities rated by S&P separated into rating categories, see Appendix B to this Prospectus. For a discussion of the risks of investing in these securities see "Risks of Investing in Lower Rated Bonds" below.
Although the Fund may purchase Canadian and other foreign securities, under normal market conditions, it may not invest more than 10% of its assets in non-dollar denominated non-Canadian foreign securities.
The Fund may not directly purchase common stocks. However, the Fund may retain up to 10% of its total assets in common stocks which were acquired either by conversion of fixed income securities or by the exercise of warrants attached thereto.
U.S. Government Securities also include interest in trusts or other entities representing interests in obligations that are issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset- backed securities. These securities, issued by trusts and special purpose corporations, are backed by a pool of assets, such as credit card and automobile loan receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. The underlying assets (e.g., loans) are also subject to prepayments which shorten the securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection; and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default ensures payment through insurance policies or letters of credit obtained by the issuer or sponsor from third parties. The Fund will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an investment in such a security.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through securities. Mortgage pass-through securities are securities representing interests in "pools" of mortgage loans. Monthly payments of interest and principal by the individual borrowers on mortgages are passed through to the holders of the securities (net of fees paid to the issuer or guarantor of the securities) as the mortgages in the underlying mortgage pools are paid off. The average lives of mortgage pass-throughs are variable when issued because their average lives depend on prepayment rates. The average life of these securities is likely to be substantially shorter than their stated final maturity as a result of unscheduled principal prepayment. Prepayments on underlying mortgages result in a loss of anticipated interest, and all or part of a premium if any has been paid, and the actual yield (or total return) to the Fund may be different than the quoted yield on the securities. Mortgage prepayments generally increase with falling interest rates and decrease with rising interest rates. Like other fixed income securities, when interest rates rise the value of a mortgage pass-through security generally will decline; however, when interest rates are declining, the value of mortgage pass-through securities with prepayment features may not increase as much as that of other fixed-income securities.
Payment of principal and interest on some mortgage pass-through securities (but not the market value of the securities themselves) may be guaranteed by the full faith and credit of the U.S. Government (in the case of securities guaranteed by the Government National Mortgage Association ("GNMA")); or guaranteed by agencies or instrumentalities of the U.S. Government (such as the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported only by the discretionary authority of the U.S. Government to purchase the agency's obligations). Mortgage pass-through securities may also be issued by non-governmental issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers). Some of these mortgage pass-through securities may be supported by various forms of insurance or guarantees.
SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to different types of investments, the Fund may enter into interest rate swaps, currency swaps and other types of available swap agreements, such as caps, collars and floors. Swaps involve the exchange by the Fund with another party of cash payments based upon different interest rate indexes, currencies, and other prices or rates, such as the value of mortgage prepayment rates. For example, in the typical interest rate swap, the Fund might exchange a sequence of cash payments based on a floating rate index for cash payments based on a fixed rate. Payments made by both parties to a swap transaction are based on a principal amount determined by the parties.
The Fund may also purchase and sell caps, floors and collars. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the counterparty. For example, the purchase of an interest rate cap entitles the buyer, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a contractually-based principal amount from the counterparty selling such interest rate cap. The sale of an interest rate floor obligates the seller to make payments to the extent that a specified interest rate falls below an agreed-upon level. A collar arrangement combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, in each case based on a fixed rate, the swap agreement would tend to decrease a Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on a Fund's performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. A Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which involve certain risks. See the Statement of Additional Information on the risks involved in these activities.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to earn additional income on available cash or as a temporary defensive measure. Under a repurchase agreement, the Fund acquires securities subject to the seller's agreement to repurchase at a specified time and price. If the seller becomes subject to a proceeding under the bankruptcy laws or its assets are otherwise subject to a stay order, the Fund's right to liquidate the securities may be restricted (during which time the value of the securities could decline). As discussed in the Statement of Additional Information, the Fund has adopted certain procedures intended to minimize any risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending portfolio securities. Such loans will usually be made to member firms (and subsidiaries thereof) of the New York Stock Exchange and to member banks of the Federal Reserve System, and would be required to be secured continuously by collateral in cash, letters of credit or U.S. Government securities maintained on a current basis at an amount at least equal to the market value of the securities loaned. The Fund will continue to collect the equivalent of interest on the securities loaned and will also receive either interest (through investment of cash collateral) or a fee (if the collateral is government securities). If the Adviser determines to make securities loans, it is intended that the value of the securities loaned would not exceed 30% of the value of the total assets of the Fund.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income securities in which the Fund may invest also include zero coupon bonds, deferred interest bonds and bonds on which the interest is payable in kind ("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 approximates the total amount of interest the bonds will accrue and compound over the period until maturity or the first interest payment date, at a rate of interest reflecting the market rate of the security at the time of issuance. While zero coupon bonds do not require the periodic payment of interest, deferred interest bonds provide for a period of delay before the regular payment of interest begins. PIK bonds are debt obligations which provide that the issuer thereof may, at its option, pay interest on such bonds in cash or in the form of additional debt obligations. Such investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of such cash. Such investments may experience greater volatility in market value due to changes in interest rates than debt obligations which make regular payments of interest. The Fund will accrue income on such investments for tax and accounting purposes, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Fund's distribution obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
The Fund may invest a portion of its assets in collateralized mortgage
obligations or "CMOs", which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by certificates issued by GNMA, FNMA or FHLMC, but also may be collateralized
by whole loans or private mortgage pass-through securities (such collateral
collectively referred to as "Mortgage Assets"). The Fund may also invest a
portion of its assets in multiclass pass-through securities which are
interests in a trust composed of Mortgage Assets. CMOs (which include
multiclass pass-through securities) may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. 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 classes with different maturities. Each class of
CMOs, often referred to as a "tranche", is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Certain classes of CMOs have priority over others with respect to the receipt
of prepayments on the mortgages. Therefore, depending on the type of CMOs in
which the Fund invests, the investment may be subject to a greater or lesser
risk of prepayments than other types of mortgage-related securities.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of principal on each payment date to more than one class. PAC Bonds generally require payments of a specified amount of principal on each payment date. PAC Bonds are always parallel pay CMOs with the required principal payment on such securities having the highest priority after interest has been paid to all classes. For a further description of CMOs, parallel pay CMOs and PAC Bonds and the risks related to transactions therein, see the Statement of Additional Information.
STRIPPED MORTGAGE-BACKED SECURITIES: The Fund may also 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 proportions of interest and principal distributions from an underlying pool of mortgage assets. For a further description of SMBS and the risks related to transactions therein, see the Statement of Additional Information.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued" or on a "forward delivery" basis, which means that the securities will be delivered to the Fund at a future date usually beyond customary settlement time. The commitment to purchase a security for which payment will be made on a future date may be deemed a separate security. In general, the Fund does not pay for such securities until received, and does not start earning interest on the securities until the contractual settlement date. While awaiting delivery of securities purchased on such bases, the Fund will normally invest in cash, cash equivalents and high grade debt securities.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value is linked to foreign currencies, interest rates, commodities, indices, or other financial indicators. Most indexed securities are short to intermediate term fixed-income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be positively or negatively indexed (i.e., their value may increase or decrease if the underlying instrument appreciates), and may have return characteristics similar to direct investments in the underlying instrument or to one or more options on the underlying instrument. Indexed securities may be more volatile than the underlying instrument itself.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar roll" transactions with selected banks and broker-dealers pursuant to which the Fund sells mortgage-backed securities for delivery in the future (generally within 30 days) and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. The Fund will only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction.
OPTIONS: The Fund intends to write (sell) "covered" put and call options and purchase put and call options on domestic and foreign fixed income securities. Call options written by the Fund give the holder the right to buy the underlying security from the Fund at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Put options give the holder the right to sell the underlying security to the Fund during the term of the option at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Call options are "covered" by the Fund, when it owns the underlying security, and put options are "covered" by the Fund, when it has established a segregated account of cash, short-term money market instruments or high quality debt securities which can be liquidated promptly to satisfy any obligation of the Fund to purchase the underlying security. The Fund may also write straddles (combinations of puts and calls on the same underlying security). The writing of straddles provides the Fund with additional premium income, but could involve greater risk. See the Statement of Additional Information.
The Fund will receive a premium from writing a put or call option, which increases the Fund's gross income in the event the option expires unexercised or is closed out at a profit. The amount of the premium will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the remaining term of the option, supply and demand and interest rates. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. It is possible, however, that illiquidity in the options markets may make it difficult from time to time for the Fund to close out its written option positions.
The Fund may also purchase put or call options in anticipation of changes in interest rates which may adversely affect the value of its portfolio or the prices of securities that the Fund wants to purchase at a later date. The premium paid for a put or call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security changes sufficiently, the option may expire without value to the Fund.
The Fund intends to write and purchase options on securities not only for hedging purposes, but also for the purpose of increasing its return. Options on securities that are written or purchased by the Fund will be traded on U.S. and foreign exchanges and over-the-counter. Over-the-counter transactions also involve certain risks which may not be present in an exchange environment.
The Fund may also enter into options on the yield "spread" or yield differential between two fixed income securities, a transaction referred to as a "yield curve" option, for hedging and non-hedging purposes. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated fixed income securities rather than the actual prices of the individual securities. Yield curve options written by the Fund will be covered but could involve additional risks, as discussed in the Statement of Additional Information.
The staff of the SEC has taken the position that purchased over-the-counter options and assets used to cover written over-the-counter options are illiquid and, therefore, together with other illiquid securities, cannot exceed a certain percentage of the Fund's assets (the "SEC illiquidity ceiling"). Although the Adviser disagrees with this position, the Adviser intends to limit the Fund's writing of over-the-counter options in accordance with the following procedure. Except as provided below, the Fund intends to write over- the-counter options only with primary U.S. Government securities dealers recognized by the Federal Reserve Bank of New York. Also, the contracts which the Fund has in place with such primary dealers will provide that the Fund has the absolute right to repurchase an option it writes at any time at a price which represents the fair market value, as determined in good faith through negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula in the contract. Although the specific formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by the Fund for writing the option, plus the amount, if any, of the option's intrinsic value (i.e., the amount that the option is in-the-money). The formula may also include a factor to account for the difference between the price of the security and the strike price of the option if the option is written out-of- the-money. The Fund will treat all or a part of the formula price as illiquid for purposes of the SEC illiquidity ceiling. The Fund may also write over-the- counter options with non-primary dealers, including foreign dealers, and will treat the assets used to cover these options as illiquid for purposes of such SEC illiquidity ceiling.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: The Fund 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 which may become available for trading ("Futures Contracts"). The Fund may also purchase and write options on such Futures Contracts ("Options on Futures Contracts"). These instruments will be used only to hedge against anticipated future changes in interest rates which otherwise might either adversely affect the value of the Fund's portfolio securities or adversely affect the prices of securities which the Fund intends to purchase at a later date. Should interest rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of the hedging transactions and may realize a loss. Such transactions may also be entered into for non-hedging purposes, to the extent permitted under applicable law, which involves greater risks and could result in losses which are not offset by gains on other portfolio assets.
The Fund has adopted the additional restriction that it will not enter into a Futures Contract if, immediately thereafter, the value of securities and other obligations underlying all such Futures Contracts would exceed 50% of the value of the Fund's total assets. Moreover, the Fund will not purchase put and call options on securities, on Futures Contracts or on foreign currencies, if, as a result, more than 5% of its total assets would be invested in such options.
Futures Contracts and Options on Futures Contracts that are entered into by the Fund will be traded on U.S. and foreign exchanges.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange contracts ("Forward Contracts") for hedging purposes only. A Forward Contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. The Fund will enter into Forward Contracts for hedging purposes to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currency. The Fund may enter into a Forward Contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security. Additionally, for example, when the Fund believes that a foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a Forward Contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. The Fund may also enter into a Forward Contract on one currency in order to hedge against risk of loss arising from fluctuations in the value of a second currency (referred to as a "cross hedge") if, in the judgment of the Adviser, a reasonable degree of correlation can be expected between movements in the values of the two currencies. The Fund may choose to, or be required to, receive delivery of the foreign currencies underlying Forward Contracts it has entered into. Under certain circumstances, such as where the Adviser believes that the applicable exchange rate is unfavorable at the time the currencies are received or the Adviser anticipates, for any other reason, that the exchange rate will improve, the Fund may hold such currencies for an indefinite period of time. The Fund has established procedures consistent with statements of the SEC and its staff regarding the use of Forward Contracts by registered investment companies, which requires use of segregated assets or "cover" in connection with the purchase and sale of such contracts. See "Risks of Investing in Foreign Securities" for information on the risks associated with holding foreign currency.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of foreign portfolio securities and against increases in the dollar cost of foreign securities to be acquired. As in the case of other kinds of options, however, the writing of an option on foreign currency will constitute only a partial hedge, up to the amount of the premium received, and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to the Fund's position, it may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies written or purchased by the Fund will be traded on U.S. and foreign exchanges and over-the-counter. The Fund may also choose to, or be required to, receive delivery of the foreign currencies underlying options on foreign currencies it has entered into. Under certain circumstances, such as where the Adviser believes that the applicable exchange rate is unfavorable at the time the currencies are received or the Adviser anticipates, for any other reason, that the exchange rate will improve, the Fund may hold such currencies for an indefinite period of time. See "Risks of Investing in Foreign Securities," below for information on the risks associated with holding foreign currency.
SPECIAL CONSIDERATIONS: Although the Fund will enter into certain transactions in options, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies for hedging purposes, and will enter into certain other options transactions for hedging purposes, such transactions nevertheless involve risks. For example, a lack of correlation between the instrument underlying an option or Futures Contract and the assets being hedged, or unexpected adverse price movements, could render the Fund's hedging strategy unsuccessful and could result in losses. The Fund also may enter into transactions in such instruments for other than hedging purposes, which involves greater risk. In particular, such transactions may result in losses for the Fund which are not offset by gains on other portfolio positions, thereby reducing gross income. In addition, foreign currency markets may be extremely volatile from time to time. There can be no assurance that a liquid secondary market will exist for any contract purchased or sold, and the Fund may be required to maintain a position until exercise or expiration, which could result in losses. The Statement of Additional Information contains a further description of options, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies, and a discussion of the risks related to transactions therein.
Transactions in options may be entered into by the Fund on U.S. exchanges regulated by the SEC, in the over-the-counter market and on foreign exchanges, while Forward Contracts may be entered into only in the over-the-counter market. Futures Contracts and Options on Futures Contracts may be entered into on U.S. exchanges regulated by the CFTC and on foreign exchanges. In addition, the securities underlying options and Futures Contracts traded by the Fund will include foreign as well as domestic securities.
The net asset value of the shares of an open-end investment company, such as the Fund, which invests primarily in fixed income securities, changes with the general level of interest rates. When interest rates decline, the market value of a portfolio invested at higher yields can be expected to rise. Conversely, when interest rates rise, the market value of a portfolio invested at lower yields can be expected to decline.
RISKS OF INVESTING IN LOWER RATED BONDS: As indicated above, the Fund may also invest up to 20% of its net assets in securities rated Ba or lower by Moody's or BB or lower by S&P or Fitch and comparable unrated securities (commonly known as "junk bonds"). No minimum rating standard is required by the Fund. These securities are considered speculative and, while generally providing greater income than investments in higher rated securities, will involve greater risk of principal and income (including the possibility of default or bankruptcy of the issuers of such securities) and may involve greater volatility of price (especially during periods of economic uncertainty or change) than securities in the higher rating categories. However, since yields vary over time, no specific level of income can ever be assured. These lower rated high yielding fixed income securities generally tend to reflect economic changes and short-term corporate and industry developments to a greater extent than higher rated securities which react primarily to fluctuations in the general level of interest rates. These lower rated fixed income securities are also affected by changes in interest rates, the market's perception of their credit quality, and the outlook for economic growth. In the past, economic downturns or an increase in interest rates have, under certain circumstances, caused a higher incidence of default by the issuers of these securities and may do so in the future, especially in the case of highly leveraged issuers. During certain periods, the higher yields on the Fund's lower rated high yielding fixed income securities are paid primarily because of the increased risk of loss of principal and income, arising from such factors as the heightened possibility of default or bankruptcy of the issuers of such securities. Due to the fixed income payments of these securities, the Fund may continue to earn the same level of interest income while its net asset value declines due to portfolio losses, which could result in an increase in the Fund's yield despite the actual loss of principal. The market for these lower rated fixed income securities may be less liquid than the market for investment grade fixed income securities. Therefore, judgment may at times play a greater role in valuing these securities than in the case of investment grade fixed income securities.
The Fund may also invest in fixed income securities rated Baa by Moody's or BBB by S&P or Fitch and comparable unrated securities. These securities, while normally exhibiting adequate protection parameters, have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than in the case of higher grade fixed income securities.
These lower rated and comparable unrated securities may also include zero coupon bonds, deferred interest bonds and PIK bonds, described above. See the Statement of Additional Information for more information on lower rated securities.
RISKS OF INVESTING IN FOREIGN SECURITIES: The Fund may invest in foreign securities to the extent described above. Investing in securities of foreign issuers generally involves risks not ordinarily associated with investing in securities of domestic issuers. These risks include changes in currency rates, exchange control regulations, governmental administration or economic or monetary policy (in the U.S. or abroad) or circumstances in dealings between nations. Costs may be incurred in connection with conversions between various currencies. Special considerations may also include more limited information about foreign issuers, higher brokerage costs, different accounting standards and thinner trading markets. Foreign securities markets may also be less liquid, more volatile and less subject to government supervision than in the U.S. investments in foreign countries could be affected by other factors including expropriation, confiscatory taxation and potential difficulties in enforcing contractual obligations and could be subject to extended settlement periods. The Fund may hold foreign currency received in connection with investments in foreign securities when, in the judgment of the Adviser, it would be beneficial to convert such currency into U.S. dollars at a later date, based on anticipated changes in the relevant exchange rate. The Fund may also hold foreign currency in anticipation of purchasing foreign securities. See the Statement of Additional Information for further discussion of foreign securities and the holding of foreign currency, as well as the associated risks.
EMERGING MARKET SECURITIES: Consistent with the Fund's investment objective and policies and its ability to invest in foreign securities, the Fund may invest in securities of governments located in emerging countries or regions with relatively low gross national product per capita compared to the world's major economies, and in countries or regions with the potential for rapid economic growth (emerging markets). For these purposes emerging markets will include any country: (i) having an "emerging stock market" as defined by the International Finance Corporation; (ii) with low- to middle-income economies according to the International Bank for Reconstruction and Development (the "World Bank"); (iii) listed in World Bank publications as developing; or (iv) determined by the Adviser to be an emerging market as defined above. The Fund may invest in securities of: (i) companies the principal securities trading market for which is an emerging market country; (ii) companies organized under the laws of, and with a principal office in, an emerging market country; (iii) companies whose principal activities are located in emerging market countries; or (iv) companies traded in any market that derive 50% or more of their total revenue from either goods or services produced in an emerging market or sold in an emerging market.
The risks of investing in foreign securities may be intensified in the case of investments in emerging markets. Securities of many issuers in emerging markets may be less liquid and more volatile than securities of comparable domestic issuers. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets of the Fund is uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. Certain markets may require payment for securities before delivery. Securities prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. In particular, countries with emerging markets may have relatively unstable governments, present the risk of nationalization of businesses, restrictions on foreign ownership, or prohibitions of repatriation of assets, and may have less protection of property rights than more developed countries. The economies of countries with emerging markets may be predominantly based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of substantial holdings difficult or impossible at times. Securities of issuers located in countries with emerging markets may have limited marketability and may be subject to more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be restricted or controlled to varying degrees. These restrictions or controls may at times preclude investment in certain foreign emerging market debt obligations and increase the expenses of the Fund.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, Ecuador, Mexico, Nigeria, 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.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not registered under the Securities Act of 1933, as amended ("1933 Act") ("restricted securities"), including those that can be offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A securities"). The Trust's Board of Trustees determines, based upon a continuing review of the trading markets for a specific Rule 144A security, whether such security is liquid and thus not subject to the Fund's limitation on investing not more than 10% of its net assets in illiquid investments. The Board of Trustees has adopted guidelines and delegated to MFS the daily function of determining and monitoring the liquidity of Rule 144A securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Board will carefully monitor the Fund's investments in Rule 144A securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. This investment practice could have the effect of decreasing the level of liquidity in the Fund to the extent that qualified institutional buyers become for a time uninterested in purchasing these Rule 144A securities held in the Fund's portfolio. Subject to the Fund's 10% limitation on investments in illiquid investments, the Fund may also invest in restricted securities that may not be sold under Rule 144A, which presents certain risks. As a result, the Fund might not be able to sell these securities when the Adviser wishes to do so, or might have to sell them at less than fair value. In addition, market quotations are less readily available. Therefore, judgment may at times play a greater role in valuing these securities than in the case of unrestricted securities.
PORTFOLIO TRADING: The Fund intends to engage in portfolio trading rather than holding portfolio securities to maturity. In trading portfolio securities, the Fund seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. For a description of the strategies which may be used by the Fund in trading portfolio securities, see "Portfolio Trading" in the Statement of Additional Information.
The Statement of Additional Information includes a discussion of other investment policies and a listing of specific investment restrictions which govern the Fund's investment policies. The specific investment restrictions listed in the Statement of Additional Information may be changed without shareholder approval unless otherwise indicated (see "Investment Restrictions" in the Statement of Additional Information). The Fund's limitations, policies and rating restrictions are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the assets of the Fund pursuant to an Investment Advisory Agreement, dated December 2, 1985 (the "Advisory Agreement"). The Adviser provides the Fund with overall investment advisory and administrative services, as well as general office facilities. Geoffrey L. Kurinsky, a Senior Vice President of the Adviser, has been the Fund's portfolio manager since 1989 and has been employed by the Adviser since 1987. Subject to such policies as the Trustees may determine, the Adviser makes investment decisions for the Fund. For these services and facilities, the Adviser receives a management fee, computed and paid monthly fixed by a formula based upon a percentage of the Fund's average daily net assets for its then-current fiscal year plus a percentage of the Fund's gross income (i.e., income other than gains from the sale of securities, gains from options and futures transactions and premium income from options written) for that fiscal year. The applicable percentages are reduced as assets and income attain the following levels:
ANNUAL RATE OF MANAGEMENT FEE BASED ON AVERAGE DAILY NET ASSETS ANNUAL RATE OF MANAGEMENT FEE BASED ON GROSS INCOME - --------------------------------------------------------------- --------------------------------------------------- .225% of the first $200 million 2.75% of the first $20 million .191% of average daily net assets in excess of $200 million 2.34% of gross income in excess of $20 million |
For the Fund's fiscal year ended April 30, 1995, MFS received management fees under the Advisory Agreement of $2,179,512.
MFS also serves as investment adviser to each of the other funds in the MFS Family of Funds (the "MFS Funds") and to MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust, Sun Growth Variable Annuity Fund, Inc., MFS/Sun Life Series Trust and seven variable accounts, each of which is a registered investment company established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the sale of various fixed/variable annuity contracts. MFS and its wholly owned subsidiary, MFS Asset Management Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor organizations have a history of money management dating from 1924 and the founding of the first mutual fund in the United States, Massachusetts Investors Trust. Net assets under the management of the MFS organization were approximately $38.4 billion on behalf of approximately 1.7 million investor accounts as of July 31, 1995. As of such date, the MFS organization managed approximately $19.2 billion of net assets in fixed income funds and fixed income portfolios of MFS Asset Management, Inc. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.), which in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John R. Gardner and John D. McNeil, Mr. Brodkin is the Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and a Senior Executive Vice President of MFS. Messrs. McNeil and Gardner are the Chairman and the President, respectively, of Sun Life. Sun Life, a mutual life insurance company, is one of the largest international life insurance companies and has been operating in the U.S. since 1895, establishing a headquarters office here in 1973. The executive officers of MFS report directly to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman, President and a Trustee of the Trust. W. Thomas London, Stephen E. Cavan, James R. Bordewick, Jr., James O. Yost, Robert A. Dennis and Geoffrey L. Kurinsky, all of whom are officers of MFS, are officers of the Trust.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's oldest financial services institutions, the London-based Foreign & Colonial Investment Trust PLC, which pioneered the idea of investment management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG), the oldest publicly listed bank in Germany, founded in 1835. As part of this alliance, the portfolio managers and investment analysts of MFS and Foreign & Colonial will share their views on a variety of investment related issues, such as the economy, securities markets, portfolio securities and their issuers, investment recommendations, strategies and techniques, risk analysis, trading strategies and other portfolio management matters. MFS will have access to the extensive international equity investment expertise of Foreign & Colonial, and Foreign & Colonial will have access to the extensive U.S. equity investment expertise of MFS. One or more MFS investment analysts are expected to work for an extended period with Foreign & Colonial's portfolio managers and investment analysts at their offices in London. In return, one or more Foreign & Colonial employees are expected to work in a similar manner at MFS' Boston offices.
In certain instances there may be securities which are suitable for the Fund's portfolio as well as for portfolios of other clients of MFS or clients of Foreign & Colonial. Some simultaneous transactions are inevitable when several clients receive investment advice from MFS and Foreign & Colonial, particularly when the same security is suitable for more than one client. While in some cases this arrangement could have a detrimental effect on the price or availability of the security as far as the Fund is concerned, in other cases, however, it may produce increased investment opportunities for the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of shares of the Fund and also serves as distributor for each of the other MFS Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency, certain dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
dealer or other financial institution ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to
investments in the Fund.
The Fund offers three classes of shares (Class A, B and C shares) which bear sales charges and distribution fees in different forms and amounts, as described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus an initial sales charge, but in certain cases are offered at net asset value without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at net asset value plus an initial sales charge as follows:
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
Less than $100,000 ................................ 4.75% 4.99% 4.00%
$100,000 but less than $250,000 ................... 4.00 4.17 3.20
$250,000 but less than $500,000 ................... 2.95 3.04 2.25
$500,000 but less than $1,000,000 ................. 2.20 2.25 1.70
$1,000,000 or more ................................ None** None** See Below**
- --------------
* Because of rounding in the calculation of offering price, actual sales charges may be more or less than
those calculated using the percentages above.
** A CDSC will apply to such purchases, as discussed below.
|
MFD allows discounts to dealers (which are alike for all dealers) from the applicable public offering price, as shown in the above table. In the case of the maximum sales charge, the dealer retains 4% and MFD retains approximately 3/4 of 1% of the public offering price. The sales charge may vary depending on the number of shares of the Fund as well as certain other MFS Funds owned or being purchased, the existence of an agreement to purchase additional shares during a 13-month period (or 36-month period for purchases of $1 million or more) or other special purchase programs. A description of the Right of Accumulation, Letter of Intent and Group Purchase privileges by which the sales charge may be reduced is set forth in the Statement of Additional Information.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge). In the following two circumstances, Class A shares are also offered at net asset value without an initial sales charge but subject to a CDSC, equal to 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividend and capital gain distributions) or the total cost of such shares, in the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject to the Employee Retirement Income Security Act of 1974, as amended, if the sponsoring organization demonstrates to the satisfaction of MFD that either (a) the employer has at least 25 employees or (b) the aggregate purchases by the retirement plan of Class A shares of the MFS Funds will be in an amount of at least $250,000 within a reasonable period of time, as determined by MFD in its sole discretion.
In the case of such purchases, MFD will pay a commission to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
1% on sales up to $5 million, plus 0.25% on the amount in excess of $5
million. Purchases of $1 million or more for each shareholder account will be
aggregated over a 12-month period (commencing from the date of the first such
purchase) for purposes of determining the level of commissions to be paid
during the period with respect to such account. In addition, with respect to
sales to retirement plans under the second circumstance described above, MFD
may pay a commission, on sales in excess of $5 million to certain retirement
plans, of 1% to certain dealers which, at MFD's invitation, enter into an
agreement with MFD in which the dealer agrees to return any commission paid to
it on the sale (or on a pro rata portion thereof) if the shareholder redeems
his or her shares within a period of time after purchase as specified by MFD.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the initial sales charge imposed upon purchases of Class A shares and the CDSC imposed upon redemptions of Class A shares is waived. These circumstances are described in Annex A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ......................................... 4%
Second ........................................ 4%
Third ......................................... 3%
Fourth ........................................ 3%
Fifth ......................................... 2%
Sixth ......................................... 1%
|
Seventh and following ......................... 0%
For Class B shares purchased prior to January 1, 1993, the CDSC imposed upon redemption is as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ......................................... 6%
Second ........................................ 5%
Third ......................................... 4%
Fourth ........................................ 3%
Fifth ......................................... 2%
Sixth ......................................... 1%
|
Seventh and following ......................... 0%
The CDSC imposed is assessed against the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. No CDSC is assessed against shares acquired through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B shares purchased through dealers. MFD will also advance to dealers the first year service fee payable under the Fund's Class B Distribution Plan (see "Distribution Plans" below) at a rate equal to 0.25% of the purchase price of such shares. Therefore, the total amount paid to a dealer upon the sale of Class B shares is 4% of the purchase price of the shares (commission rate of 3.75% plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption of Class B shares is waived. These circumstances are described in Annex A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain outstanding for approximately eight years will convert to Class A shares of the Fund. Shares purchased through the reinvestment of distributions paid in respect of Class B shares will be treated as Class B shares for purposes of the payment of the distribution and service fees under the Distribution Plan applicable to Class B shares. See "Distribution Plans" below. However, for purposes of conversion to Class A shares, all shares in a shareholder's account that were purchased through the reinvestment of dividends and distributions paid in respect of Class B shares (and which have not converted to Class A shares as provided in the following sentence) will be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A shares, a portion of the Class B shares then in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares not acquired through reinvestment of dividends and distributions that are converting to Class A shares bear to the shareholder's total Class B shares not acquired through reinvestment. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that such conversion will not constitute a taxable event for federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class B shares would continue to be subject to higher expenses than Class A shares for an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an initial sales charge or a CDSC. Class C shares do not convert to any other class of shares of the Fund. The maximum investment in Class C shares that may be made is $5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of 1986, as amended (the "Code") if the retirement plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan or another similar recordkeeping program made available by the Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial investment is $1,000 per account and the minimum additional investment is $50 per account. Accounts being established for monthly automatic investments and under payroll savings programs and tax-deferred retirement programs (other than IRAs) involving the submission of investments by means of group remittal statements are subject to a $50 minimum on initial and additional investments per account. The minimum initial investment for IRAs is $250 per account and the minimum additional investment is $50 per account. Accounts being established for participation in the Automatic Exchange Plan are subject to a $50 minimum on initial and additional investments per account. There are also other limited exceptions to these minimums for certain tax-deferred retirement programs. Any minimums may be changed at any time at the discretion of MFD. The Fund reserves the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges should be made for investment purposes only. The Fund and MFD each reserve the right to reject any specific purchase order or to restrict purchases by a particular purchaser (or group of related purchasers). The Fund or MFD may reject or restrict any purchases by a particular purchaser or group, for example, when such purchase is contrary to the best interests of the Fund's other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges among certain classes of shares of certain MFS Funds (as determined by MFD) which follow a timing pattern, and with individuals or entities acting on such shareholders' behalf (collectively, "market timers"), setting forth the terms, procedures and restrictions with respect to such exchanges. In the absence of such an agreement, it is the policy of the Fund and MFD to reject or restrict purchases by market timers if (i) more than two exchange purchases are effected in a timed account in the same calendar quarter or (ii) a purchase would result in shares being held in timed accounts by market timers representing more than (x) one percent of the Fund's net assets or (y) specified dollar amounts in the case of certain MFS Funds which may include the Fund and which may change from time to time. The Fund and MFD each reserve the right to request market timers to redeem their shares at net asset value, less any applicable CDSC, if either of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with respect to sales of Class A, Class B and Class C shares. In addition, from time to time, MFD may pay dealers 100% of the applicable sales charge on sales of Class A shares of certain specified MFS Funds sold by such dealer during a specified sales period. In addition, MFD or its affiliates may, from time to time, pay dealers an additional commission equal to 0.50% of the net asset value of all of the Class B shares of certain specified MFS Funds sold by such dealer during a specified sales period. In addition, from time to time, MFD, at its expense, may provide additional commissions, compensation or promotional incentives ("concessions") to dealers which sell shares of the Fund. Such concessions provided by MFD may include financial assistance to dealers in connection with preapproved conferences or seminars, sales or training programs for invited registered representatives, payment for travel expenses, including lodging, incurred by registered representatives for such seminars or training programs, seminars for the public, advertising and sales campaigns regarding one or more MFS Funds, and/or other dealer-sponsored events. From time to time, MFD may make expense reimbursements for special training of a dealer's registered representatives in group meetings or to help pay the expenses of sales contests. Other concessions may be offered to the extent not prohibited by state laws or any self-regulatory agency, such as the NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in certain investment programs (e.g., the Automatic Investment Plan) or other shareholder services, MFD or its affiliates may either (i) give a gift of nominal value, such as a hand-held calculator, or (ii) make a nominal charitable contribution on their behalf.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act prohibits national banks from engaging in the business of underwriting, selling or distributing securities. Although the scope of the prohibition has not been clearly defined, MFD believes that such Act should not preclude banks from entering into agency agreements with MFD. If, however, a bank were prohibited from so acting, the Trustees would consider what actions, if any, would be necessary to continue to provide efficient and effective shareholder services in respect of Shareholders who invested in the Fund through a national bank. It is not expected that shareholders would suffer any adverse financial consequence as a result of these occurrences. In addition, state securities laws on this issue may differ from the interpretation of federal law expressed herein and banks and financial institutions may be required to register as broker-dealers pursuant to state law.
A shareholder whose shares are held in the name of, or controlled by, a dealer might not receive many of the privileges and services from the Fund (such as Right of Accumulation, Letter of Intent and certain recordkeeping services) that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds in the MFS Family of Funds (the "MFS Funds") at net
asset value (if available for sale). In addition, Class C shares may be
exchanged for shares of the MFS money market fund at net asset value. Shares
of one class may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales charges or CDSC will be imposed in connection with an exchange from shares of an MFS Fund to shares of any other MFS Fund, except with respect to exchanges from an MFS money market fund to another MFS Fund which is not an MFS money market fund (discussed below). With respect to an exchange involving shares subject to a CDSC, the CDSC will be unaffected by the exchange and the holding period for purposes of calculating the CDSC will carry over to the acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the imposition of an initial sales charge or a CDSC for exchanges from an MFS money market fund to another MFS Fund which is not an MFS money market fund. These rules are described under the caption "Exchanges" in the Prospectuses of those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by certain qualified retirement plans may be exchanged for units of participation of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and Units may be exchanged for Class A shares of any MFS Fund. With respect to exchanges between of Class A shares subject to a CDSC and Units, the CDSC will carry over to the acquired shares or Units and will be deducted from the redemption proceeds when such shares or Units are subsequently redeemed, assuming the CDSC is then payable (the period during which the Class A shares and the Units were held will be aggregated for purposes of calculating the applicable CDSC). In the event that a shareholder initially purchases Units and then exchanges into Class A shares subject to an initial sales charge of an MFS Fund, the initial sales charge shall be due upon such exchange, but will not be imposed with respect to any subsequent exchanges between such Class A shares and Units with respect to shares on which the initial sales charge has already been paid. In the event that a shareholder initially purchases Units and then exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period will commence upon such exchange, and the applicability of the CDSC with respect to subsequent exchanges shall be governed by the rules set forth in this paragraph above.
GENERAL: Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as the shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record) and each
exchange must involve either shares having an aggregate value of at least $1,000
($50 in the case of retirement plan participants whose sponsoring organizations
subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(k)
recordkeeping system made available by the Shareholder Servicing Agent) or all
the shares in the account. If an Exchange Request is received by the Shareholder
Servicing Agent on any business day prior to the close of regular trading on the
New York Stock Exchange (generally, 4:00 p.m., Eastern time) (the "Exchange"),
the exchange usually will occur on that day if all the requirements set forth
above have been complied with at that time. No more than five exchanges may be
made in any one Exchange Request by telephone. Additional information concerning
this exchange privilege and prospectuses for any of the other MFS Funds may be
obtained from dealers or the Shareholder Servicing Agent. A shareholder should
read the prospectus of the other MFS Fund and consider the differences in
objectives, policies and restrictions before making any exchange. For federal
and (generally) state income tax purposes, an exchange is treated as a sale of
the shares exchanged and, therefore, an exchange could result in a gain or loss
to the shareholder making the exchange. Exchanges by telephone are automatically
available to most non-retirement plan accounts and certain retirement plan
accounts. For further information regarding exchanges by telephone, see
"Redemptions by Telephone." The exchange privilege (or any aspect of it) may be
changed or discontinued and is subject to certain limitations, including certain
restrictions on purchases by market timers. Special procedures, privileges and
restrictions with respect to exchanges may apply to market timers who enter into
an agreement with MFD, as set forth in such agreement. See "Purchases -- General
- -- Right to Reject Purchase Orders/Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the shares in his account by mailing or delivering to the Shareholder Servicing Agent (see back cover for address) a stock power with a written request for redemption or letter of instruction, together with his share certificates (if any were issued), all in "good order" for transfer. "Good order" generally means that the stock power, written request for redemption, letter of instruction or certificate must be endorsed by the record owner(s) exactly as the shares are registered and the signature(s) must be guaranteed in the manner set forth below under the caption "Signature Guarantee." In addition, in some cases "good order" will require the furnishing of additional documents. The Shareholder Servicing Agent may make certain de minimis exceptions to the above requirements for redemption. Within seven days after receipt of a redemption request in "good order" by the Shareholder Servicing Agent, the Fund will make payment in cash of the net asset value of the shares next determined after such redemption request was received, reduced by the amount of any applicable CDSC described above and the amount of any income tax required to be withheld, except during any period in which the right of redemption is suspended or date of payment is postponed because the Exchange is closed or trading on such Exchange is restricted or to the extent otherwise permitted by the 1940 Act if an emergency exists. See "Tax Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account by telephoning the Shareholder Servicing Agent toll-free at (800) 225- 2606. Shareholders wishing to avail themselves of this telephone redemption privilege must so elect on their Account Application, designate thereon a bank and account number to receive the proceeds of such redemption, and sign the Account Application Form with the signature(s) guaranteed in the manner set forth below under the caption "Signature Guarantee." The proceeds of such a redemption, reduced by the amount of any applicable CDSC and the amount of any income tax required to be withheld, are mailed by check to the designated account, without charge, if the redemption proceeds do not exceed $1,000, and are wired in federal funds to the designated account if the redemption proceeds exceed $1,000. If a telephone redemption request is received by the Shareholder Servicing Agent by the close of regular trading on the Exchange on any business day, shares will be redeemed at the closing net asset value of the Fund on that day. Subject to the conditions described in this section, proceeds of a redemption are normally mailed or wired on the next business day following the date of receipt of the order for redemption. The Shareholder Servicing Agent will not be responsible for any losses resulting from unauthorized telephone transactions if it follows reasonable procedures designed to verify the identity of the caller. The Shareholder Servicing Agent will request personal or other information from the caller, and will normally also record calls. Shareholders should verify the accuracy of confirmation statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through his dealer (a repurchase), the shareholder can place a repurchase order with his dealer, who may charge the shareholder a fee. IF THE DEALER RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY, REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD.
REDEMPTION BY CHECK: Only Class A and Class C shares may be redeemed by check.
A shareholder owning Class A shares of the Fund may elect to have a special
account with State Street Bank and Trust Company (the "Bank") for the purpose
of redeeming Class A or Class C shares from his or her account by check. The
Bank will provide each Class A or Class C shareholder, upon request, with
forms of checks drawn on the Bank. Only shareholders having accounts in which
no share certificates have been issued will be permitted to redeem shares by
check. Checks may be made payable in any amount not less than $500.
Shareholders wishing to avail themselves of this redemption by check privilege
should so request on their Account Application, must execute signature cards
(for additional information, see the Account Application) with signature
guaranteed in the manner set forth under the caption "Signature Guarantee"
below, and must return any Class A or Class C share certificates issued to
them. Additional documentation will be required from corporations,
partnerships, fiduciaries or other such institutional investors. All checks
must be signed by the shareholder(s) of record exactly as the account is
registered before the Bank will honor them. The shareholders of joint
accounts may authorize each shareholder to redeem by check. The check may not
draw on monthly dividends which have been declared but not distributed.
SHAREHOLDERS WHO PURCHASE CLASS A AND CLASS C SHARES BY CHECK (INCLUDING
CERTIFIED CHECKS OR CASHIER'S CHECKS) MAY WRITE CHECKS AGAINST THOSE SHARES
ONLY AFTER THEY HAVE BEEN ON THE FUND'S BOOKS FOR 15 DAYS. WHEN SUCH A CHECK
IS PRESENTED TO THE BANK FOR PAYMENT, A SUFFICIENT NUMBER OF FULL AND
FRACTIONAL SHARES WILL BE REDEEMED TO COVER THE AMOUNT OF THE CHECK, ANY
APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD. IF
THE AMOUNT OF THE CHECK, PLUS ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME
TAX REQUIRED TO BE WITHHELD IS GREATER THAN THE VALUE OF CLASS A OR CLASS C
SHARES HELD IN THE SHAREHOLDER'S ACCOUNT, THE CHECK WILL BE RETURNED UNPAID,
AND THE SHAREHOLDER MAY BE SUBJECT TO EXTRA CHARGES. TO AVOID DISHONOR OF
CHECKS DUE TO FLUCTUATIONS IN ACCOUNT VALUE, SHAREHOLDERS ARE ADVISED AGAINST
REDEEMING ALL OR MOST OF THEIR ACCOUNT BY CHECK. CHECKS SHOULD NOT BE USED TO
CLOSE A FUND ACCOUNT BECAUSE WHEN THE CHECK IS WRITTEN, THE SHAREHOLDER WILL
NOT KNOW THE EXACT TOTAL VALUE OF THE ACCOUNT ON THE DAY THE CHECK CLEARS.
There is presently no charge to the shareholder for the maintenance of this
special account or for the clearance of any checks, but the Fund and the Bank
reserve the right to impose such charges or to modify or terminate the
redemption by check privilege at any time.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in
the case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month.
Class B shares purchased on or after January 1, 1993 will be aggregated on a
calendar month basis -- all transactions made during a calendar month,
regardless of when during the month they have occurred, will age one year at
the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior
to January 1, 1993, transactions will be aggregated on a calendar year basis
- -- all transactions made during a calendar year, regardless of when during the
year they have occurred, will age one year at the close of business on
December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's account for a particular class of shares represented by Direct Purchases exceeds the sum of the six calendar year aggregations (12 months in the case of purchases of $1 million or more of Class A shares or purchases by certain retirement plans of Class A shares) of Direct Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is ever assessed on additional shares acquired through the automatic reinvestment of dividends or capital gain distributions ("Reinvested Shares"). Therefore, at the time of redemption of a particular class, (i) any Free Amount is not subject to the CDSC and (ii) the amount of the redemption equal to the then-current value of Reinvested Shares is not subject to the CDSC, but (iii) any amount of the redemption in excess of the aggregate of the then-current value of Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will first be applied against the amount of Direct Purchases which will result in any such charge being imposed at the lowest possible rate. The CDSC to be imposed upon redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of registration, except as described in Annex A hereto.
GENERAL: The following information applies to redemptions and repurchases of all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the Fund requires, in certain instances as indicated above, that the shareholder's signature be guaranteed. In these cases the shareholder's signature must be guaranteed by an eligible bank, broker, dealer, credit union, national securities exchange, registered securities association, clearing agency or savings association. Signature guarantees shall be accepted in accordance with policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their shares have a one-time right to reinvest the redemption proceeds in the same class of shares of any of the MFS Funds (if shares of such Fund are available for sale) at net asset value (with a credit for any CDSC paid) within 90 days of the redemption pursuant to the Reinstatement Privilege. If the shares credited for any CDSC paid are then redeemed within six years of the initial purchase in the case of Class B shares or within 12 months of the initial purchase for certain Class A share purchases, a CDSC will be imposed upon redemption. Such purchases under the Reinstatement Privilege are subject to all limitations in the Statement of Additional Information regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations, the Fund has reserved the right to pay the redemption or repurchase price of shares of the Fund, either totally or partially, by a distribution in-kind of securities (instead of cash) from the Fund's portfolio. The securities distributed in such a distribution would be valued at the same amount as that assigned to them in calculating the net asset value for the shares being sold. If a shareholder received a distribution in-kind, the shareholder could incur brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of maintaining small accounts, the Fund reserves the right to redeem shares in any account for their then-current value if at any time the total investment in such account drops below $500 because of redemptions, except in the case of accounts being established for monthly automatic investments and certain payroll savings programs, Automatic Exchange Plan accounts and tax-deferred retirement plans, for which there is a lower minimum investment requirement. See "Purchases -- General -- Minimum Investment." Shareholders will be notified that the value of their account is less than the minimum investment requirement and allowed 60 days to make an additional investment before the redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and
its shareholders.
In certain circumstances, the fees described below have not yet been imposed or are being waived. These circumstances are described below under the heading "Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a service fee of up to 0.25% of the average daily net assets attributable to the class of shares to which the Distribution Plan relates (i.e., Class A, Class B or Class C shares, as appropriate) (the "Designated Class") annually in order that MFD may pay expenses on behalf of the Fund relating to the servicing of shares of the Designated Class. The service fee is used by MFD to compensate dealers which enter into a sales agreement with MFD in consideration for all personal services and/or account maintenance services rendered by the dealer with respect to shares of the Designated Class owned by investors for whom such dealer is the dealer or holder of record. MFD may from time to time reduce the amount of the service fees paid for shares sold prior to a certain date. Service fees may be reduced for a dealer that is the holder or dealer of record for an investor who owns shares of the Fund having an aggregate net asset value at or above a certain dollar level. Dealers may from time to time be required to meet certain criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under each Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay MFD a distribution fee based on the average daily net assets attributable to the Designated Class as partial consideration for distribution services performed and expenses incurred in the performance of MFD's obligations under its distribution agreement with the Fund. See "Management of the Fund -- Distributor" in the Statement of Additional Information. The amount of the distribution fee paid by the Fund with respect to each class differs under the Distribution Plans, as does the use by MFD of such distribution fees. Such amounts and uses are described below in the discussion of the separate Distribution Plans.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are charged to, and therefore reduce, income allocated to shares of the Designated Class. The Distribution Plans have substantially identical provisions with respect to their operating policies and their initial approval, renewal, amendment and termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered pursuant to an initial sales charge, a substantial portion of which is paid to or retained by the dealer making the sale (the remainder of which is paid to MFD). See "Purchases -- Class A Shares" above. In addition to the initial sales charge, the dealer also generally receives the ongoing 0.25% per annum service fee, as discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal, on an annual basis, to 0.10% of the Fund's average daily net assets attributable to Class A shares. As noted above, MFD may use the distribution fee to cover distribution-related expenses incurred by it under its distribution agreement with the Fund, including commissions to dealers and payments to wholesalers employed by MFD (e.g., MFD pays commission to dealers with respect to purchases of $1 million or more of Class A shares which are sold at net asset value but which are subject to a 1% CDSC for one year after purchase). See "Purchases -- Class A Shares" above. In addition, to the extent that the aggregate service and distribution fees paid under the Class A Distribution Plan do not exceed 0.35% per annum of the average daily net assets of the Fund attributable to Class A shares, the Fund is permitted to pay such distribution-related expenses or other distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC. See "Purchases -- Class B Shares" above. MFD will advance to dealers the first year service fee described above at a rate equal to 0.25% of the purchase price of such shares and, as compensation therefore, MFD may retain the service fee paid by the Fund with respect to such shares for the first year after purchase. Dealers will become eligible to receive the ongoing 0.25% per annum service fee with respect to such shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee equal, on an annual basis, to 0.75% of the Fund's average daily net assets attributable to Class B shares. As noted above, this distribution fee may be used by MFD to cover its distribution-related expenses under its distribution agreement with the Fund (including the 3.75% commission it pays to dealers upon purchase of Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value without a sales charge or a CDSC. See "Purchases -- Class C shares" above. Unlike the case with respect to the sale of Class A and Class B shares, where the dealer retains a portion of the initial sales charge (Class A shares) or receives an up-front payment from MFD (Class B shares), a dealer who sells Class C shares does not receive any initial payment, but instead receives distribution and service fees equal, on an annual basis, to 1% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom the dealer is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to MFD under the Class C Distribution Plan (which MFD in turn pays to dealers), as discussed above, and a distribution fee paid to MFD (which MFD also in turn pays to dealers) under the Class C Distribution Plan equal, on an annual basis, to 0.75% of the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B and Class C distribution and service fees for its current fiscal year are 0.24%, 1.00% and 1.00% per annum, respectively. MFD is currently waiving the 0.10% per annum distribution fee attributable to Class A shares and will not in the future accept payment of this fee unless it first obtains the approval of the Board of Trustees. Assets attributable to Class A shares sold prior to March 1, 1991 are subject to a service fee of 0.15% per annum attributable to Class A shares.
DISTRIBUTIONS
The Fund intends to pay substantially all of the Fund's net investment income
to its shareholders as dividends on a monthly basis. In determining the net
investment income available for distributions, the Fund may rely on
projections of its anticipated net investment income, including short-term
capital gains from the sales of securities or other assets and premiums from
options written, over a longer term, rather than its actual net investment
income for the period. The Fund may make one or more distributions during the
calendar year to its shareholders from any long-term capital gains, and may
also make one or more distributions during the calendar year to its
shareholders from short-term capital gains. Shareholders may elect to receive
dividends and capital gain distributions in either cash or additional shares
of the same class with respect to which a distribution is made. See "Tax
Status" and "Shareholder Services -- Distribution Options" below.
Distributions paid by the Fund with respect to Class A shares will generally
be greater than those paid with respect to Class B and Class C shares because
expenses attributable to Class B and Class C shares will generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust
for federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Code, and to make distributions
to its shareholders in accordance with the timing requirements imposed by the
Code. It is expected that the Fund will not be required to pay any entity
level federal income or excise taxes, although foreign-source income received
by the Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any state or local taxes, on the dividends and capital gain distributions they receive from the Fund, whether paid in cash or in additional shares. The Fund expects that none of its dividends or distributions will be eligible for the dividends-received deduction for corporations. Shareholders of the Fund may not have to pay state or local taxes on dividends derived from interest on U.S. Government obligations. Investors should consult with their tax advisers in this regard.
Shortly after the end of each calendar year, each shareholder will be sent a statement setting forth the federal income tax status of all dividends and distributions for each calendar year, including the portion taxable as ordinary income, the portion taxable as long-term capital gain, the portion, if any, representing interest on U.S. Government obligations, the portion, if any, representing a return of capital (which is free of current taxes but results in a basis reduction), and the amount, if any, of federal income tax withheld will be sent to each shareholder promptly after the end of such year.
Fund distributions will reduce the Fund's net asset value per share. Shareholders who buy shares shortly before the fund makes a distribution may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on dividends and other payments that are subject to such withholding and that are made to persons who are neither citizens nor residents of the U.S., regardless of whether a lower rate may be permitted under an applicable treaty. The Fund is also required in certain circumstances to apply backup withholding at the rate of 31% on taxable dividends and redemption proceeds paid to any shareholder (including a shareholder who is neither a citizen nor a resident of the U.S.) who does not furnish to the Fund certain information and certifications or who is otherwise subject to backup withholding. However, backup withholding will not be applied to payments that have been subject to 30% withholding.
Prospective investors should read the Fund's Account Application for additional information regarding backup withholding of federal income tax and should consult their own tax advisers as to the tax consequences to them of an investment in the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
during each such day as of the close of regular trading on the Exchange by
deducting the amount of the liabilities attributable to the class from the
value of the Fund's assets attributable to the class and dividing the
difference by the number of shares of the class outstanding. Values of assets
in the Fund's portfolio are determined on the basis of their market or other
fair value, as described in the Statement of Additional Information. The net
asset value of each class of shares is effective for orders received by the
dealer prior to its calculation and received by MFD prior to the close of that
business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of three series of the Trust, has three classes of shares,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without
par value). The Trust has reserved the right to create and issue additional
series and classes of shares, in which case each class of a series would
participate equally in the earnings, dividends and assets attributable to that
class of the particular series. Shareholders are entitled to one vote for each
share held and shares of each series are entitled to vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shares of all series vote together in the election of Trustees and
ratification of selection of accountants. Additionally, each class of shares
of a series will vote separately on any material increases in the fees under
its Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of
the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in the Fund with each other class, subject to the liabilities of the particular class. Shares have no pre-emptive or conversion rights (except as set forth above in "Purchases -- Conversion of Class B Shares"). Shares of the Fund are fully paid and nonassessable. Should the Fund be liquidated, shareholders of each class would be entitled to share pro rata in the net assets attributable to that class available for distribution to shareholders. Shares will remain on deposit with the Shareholder Servicing Agent and certificates will not be issued except in connection with pledges, assignments and in certain other limited circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance (e.g., fidelity bonding and errors and omissions insurance) existed and the Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote
fund rankings in the relevant fund category from various sources, such as the
Lipper Analytical Services, Inc. and Wiesenberger Investment Companies
Service. Yield quotations are based on the annualized net investment income
per share allocated to each class of the Fund over a 30-day period stated as a
percent of the maximum public offering price of that class on the last day of
that period. Yield calculations for Class B shares assume no CDSC is paid. The
current distribution rate for each class is generally based upon the total
amount of dividends per share paid by the Fund to shareholders of that class
during the past 12 months and is computed by dividing the amount of such
dividends by the maximum public offering price of that class at the end of
such period. Current distribution rate calculations for Class B shares assume
no CDSC is paid. The current distribution rate differs from the yield
calculation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing,
short-term capital gains, and return of invested capital, and is calculated
over a different period of time. Total rate of return quotations will reflect
the average annual percentage change over stated periods in the value of an
investment in each class of shares of the Fund made at the maximum public
offering price of the shares of that class with all distributions reinvested
and which, if quoted for periods of six years or less, will give effect to the
imposition of the CDSC assessed upon redemptions of the Fund's Class B shares.
Such total rate of return quotations may be accompanied by quotations which do
not reflect the reduction in value of the initial investment due to the sales
charge or the deduction of the CDSC, and which will thus be higher. All
performance quotations are based on historical performance and are not
intended to indicate future performance. Yield reflects only net portfolio
income as of a stated period of time, and current distribution rate reflects
only the rate of distributions paid by the Fund over a stated period of time,
while total rate of return reflects all components of investment return over a
stated period of time. The Fund's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.
For a discussion of the manner in which the Fund will calculate its yield,
current distribution rate and total rate of return, see the Statement of
Additional Information. For further information about the Fund's performance
for the fiscal year ended April 30, 1995, please see the Fund's Annual Report.
A copy of the Annual Report may be obtained without charge by contacting the
Shareholder Servicing Agent (see back cover for address and phone number). In
addition to information provided in shareholder reports, the Fund may, in its
discretion, from time to time, make a list of all or a portion of its holdings
available to investors upon request.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below or concerning other aspects of the Fund, should contact the Shareholder Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive confirmation statements showing the transaction activity in his account. Cancelled checks, if any, will be sent to shareholders monthly. At the end of each calendar year, each shareholder will receive income tax information regarding reportable dividends and capital gain distributions for that year (see "Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts (except Systematic Withdrawal Plan accounts) and may be changed as often as desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional shares. This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions (except as provided below) reinvested in additional shares;
-- Dividends and capital gain distributions in cash.
With respect to the second option, the Fund may from time to time make distributions from short-term capital gains on a monthly basis, and to the extent such gains are distributed monthly, they shall be paid in cash; any remaining short-term capital gains not so distributed shall be reinvested in additional shares.
Reinvestments (net of any tax withholding) will be made in additional full and fractional shares of the same class of shares at the net asset value in effect at the close of business on the record date. Dividends and capital gain distributions in amounts less than $10 will automatically be reinvested in additional shares of the Fund. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. Any request to change a distribution option must be received by the Shareholder Servicing Agent by the record date for a dividend or distribution in order to be effective for that dividend or distribution. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the Fund makes available the following programs designed to enable shareholders to add to their investment in an account with the Fund or withdraw from it with a minimum of paper work. The programs involve no extra charge to shareholders (other than a sales charge in the case of certain Class A share purchases) and may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as described in the Statement of Additional Information) anticipates purchasing $100,000 or more of Class A shares of the Fund alone or in combination with Class B or Class C shares of the Fund or any of the classes of other MFS Funds or MFS Fixed Fund within a 13-month period (or 36-month period for purchases of $1 million or more), the shareholder may obtain such shares of the Fund at the same reduced sales charge as though the total quantity were invested in one lump sum, subject to escrow agreements and the appointment of an attorney for redemptions from the escrow amount if the intended purchases are not completed, by completing the Letter of Intent section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts on the purchases of Class A shares when his new investment, together with the current offering price value of all holdings of all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund may be sold at net asset value (and without any applicable CDSC) through the automatic reinvestment of dividend and capital gain distributions from the same class of any other MFS Fund. Furthermore, distributions made by the Fund may be automatically invested at net asset value (and without any applicable CDSC) in shares of the same class of another MFS Fund, if shares of such Fund are available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing Agent to send him (or anyone he designates) regular periodic payments based upon the value of his account. Each payment under a Systematic Withdrawal Plan (a "SWP") must be at least $100, except in certain limited circumstances. The aggregate withdrawals of Class B shares in any year pursuant to a SWP will not be subject to a CDSC and are generally limited to 10% of the value of the account at the time of the establishment of the SWP. The CDSC will not be waived in the case of SWP redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made through a shareholder's checking account twice monthly, monthly or quarterly. Required forms are available from the Shareholder Servicing Agent or investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000 in any MFS Fund may exchange their shares for the same class of shares of other MFS Funds (and in the case of Class C shares, for shares of the MFS Money Market Fund) under the Automatic Exchange Plan. The Automatic Exchange Plan provides for automatic monthly or quarterly exchanges of funds from the shareholder's account in an MFS Fund for investment in the same class of shares of other MFS Funds selected by the shareholder if such fund is available for sale. Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to four different funds. A shareholder should consider the differences in objectives and policies of a fund and review its prospectus before electing to exchange money into such fund through the Automatic Exchange Plan. No transaction fee is imposed in connection with exchange transactions under the Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund will be subject to any applicable sales charge. For federal and (generally) state income tax purposes, an exchange is treated as a sale of shares exchanged and, therefore, could result in a capital gain or loss to the shareholder making the exchange. See the Statement of Additional Information for further information concerning the Automatic Exchange Plan. Investors should consult their tax advisers for information regarding the potential capital gain and loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares regardless of fluctuating share offering prices, a shareholder should consider his financial ability to continue his purchases through periods of low price levels. Maintaining a dollar cost averaging program concurrently with a withdrawal program could be disadvantageous because of the sales charges included in share purchases in the case of Class A shares, and because of the assessment of the CDSC for certain share redemptions in the case of Class A shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C Shares," shares of the Fund may be purchased by all types of tax-deferred retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans and other corporate pension and profit-sharing plans. Investors should consult with their tax adviser before establishing any of these tax-deferred retirement plans.
The Fund's Statement of Additional Information, dated September 1, 1995, contains more detailed information about the Fund, including, but not limited to, information related to (i) the Fund's investment objectives, policies and restrictions, (ii) the Trustees, officers and investment adviser, (iii) portfolio transactions and brokerage commissions, (iv) the method used to calculate performance quotations, (v) the Fund's Class A, Class B and Class C Distribution Plans and (vi) various services and privileges provided by the Fund, including additional information with respect to the exchange privilege.
ANNEX A
WAIVERS OF SALES CHARGES
This Annex sets forth the various circumstances in which all applicable sales charges are waived (Section I), the initial sales charge and the contingent deferred sales charge ("CDSC") for Class A shares is waived (Section II), and the CDSC for Class B shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on purchases of Class A shares and the CDSC imposed on certain redemptions of Class A shares and on redemptions of Class B shares, as applicable, is waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of dividends and capital gains of any MFS Fund pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of assets of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees) and agents of MFS, Sun Life or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which MFD serves as distributor;
* Employees, directors, partners, officers and trustees of any sub- adviser to any MFS Fund;
* Employees or registered representatives of dealers and other financial institution ("dealers") which have a sales agreement with MFD;
* Certain family members of any such individual and their spouses identified above and certain trusts, pension, profit-sharing or other retirement plans for the sole benefit of such persons, provided the shares are not resold except to an MFS Fund; and
* Institutional Clients of MFS or AMI.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a shareholder's account. See "Redemptions and Repurchases -- General -- Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new sales for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or certain participant expenses) of the Plan (e.g., participant account fees), provided that the Plan sponsor subscribes to the MFS FUNDamental 401(k) Plan or another similar recordkeeping system made available by the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or more of the MFS Funds for more than 10 years from the later to occur of: (i) January 1, 1993 or (ii) the date such Plan first invests its assets in one or more of the MFS Funds. The sales charges will be waived in the case of a redemption of all of the Plan's shares in all MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds are withdrawn), unless immediately prior to the redemption, the aggregate amount invested by the Plan in shares of the MFS Funds (excluding the reinvestment of distributions) during the prior four years equals 50% or more of the total value of the Plan's assets in the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares transferred:
* To an IRA rollover account where any sales charges with respect to the shares being reregistered would have been waived had they been redeemed; and
* From a single account maintained for a 401(a) Plan to multiple accounts maintained by the Shareholder Servicing Agent on behalf of individual participants of such Plan, provided that the Plan sponsor subscribes to the MFS FUNDamental 401(k) Plan or another similar recordkeeping system made available by the Shareholder Servicing Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following circumstances the initial sales charge imposed on purchases of Class A shares and the contingent deferred sales charge imposed on certain redemption of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have
not agreed with such company or its affiliates, formally or
informally, to waive sales charges on Class A shares or provide any
other incentive with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have entered into an agreement with MFD which includes a requirement that such shares be sold for the sole benefit of clients participating in a "wrap" account or a similar program under which such clients pay a fee to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators, or dealers have entered into an administrative services agreement with MFD or one of its affiliates to perform certain administrative services, subject to certain operational and minimum size requirements specified from time to time by MFD or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares of Class A or Class B distributions which constitute required withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of 59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the shares are held solely in the deceased individual's name or in a living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if shares are held either solely or jointly in the disabled individual's name or in a living trust for the benefit of the disabled individual (in which case a disability certification form is required to be submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made under the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant, as applicable, has attained the age of 70 1/2 years old, but only with respect to the minimum distribution under applicable Internal Revenue Code ("Code") rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participant has attained the age of 70 1/2 years old, but only with respect to the minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
APPENDIX A
DESCRIPTION OF BOND RATINGS
The ratings of Moody's and S&P represent their opinions as to the quality of various debt instruments. It should be emphasized, however, that ratings are not absolute standards of quality. Consequently, debt instruments with the same maturity, coupon and rating may have different yields while debt instruments of the same maturity and coupon with different ratings may have the same yield.
MOODY'S
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long- term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
S&P
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
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 jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major categories.
NR: indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeble future developments, short-term debt of these issuers is generally rated "F-1+".
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 considered to be adequate. Adverse changes in economic conditions, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information available from the issuer to be indadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive", indicating a potential upgrade, "Negative", for potential downgrade, or "Evolving", where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within 12 months.
APPENDIX B
PORTFOLIO COMPOSITION CHART
MFS BOND FUND
FOR FISCAL YEAR ENDED APRIL 30, 1995
The table below shows the percentages of the Fund's assets at April 30, 1995 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 Credit Rating Co. (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 higher of S&P or Moody's is used. When neither an S&P or Moody's rating is available, secondary sources are selected in the following order: Fitch Investors Service and Duff & Phelps Credit Rating Co.
UNRATED
SECURITIES OF
COMPILED COMPARABLE
RATING RATINGS QUALITY TOTAL
------ -------- ------------- -----
AAA/Aaa ............. 21.92% -- 21.92%
AA/Aa ............... 2.41% -- 2.41%
A/A ................. 7.93% -- 7.93%
BBB/Baa ............. 35.78% -- 35.78%
BB/Ba ............... 12.24% -- 12.24%
B/B ................. 7.31% -- 7.31%
CCC/Caa ............. 0% -- 0%
CC/Ca ............... 0% -- 0%
C/C ................. 0% -- 0%
Default ............. 0% -- 0%
TOTAL ........... 87.59%
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The chart does not necessarily indicate what the composition the Fund's portfolio will be in subsequent years. Rather, the Fund's investment objective, policies and restrictions indicate the extent to which the Fund may purchase securities in the various categories.
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
Investors Bank and Trust Company
89 South Street
Boston, MA 02110
Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[LOGO] M F S(SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) BOND FUND
500 Boylston Street
Boston, MA 02116
MFB-1 9/95/160M 11/211/311
[LOGO] M F S(SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) BOND FUND
Prospectus
September 1, 1995
[GRAPHIC OMITTED: art work:
Silhouette of two men talking in front of a large window.]
[LOGO] MFS(SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) BOND FUND STATEMENT OF
ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) September 1, 1995
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Page
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1. Definitions ............................................... 2
2. Investment Objectives, Policies and Restrictions .......... 2
3. Management of the Fund .................................... 11
Trustees ............................................... 11
Officers ............................................... 12
Investment Adviser ..................................... 12
Custodian .............................................. 13
Shareholder Servicing Agent ............................ 13
Distributor ............................................ 13
4. Portfolio Transactions and Brokerage Commissions .......... 14
5. Shareholder Services ...................................... 15
Investment and Withdrawal Programs ..................... 15
Exchange Privilege ..................................... 16
Tax-Deferred Retirement Plans .......................... 17
6. Tax Status ................................................ 17
7. Determination of Net Asset Value and Performance .......... 18
8. Distribution Plans ........................................ 21
9. Description of Shares, Voting Rights and Liabilities ...... 22
10. Independent Accountants and Financial Statements .......... 23
MFS BOND FUND
A Series of MFS Series Trust IX
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
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This Statement of Additional Information sets forth information which may be of interest to investors but which is not necessarily included in the Fund's Prospectus, dated September 1, 1995. This Statement of Additional Information should be read in conjunction with the Prospectus, a copy of which may be obtained without charge by contacting the Shareholder Servicing Agent (see last page for address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
1. DEFINITIONS
"Fund" -- MFS Bond Fund, a diversified series
of MFS Series Trust IX (the
"Trust"), a Massachusetts business
trust. The Trust was known as MFS
Fixed Income Trust prior to January
18, 1995, and as Massachusetts
Financial Bond Fund prior to
January 7, 1992.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus, dated September 1,
1995, of the Fund.
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2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS INVESTMENT OBJECTIVES. The primary investment objective of the Fund is to provide as high a level of current income as is believed to be consistent with prudent investment risk. The secondary objective of the Fund is to protect shareholders' capital. Any investment involves risk and there can be no assurance that the Fund will achieve its investment objectives.
INVESTMENT POLICIES. The investment policies of the Fund are described in the Prospectus. In addition, certain of the Fund's investment policies are described in greater detail below.
MORTGAGE PASS-THROUGH SECURITIES. The Fund may invest in mortgage pass-through securities as described in the Prospectus. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by prepayments of principal resulting from the sale, refinancing or foreclosure of the underlying property, net of fees or costs which may be incurred. Some mortgage pass-through securities (such as securities issued by the Government National Mortgage Association ("GNMA")) are described as "modified pass-through." These securities entitle the holder to receive all interest and principal payments owed on the mortgages in the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is the GNMA. GNMA is a wholly owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do not apply to the market value or yield of mortgage pass-though securities. GNMA securities are often purchased at a premium over the maturity value of the underlying mortgages. This premium is not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., those whose guarantees are not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases conventional residential mortgages (i.e., mortgages not insured or guaranteed by any governmental agency) from a list of approved seller/servicers which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks, credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S. Government for the purpose of increasing the availability of mortgage credit for residential housing. FHLMC issues Participation Certificates ("PCs") which represent interests in conventional mortgages (i.e., not federally insured or guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of interest and ultimate collection of principal regardless of the status of the underlying mortgage loans.
Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of mortgage loans. Such issuers may also be the originators and/or servicers of the underlying mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of mortgage loans in these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. The Fund may also buy mortgage-related securities without insurance or guarantees.
REPURCHASE AGREEMENTS: As described in the Prospectus, the Fund may enter into repurchase agreements with sellers who are member firms (or a subsidiary thereof) of the New York Stock Exchange (the "Exchange") or members of the Federal Reserve System, recognized primary U.S. Government securities dealers or institutions which the Adviser has determined to be of comparable creditworthiness. The securities that the Fund purchases and holds through its agent are securities that are issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities ("Government Securities"), the values of which are equal to or greater than the repurchase price agreed to be paid by the seller. The repurchase price may be higher than the purchase price, the difference being income to the Fund, or the purchase and repurchase prices may be the same, with interest at a standard rate due to the Fund together with the repurchase price on repurchase. In either case, the income to the Fund is unrelated to the interest rate on the Government securities.
The repurchase agreement provides that in the event the seller fails to pay the price agreed upon on the agreed upon delivery date or upon demand, as the case may be, the Fund will have the right to liquidate the securities. If at the time the Fund is contractually entitled to exercise its right to liquidate the securities, the seller is subject to a proceeding under the bankruptcy laws or its assets are otherwise subject to a stay order, the Fund's exercise of its right to liquidate the securities may be delayed and result in certain losses and costs to the Fund. The Fund has adopted and follows procedures which are intended to minimize the risks of repurchase agreements. For example, the Fund only enters into repurchase agreements after the Adviser has determined that the seller is creditworthy, and the Adviser monitors that seller's creditworthiness on an ongoing basis. Moreover, under such agreements, the value of the securities (which are marked to market every business day) is required to be greater than the repurchase price, and the Fund has the right to make margin calls at any time if the value of the securities falls below the agreed upon margin.
SWAPS AND RELATED TRANSACTIONS: The Fund may enter into interest rate swaps, currency swaps and other types of available swap agreements. Swaps involve the exchange by the Fund with another party of cash payments based upon different interest rate indexes, currencies, and other prices or rates, such as the value of mortgage prepayment rates. For example, in the typical interest rate swap, the Fund might exchange a sequence of cash payments based on a floating rate index for cash payments based on a fixed rate. Payments made by both parties to a swap transaction are based on a principal amount determined by the parties.
The Fund may also purchase and sell caps, floors and collars. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the counterparty. For example, the purchase of an interest rate cap entitles the buyer, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a contractually-based principal amount from the counterparty selling such interest rate cap. The sale of an interest rate floor obligates the seller to make payments to the extent that a specified interest rate falls below an agreed-upon level. A collar arrangement combines elements of buying a cap and selling a floor.
The Fund will maintain cash or appropriate liquid assets with its custodian to cover its current obligations under swap transactions. If the Fund enters into a swap agreement on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments), the Fund will maintain cash or liquid assets with its Custodian with a daily value at least equal to the excess, if any, of the Fund's accrued obligations under the swap agreement over the accrued amount the Fund is entitled to receive under the agreement. If the Fund enters into a swap agreement on other than a net basis, it will maintain cash or liquid assets with a value equal to the full amount of the Fund's accrued obligations under the agreement.
The most significant factor in the performance of swaps, caps, floors and collars is the change in the specific interest rate, currency or other factor that determines the amount of payments to be made under the arrangement. If MFS is incorrect in its forecasts of such factors, the investment performance of the Fund would be less than what it would have been if these investment techniques had not been used. If a swap agreement calls for payments by the Fund, the Fund must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declined, the value of the swap agreement would be likely to decline, potentially resulting in losses. If the counterparty defaults, the Fund's risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive. The Fund anticipates that it will be able to eliminate or reduce its exposure under these arrangements by assignment or other disposition or by entering into an offsetting agreement with the same or another counterparty.
FOREIGN SECURITIES: The Fund may invest in foreign securities as discussed in the Prospectus. Investing in foreign securities generally represents a greater degree of risk than investing in domestic securities, due to possible exchange rate fluctuations, less publicly available information, more volatile markets, less securities regulation, less favorable tax provisions, war or expropriation. As a result of its investments in foreign securities, the Fund may receive interest or dividend payments, or the proceeds of the sale or redemption of such securities, in the foreign currencies in which such securities are denominated. Under certain circumstances, such as where the Adviser believes that the applicable exchange rate is unfavorable at the time the currencies are received or the Adviser anticipates, for any other reason, that the exchange rate will improve, the Fund may hold such currencies for an indefinite period of time. While the holding of currencies will permit the Fund to take advantage of favorable movements in the applicable exchange rate, such strategy also exposes the Fund to risk of loss if exchange rates move in a direction adverse to the Fund's position. Such losses could reduce any profits or increase any losses sustained by the Fund from the sale or redemption of securities and could reduce the dollar value of interest or dividend payments received.
The Fund may not invest more than 10% of its assets in non-dollar denominated, non-Canadian foreign securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: As described in the Prospectus, the Fund may invest a portion of its assets in collateralized mortgage obligations or "CMOs", which are debt obligations collateralized by mortgage loans or mortgage pass-through securities (such collateral referred to collectively as "Mortgage Assets"). Unless the context indicates otherwise, all references herein to CMOs include multiclass pass-through securities.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis. The principal of and interest on the Mortgage Assets may be allocated among the several classes of a series of a CMO in innumerable ways. In a common structure, payments of principal, including any principal prepayments, on the Mortgage Assets are applied to the classes of the series of a CMO in the order of their respective stated maturities or final distribution dates, so that no payment of principal will be made on any class of CMOs until all other classes having an earlier stated maturity or final distribution date have been paid in full. Certain CMOs may be stripped (securities which provide only the principal or interest factor of the underlying security). See "Stripped Morgage-Backed Securities" below for a discussion of the risks of investing in these stripped securities and of investing in classes consisting of principals of interest payments or principal payments.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO structures, must be retired by its stated maturity date or final distribution date but may be retired earlier.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund may enter into mortgage "dollar roll" transactions pursuant to which it sells mortgage-backed securities for delivery in the future and simultaneously contracts to repurchase substantially similar securities on a specified future date. During the roll period, the Fund foregoes principal and interest paid on the mortgage-backed securities. The Fund is compensated for the lost interest by the difference between the current sales price and the lower price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. The Fund may also be compensated by receipt of a commitment fee.
STRIPPED MORTGAGE-BACKED SECURITIES: The Fund may invest a portion of its assets in stripped mortgage-backed securities ("SMBS") which are derivative multiclass mortgage securities issued by agencies of or instrumentalities of the U.S. Government, or by private originators of, or investors in mortgage loans, including savings and loan institutions, mortgage banks, commercial banks and investment banks.
SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the Mortgage Assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the interest-only or "IO" class) while the other class will receive all of the principal (the principal-only or "PO" class). The yield to maturity on an IO is extremely sensitive to the rate of principal payments, including prepayments on the related underlying Mortgage Assets, and a rapid rate of principal payments may have a material adverse effect on such security's yield to maturity. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting primarily or entirely of principal payments generally is unusually volatile in response to changes in interest rates. Because SMBS were only recently introduced, established trading markets for these securities have not yet developed, although the securities are traded among institutional investors and investment banking firms.
LENDING OF PORTFOLIO SECURITIES: As described in the Prospectus, the Fund may seek to increase its income by lending portfolio securities. The Fund would have the right to call a loan and obtain the securities loaned at any time on customary industry settlement notice (which will usually not exceed five days). The Fund would not, however, have the right to vote any securities having voting rights during the existence of the loan, but would call the loan in anticipation of an important vote to be taken among holders of the securities or of the giving or withholding of their consent on a material matter affecting the investment. As with other extensions of credit there are risks of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. However, the loans would be made only to entities deemed by the Adviser to be of good standing, and when, in the judgment of the Adviser, the consideration which can be earned currently from securities loans of this type justifies the attendant risk. If the Adviser determines to make securities loans, it is intended that the value of the securities loaned would not exceed 30% of the value of the Fund's total assets.
"WHEN-ISSUED" SECURITIES: As described in the Prospectus, the Fund may purchase debt securities on a "when-issued" or on a "forward delivery" basis. Although the Fund is not limited as to the amount of these securities for which it may have commitments to purchase on such bases, it is expected that under normal circumstances the Fund will not commit more than 20% of its total assets to such purchases. When the Fund commits to purchase these securities on a "when-issued" or "forward delivery" basis, it will set up procedures consistent with the General Statement of Policy of the Securities and Exchange Commission (the "SEC") concerning such purchases. Since that policy currently recommends that an amount of the Fund's assets equal to the amount of the purchase be held aside or segregated to be used to pay for the commitment, the Fund will always have cash, short-term money market instruments or high quality debt securities sufficient to cover any commitments or to limit any potential risk. Although the Fund does not intend to make such purchases for speculative purposes and intends to adhere to the provisions of the SEC policy, purchases of securities on such bases may involve more risk than other types of purchases. For example, the Fund may have to sell assets which have been set aside in order to meet redemptions. Also, if the Fund determines it is necessary to sell the "when-issued" or "forward delivery" securities before delivery, the Fund may incur a loss because of market fluctuations since the time the commitment to purchase such securities was made.
The policies described above and the policies with respect to options, Futures Contracts, Options on Futures Contracts, Forward Contracts, options on foreign currencies, portfolio trading and the lending of portfolio securities described below are not fundamental and may be changed without shareholder approval, as may be the Fund's investment objectives.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, currencies, precious metals or other commodities, or other financial indicators. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or statistic. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positive or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the performance of the security, currency, or other instrument to which they are indexed, and may also be influenced by interest rate changes in the U.S. and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security, and their values may decline substantially if the issuer's creditworthiness deterioriates. Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies.
OPTIONS: The Fund intends to write covered put and call options and purchase put and call options on domestic and foreign fixed income securities that are traded on U.S. and foreign securities exchanges and over-the-counter. Call options written by the Fund give the holder the right to buy the underlying securities from the Fund at a fixed exercise price; put options written by the Fund give the holder the right to sell the underlying security to the Fund at a fixed exercise price. A call option written by the Fund is "covered" if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. A put option written by the Fund is "covered" if the Fund maintains cash, short-term money market instruments or high quality debt securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held (a) is equal to or greater than the exercise price of the put written or (b) is less than the exercise price of the put written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. Put and call options written by the Fund may also be covered in such other manner as may be in accordance with the requirements of the exchange, or the counter party with which, the option is traded, and applicable laws and regulations. The writer of an option may have no control over when the underlying securities must be sold (in the case of a call option) or purchased (in the case of a put option) since with regard to certain options, the writer may be assigned an exercise notice at any time prior to the termination of the obligation.
Effecting a closing transaction in the case of a written call option will permit the Fund to write another call option on the underlying security with either a different exercise price or expiration date or both, or in the case of a written put option, will permit the Fund to write another put option to the extent that the exercise price thereof is secured by deposited cash or short-term securities. Such transactions permit the Fund to generate additional premium income, which will partially offset declines in the value of portfolio securities or increases in the cost of securities to be acquired. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any securities subject to the option to be used for other Fund investments. If the Fund desires to sell a particular security from its portfolio on which it has written a call option, it will effect a closing transaction prior to or concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the closing out of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary market for an option of the same series. If a secondary market does not exist, it might not be possible to effect closing transactions in particular options with the result that the would have to exercise the options in order to realize any profit. If the Fund is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Reasons for the absence of a liquid secondary market include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by a national securities exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation (the "OCC") may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the OCC as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-write transactions; that is, the Fund may purchase a security and then write a call option against that security. The exercise price of the call the Fund determines to write will depend upon the expected price movement of the underlying security. The exercise price of a call option may be below ("in-the-money"), equal to ("at- the-money") or above ("out-of-the-money") the current value of the underlying security at the time the option is written. If the call options are exercised in such transactions, the Fund's maximum gain will be the premium received by it for writing the option, adjusted upwards or downwards by the difference between the Fund's purchase price of the security and the exercise price. If the options are not exercised and the price of the underlying security declines, the amount of such decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return characteristics to buy-and-write transactions. Put options may be used by the Fund in the same market environments that call options are used in equivalent buy-and-write transactions.
The Fund may write combinations of put and call options on the same security, a practice known as a "straddle." By writing a straddle, the Fund undertakes a simultaneous obligation to sell and purchase the same security in the event that one of the options is exercised. If the price of the security subsequently rises sufficiently above the exercise price to cover the amount of the premium and transaction costs, the call will likely be exercised and the Fund will be required to sell the underlying security at a below market price. This loss may be offset, however, in whole or in part, by the premiums received on the writing of the two options. Conversely, if the price of the security declines by a sufficient amount, the put will likely be exercised. The writing of straddles will likely be effective, therefore, only where the price of a security remains stable and neither the call nor the put is exercised. In an instance where one of the options is exercised, the loss on the purchase or sale of the underlying security may exceed the amount of the premiums received.
The Fund may also purchase put options to hedge against a decline in the value of its portfolio. By using put options in this way, the Fund will reduce any profit it might otherwise have realized in the underlying security by the amount of the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in the price of domestic or foreign securities that the Fund anticipates purchasing in the future. The premium paid for the call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security rises sufficiently, the option may expire worthless to the Fund.
YIELD CURVE OPTIONS: The Fund may also enter into options on the yield "spread" or yield differential between two fixed income securities, a transaction referred to as a "yield curve" option. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated fixed income securities, rather than the prices of the individual securities, and is usually settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease.
Yield curve options may be used for the same purposes as other options on securities. Specifically, the Fund may purchase or write such options for hedging purposes. For example, the Fund may purchase a call option on the yield spread between two securities if it owns one of the securities and anticipates purchasing the other security and wants to hedge against an adverse change in the yield spread between the two securities. The Fund may also purchase or write yield curve options for other than hedging purposes if, in the judgment of the Adviser, the Fund will be able to profit from movements in the spread between the yields of the underlying fixed income securities. The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, however, such options present risk of loss even if the yield of one of the underlying securities remains constant, if the yield spread moves in a direction or to an extent which was not anticipated. Yield curve options written by the Fund will be covered. A call (or put) option written by the Fund is covered if the Fund holds another call (or put) option on the yield spread between the same two securities and maintains in a segregated account with its custodian cash or cash equivalents sufficient to cover the Fund's net liability under the two options. Yield curve options may also be covered in such other manner as may be in accordance with the requirements of the counter party with which the option is traded and applicable laws and regulations. Yield curve options are traded over-the-counter and because they have been only recently introduced, established trading markets for these securities have not yet developed.
FUTURES CONTRACTS: The Fund may enter into contracts for hedging purposes, and for non-hedging purposes to the extent permitted by applicable law, for the future delivery of domestic or foreign fixed income securities or contracts based on municipal bond or other financial indices including any index of domestic or foreign fixed income securities, as such contracts become available for trading ("Futures Contracts"). A "sale" of a Futures Contract means a contractual obligation to deliver the securities called for by the contract at a specified price in a fixed delivery month or, in the case of a Futures Contract, on an index of securities, to make or receive a cash settlement. A "purchase" of a Futures Contract means a contractual obligation to acquire the securities called for by the contract at a specified price in a fixed delivery month or, in the case of a Futures Contract on an index of securities, to make or receive a cash settlement. U.S. Futures Contracts have been designed by exchanges which have been designated as "contract markets" by the Commodity Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant, or brokerage firm, which is a member of the relevant contract market. Existing contract markets include the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange. Futures Contracts are traded on these markets, and, through their clearing corporations, the exchanges guarantee performance of the contracts as between the clearing members of the exchange. Futures Contracts purchased or sold by the Fund are also traded on foreign exchanges which are not regulated by the CFTC.
At the same time a Futures Contract is purchased or sold, the Fund must allocate cash or securities as a deposit payment ("initial deposit"). The initial deposit varies but may be as low as 5% or less of the value of the contract. Daily thereafter, the Futures Contract is valued and the payment of "variation margin" may be required since each day the Fund would provide or receive cash that reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to a Futures Contract based on fixed income securities, adjustments are made to recognize differences in value arising from the delivery of securities with a different interest rate from that specified in the contract. In some (but not many) cases, securities called for by a Futures Contract may not have been issued when the contract was written.
A Futures Contract based on an index of securities, such as a municipal bond index Futures Contract, provides for a cash payment, equal to the amount, if any, by which the value of the index at maturity is above or below the value of the index at the time the contract was entered into, times a fixed index "multiplier". The index underlying such a Futures Contract is generally a broad based index of securities designed to reflect movements in the relevant market as a whole. The index assigns weighted values to the securities included in the index, and its composition is changed periodically.
Although Futures Contracts call for the actual delivery or acquisition of securities or, in the case of Futures Contracts based on an index, the making or acceptance of a cash settlement at a specified future time, the contractual obligation is usually fulfilled before such date by buying or selling, as the case may be, on a commodities exchange, an identical Futures Contract calling for settlement in the same month, subject to the availability of a liquid secondary market. The Fund incurs brokerage fees when it purchases and sells Futures Contracts.
The purpose of the acquisition or sale of a Futures Contract, in the case of a portfolio such as that of the Fund, which holds or intends to acquire long-term fixed income securities, is to attempt to protect the Fund from fluctuations in interest rates without actually buying or selling long-term fixed income securities. For example, if the Fund owns long-term bonds, and interest rates were expected to increase, the Fund might enter into Futures Contracts for the sale of debt securities. Such a sale would have much the same effect as selling an equivalent value of the long-term bonds owned by the Fund. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the Futures Contracts would increase at approximately the same rate, thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. The Fund could accomplish similar results by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase. However, since the futures market is more liquid than the cash market, the use of Futures Contracts as an investment technique allows the Fund to maintain a hedging position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, Futures Contracts may be purchased to attempt to hedge against anticipated purchases of long-term bonds at higher prices. Since the fluctuations in the value of Futures Contracts should be similar to that of long-term bonds, the Fund could take advantage of the anticipated rise in the value of long-term bonds without actually buying them until the market had stabilized. At that time, the Futures Contracts could be liquidated and the Fund could then buy long-term bonds on the cash market. To the extent the Fund enters into Futures Contracts for this purpose, the assets in the segregated asset account maintained to cover the Fund's obligations with respect to such Futures Contracts will consist of cash, cash equivalents, or short-term money market instruments from its portfolio in an amount equal to the difference between the fluctuating market value of such Futures Contracts and the aggregate value of the initial and variation margin payments made by the Fund with respect to such Futures Contracts.
The ordinary spreads between prices in the cash and futures markets, due to differences in the nature of those markets, are subject to distortions. First, all participants in the futures market are subject to initial deposit and variation margin requirements. Rather than meeting additional variation margin requirements, investors may close out Futures Contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest rate trends by the Adviser may still not result in a successful transaction.
In addition, Futures Contracts entail risks. Although the Fund believes that use of such contracts will benefit the Fund, if the Adviser's investment judgment about the general direction of interest rates is incorrect, the Fund's overall performance would be poorer than if it had not entered into any such contract. For example, if the Fund has hedged against the possibility of an increase in interest rates which would adversely affect the price of bonds held in its portfolio and interest rates decrease instead, the Fund will lose part or all of the benefit of the increased value of its bonds which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell bonds from its portfolio to meet daily variation margin requirements. Such sales of bonds may be, but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time when it may be disadvantageous to do so. Transactions in Futures Contracts for non-hedging purposes involve greater risks, and could result in losses which are not offset by gains on other portfolio assets.
OPTIONS ON FUTURES CONTRACTS: The Fund intends to purchase and write options on Futures Contracts ("Options on Futures Contracts") for hedging purposes. An Option on a Futures Contract provides the holder with the right to enter into a "long" position in the underlying Futures Contract (in the case of a call option) or a "short" position in the underlying Futures Contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or (in the case of certain options) on such date. Such Options on Futures Contracts will be traded on U.S. contract markets regulated by the CFTC as well as on foreign exchanges. Depending on the pricing of the option compared to either the price of the Futures Contract upon which it is based or the price of the underlying debt securities, it may or may not be less risky than ownership of the Futures Contract or underlying debt securities. As with the purchase of Futures Contracts, when the Fund is not fully invested it may purchase a call Option on a Futures Contract to hedge against a market advance due to declining interest rates.
The writing of a call Option on a Futures Contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the Futures Contract. If the futures price at expiration of the option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings. The writing of a put Option on a Futures Contract constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the Futures Contract. If the futures price at expiration of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, less related transaction costs, which provides a partial hedge against any increase in the price of securities which the Fund intends to purchase. If a put or call option the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it receives, less related transaction costs. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its futures positions, the Fund's losses from existing Options on Futures Contracts may to some extent be reduced or increased by changes in the value of portfolio securities. The writer of an Option on a Futures Contract is subject to the requirement of initial and variation margin payments. The Fund will cover the writing of call Options on Futures Contracts through purchases of the underlying Futures Contract or through ownership of the security, or securities included in the index, underlying the Futures Contract. The Fund may also cover the writing of call Options on Futures Contracts through the purchase of such Options, provided that the exercise price of the call purchased (a) is equal to or less than the exercise price of the call written; or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with the Fund's custodian. The Fund may cover the writing of put Options on Futures Contracts through sales of the underlying Futures Contract or through segregation of cash, short-term money market instruments or high quality debt securities in an amount equal to the value of the security or index underlying the Futures Contract. The Fund may also cover the writing of put Options on Futures Contracts through the purchase of such Options, provided that the exercise price of the put purchased is equal to or greater than the exercise price of the put written, or is less than the exercise price of the put written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. In addition, the Fund may cover put and call Options on Futures Contracts in accordance with the requirements of the exchange on which the option is traded and applicable laws and regulations.
The Fund may also purchase straddles on Options on Futures Contracts in order to protect against risk of loss arising as a result of anticipated changes in volatility in the interest rate or fixed income markets. Under such circumstances, if the anticipated changes in volatility in the market do not occur, the Fund could be required to forfeit one or both of the premiums paid for the Options.
The purchase of a put Option on a Futures Contract is similar in some respects to the purchase of protective put options on portfolio securities. The Fund will purchase a put Option on a Futures Contract to hedge the Fund's portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an Option on a Futures Contract is the premium paid for the Option plus related transaction costs, although in order to realize a profit it may be necessary to exercise the Option and close out the underlying Futures Contract. In addition to the correlation risks discussed above, the purchase of an Option also entails the risk that changes in the value of the underlying Futures Contract will not be fully reflected in the value of the option purchased. Transactions in Options on Futures Contracts for non-hedging purposes involve greater risks, and could result in losses which are not offset by gains on other portfolio assets.
FORWARD CONTRACTS: The Fund may enter into contractual obligations to purchase or sell a specific quantity of a given foreign currency for a fixed exchange rate at a future date ("Forward Contracts") for hedging purposes only. The Fund may also enter into Forward Contracts for "cross hedging" as noted in the Prospectus. Forward Contracts are individually negotiated and are traded through the "interbank currency market", an informal network of banks and brokerage firms which operates around the clock and throughout the world. Transactions in the interbank market may be executed only through financial institutions acting as market-makers in the interbank market, or through brokers executing purchases and sales through such institutions. Market-makers in the interbank market generally act as principals in taking the opposite side of their customers' positions in Forward Contracts, and ordinarily charge a mark-up or commission which may be included in the cost of the contract.
Prior to the stated maturity date of a Forward Contract, it may be possible to liquidate the transaction by entering into an offsetting contract. In order to do so, however, a customer may be required to maintain both contracts as open positions until maturity and to make or receive a settlement of the difference owed to or from the market-maker or broker at that time.
The Fund has established procedures consistent with statements by the SEC and its staff regarding the use of Forward Contracts by registered investment companies, which require the use of segregated assets or "cover" in connection with the purchase and sale of such contracts. In those instances in which the Fund satisfies this requirement through segregation of assets, it will maintain, in a segregated account, cash, cash equivalents or high grade debt securities, which will be marked to market on a daily basis, in an amount equal to the value of its commitments under Forward Contracts. Alternatively, the Fund may "cover" its obligations under such contracts through the ownership of the amount of foreign currency required to be delivered under a Forward Contract, in the case of a Forward Contract entered into by the Fund to sell such currency, or through the purchase of a call option, or a call option on a Futures Contract, on the underlying currency, provided that, if the strike price of the option is greater than the price established under the Forward Contract, the Fund will segregate cash, short-term money market instruments or high grade debt securities with a value equal to the difference between the strike price of the option and the price of the Forward Contract. The Fund may cover its obligations under a Forward Contract to purchase a foreign currency by purchasing a put option, or a put option on a Futures Contract, on the underlying currency, provided that, if the strike price of the option is less than the price established under the Forward Contract, the Fund will segregate cash, short-term money market instruments or high grade debt securities with a value equal to the difference between the strike price of the option and the price of the Forward Contact. The Fund may also cover Forward Contracts in such other manner as may be in accordance with the requirements of the counter party to the contract and applicable laws and regulations.
Forward Contracts may limit potential gain from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not engaged in such contracts.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write options on foreign currencies for hedging purposes in a manner similar to that in which Forward Contracts will be utilized. For example, a decline in the dollar value of a foreign currency in which portfolio securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of portfolio securities, the Fund may purchase put options on the foreign currency. If the value of the currency does decline, the Fund will have the right to sell such currency for a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, the Fund may purchase call Options thereon. The purchase of such Options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of Options, however, the benefit to the Fund deriving from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, the Fund could sustain losses on transactions in foreign currency options which would require it to forego a portion or all of the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of hedging purposes. For example, where the Fund anticipates a decline in the dollar value of foreign-denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised, and the diminution in value of portfolio securities will be offset by the amount of the premium received, less related transaction costs.
Similarly, instead of purchasing a call option to hedge against an anticipated increase in the dollar cost of securities to be acquired, the Fund could write a put option on the relevant currency which, if rates move in the manner projected, will expire unexercised and allow the Fund to hedge such increased cost up to the amount of the premium, less related transaction costs. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, less related transaction costs, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund would be required to purchase or sell the underlying currency at a loss which may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may be required to forego all or a portion of the benefits which might otherwise have been obtained from favorable movements in exchange rates.
Options on foreign currencies written or purchased by the Fund will be traded
over-the-counter or on U.S. or foreign securities exchanges. All options written
on foreign currencies will be covered. A call option written on foreign
currencies by the Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate right to acquire
that foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A call
option is also covered if the Fund has a call on the same foreign currency and
in the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. A put option
written on foreign currencies by the Fund is "covered" if the Fund maintains
cash, short-term money market instruments or high quality debt securities with a
value equal to the exercise price in a segregated account with its custodian, or
else holds a put on the same foreign currency and in the same principal amount
as the put written where the exercise price of the put held is equal to or
greater than the exercise price of the put written or is less than the exercise
price of the put written if the difference is maintained by the Fund in cash,
short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Options on foreign currencies written by
the Fund may also be covered in such other manner as may be in accordance with
the requirements of the exchange on which, or the counter party with which, the
option is traded, and applicable laws and regulations.
ADDITIONAL RISKS OF INVESTING IN OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES: Various additional risks exist with respect to the trading of options, Futures Contracts and Forward Contracts. For example, the Fund's ability effectively to hedge all or a portion of its portfolio through transactions in such instruments will depend on the degree to which price movements in the underlying index or instrument correlate with price movements in the relevant portion of the Fund's portfolio. The trading of futures and options entails the additional risk of imperfect correlation between movements in the futures or option price and the price of the underlying index or obligation, while the trading of options also entails the risk of imperfect correlation between securities used to cover options written and the securities underlying such options. The anticipated spread between the prices may be distorted because of various factors, which are set forth under "Futures Contracts" above. When the Fund purchases or sells Futures Contracts based on an index of securities, the securities comprising such index will not be the same as the portfolio securities being hedged, thereby creating a risk that changes in the value of the index will not correlate with changes in the value of such portfolio securities. In addition, where the Fund enters into Forward Contracts as a "cross hedge" (i.e., the purchase or sale of a Forward Contract on one currency to hedge against risk of loss arising from changes in value of a second currency), the Fund incurs the risk of imperfect correlation between changes in the values of the two currencies, which could result in losses.
The Fund's ability to engage in options and futures strategies will also depend on the availability of liquid markets in such instruments. "Options" above sets forth certain reasons why a liquid secondary market may not exist.
The liquidity of a secondary market in a Futures Contract or option thereon may be adversely affected by "daily price fluctuation limits", established by exchanges, which limit the amount of fluctuation in the price of a contract during a single trading day and prohibit trading beyond such limit. In addition, the exchanges on which futures and options are traded may impose limitations governing the maximum number of positions on the same side of the market and involving the same underlying instrument which may be held by a single investor, whether acting alone or in concert with others (regardless of whether such contracts are held on the same or different exchanges or held or written in one or more accounts or through one or more brokers).
Unlike transactions in Futures Contracts entered into by the Fund, options on foreign currencies and Forward Contracts are not traded on contract markets regulated by the CFTC or, with the exception of certain foreign currency options, by the SEC. To the contrary, such instruments are traded through financial institutions acting as market-makers, although foreign currency options are also traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. Similarly, options on securities may be traded over-the-counter. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Moreover, the option writer and a trader of Forward Contracts could lose amounts substantially in excess of their initial investments, due to the margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are within the jurisdiction of the SEC, as are other securities and options traded on such exchanges. As a result, many of the protections provided to traders on organized exchanges will be available with respect to such transactions. In particular, all options on securities and on foreign currencies entered into on a national securities exchange are cleared and guaranteed by the OCC, thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting the Fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of the availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in applicable foreign countries for this purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on the OCC or its clearing members, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, Options on securities, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies may be traded on foreign exchanges. Such transactions are subject to the risk of governmental actions affecting trading in or the prices of foreign currencies or securities. The value of such positions also could be adversely affected by (i) other complex foreign, political and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occuring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the Fund will not be deemed to be a "commodity pool" for purposes of the Commodity Exchange Act, regulations of the CFTC require that the Fund enter into transactions in Futures Contracts and Options on Futures Contracts only (i) for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging purposes, provided that the aggregate initial margin and premiums on such non-hedging positions does not exceed 5% of the liquidation value of the Fund's assets. In addition, the Fund must comply with the requirements of various state securities laws in connection with such transactions.
RISKS OF INVESTING IN LOWER RATED BONDS. The Fund may invest in fixed income securities rated Baa by Moody's or BBB by S&P and comparable unrated securities. These securities, while normally exhibiting adequate protection parameters, have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than in the case of higher grade fixed income securities.
The Fund may also invest up to 20% of its net assets in securities rated Ba or lower by Moody's or BB or lower by S&P or Fitch (and comparable unrated securities) (commonly known as "junk bonds") to the extent described in the Prospectus. No minimum rating standard is required by the Fund. These securities are considered speculative and, while generally providing greater income than investments in higher rated securities, will involve greater risk of principal and income (including the possibility of default or bankruptcy of the issuers of such securities) and may involve greater volatility of price (especially during periods of economic uncertainty or change) than securities in the higher rating categories and because yields vary over time, no specific level of income can ever be assured. These lower rated high yielding fixed income securities generally tend to reflect economic changes (and the outlook for economic growth) short-term corporate and industry developments and the market's perception of their credit quality (especially during times of adverse publicity) to a greater extent than higher rated securities which react primarily to fluctuations in the general level of interest rates (although these lower rated fixed income securities are also affected by changes in interest rates). In the past, economic downturns or an increase in interest rates have, under certain circumstances, caused a higher incidence of default by the issuers of these securities and may do so in the future, especially in the case of highly leveraged issuers. The prices for these securities may be affected by legislative and regulatory developments. For example, federal rules require that savings and loan associations gradually reduce their holdings of high-yield securities. An effect of such legislation may be to depress the prices of outstanding lower rated high yielding fixed income securities. The market for these lower rated fixed income securities may be less liquid than the market for investment grade fixed income securities. Furthermore, the liquidity of these lower rated securities may be affected by the market's perception of their credit quality. Therefore, the Adviser's judgment may at times play a greater role in valuing these securities than in the case of investment grade fixed income securities, and it also may be more difficult during times of certain adverse market conditions to sell these lower rated securities to meet redemption requests or to respond to changes in the market.
While the Adviser may refer to ratings issued by established credit rating agencies, it is not the Fund's policy to rely exclusively on ratings issued by these rating agencies, but rather to supplement such ratings with the Adviser's own independent and ongoing review of credit quality. To the extent the Fund invests in these lower rated securities, the achievement of its investment objectives may be more dependent on the Adviser's own credit analysis than in the case of a fund investing in higher quality fixed income securities. These lower rated securities may also include zero coupon bonds, deferred interest bonds and payable in kind ("PIK") bonds which are described in the Prospectus.
PORTFOLIO TRADING: As described in the Prospectus, The Fund intends to engage in portfolio trading rather than holding portfolio securities to maturity. Such trading may involve the selling of securities held for a short time, ranging from several months to less than a day and may be limited by tax restrictions.
In trading portfolio securities, the Fund may use the following strategies:
(1) shortening the average maturity of its portfolio in anticipation of a rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of its portfolio in anticipation of a decline in interest rates so as to maximize appreciation of principal;
(3) changing the average coupon of its portfolio when yield disparities reflect a change in investment value among securities trading at differing levels of premiums or discounts;
(4) selling one type of debt security (e.g., industrial bonds) and buying another (e.g., utility bonds) when disparities arise in the relative values of each; and
(5) changing from one debt security to an essentially similar debt security when their respective yields are distorted due to market factors.
These strategies may result in minor temporary increases or decreases in the Fund's current income available for distribution to its shareholders, and in its holding debt securities which sell at moderate to substantial premiums or discounts from face value. If the Fund's expectations of changes in interest rates or the Fund's evaluation of the normal yield relationship between two securities proves to be incorrect, the Fund's income, net asset value and potential capital gain may be reduced or its potential capital loss may be increased.
The Fund's limitations, policies and rating restrictions are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which are fundamental and cannot be changed without the approval of the holders of a majority of the shares of the Fund (which, as used in this Statement of Additional Information, means the lesser of (i) more than 50% of the outstanding shares of the Trust or a series or class, as applicable, or (ii) 67% or more of the outstanding shares of the Trust or a series or class, as applicable, present at a meeting if holders of more than 50% of the outstanding shares of the Trust or a series or class, as applicable, are represented in person or by proxy):
The Fund may not:
(1) borrow money in an amount in excess of 10% of its gross assets, and then only as a temporary measure for extraordinary or emergency purposes, or pledge, mortgage or hypothecate an amount of its assets (taken at market value) in excess of 15% of its gross assets, in each case taken at the lower of cost or market value and subject to a 300% asset coverage requirement (for the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies and payments of initial and variation margin in connection therewith are not considered a pledge of assets);
(2) underwrite securities issued by other persons except insofar as the Fund may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security;
(3) concentrate its investments in any particular industry, but if it is deemed appropriate for the achievement of its investment objectives, the Fund may invest up to 25% of its assets (taken at market value at the time of each investment) in securities of issuers in any one industry;
(4) purchase or sell real estate (including limited partnership interests but excluding securities of companies, such as real estate investment trusts, which deal in real estate or interests therein), or mineral leases, commodities or commodity contracts (except options, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies) in the ordinary course of its business. The Fund reserves the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts (including options, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies) acquired as a result of the ownership of securities. The Fund will not purchase securities for the purpose of acquiring real estate or mineral leases, commodities or commodity contracts (except options, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies);
(5) make loans to other persons. For these purposes, the purchase of short-term commercial paper, the purchase of a portion or all of an issue of debt securities in accordance with its investment objectives and policies, the lending of portfolio securities, or the investment of the Fund's assets in repurchase agreements, shall not be considered the making of a loan;
(6) purchase the securities of any issuer if such purchase, at the time thereof, would cause more than 5% of its total assets (taken at market value) to be invested in the securities of such issuer, other than cash items and U.S. Government securities;
(7) purchase voting securities of any issuer if such purchase, at the time thereof, would cause more than 10% of the outstanding voting securities of such issuer to be held by the Fund; or purchase securities of any issuer if such purchase at the time thereof would cause more than 10% of any class of securities of such issuer to be held by the Fund. For this purpose all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class;
(8) invest for the purpose of exercising control or management;
(9) purchase securities issued by any other registered investment company except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that the Fund shall not purchase such securities if such purchase at the time thereof would cause more than 10% of its total assets (taken at market value) to be invested in the securities of such issuers; and, provided further, that the Fund shall not purchase securities issued by any open-end investment company;
(10) invest more than 5% of its assets in companies which, including predecessors, have a record of less than three years' continuous operation;
(11) purchase or retain in its portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Trustee of the Trust, or is an officer or Director of the Adviser, if after the purchase of the securities of such issuer by the Fund one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both;
(12) purchase any securities or evidences of interest therein on margin, except to make deposits on margin in connection with options, Futures Contracts, Options on Futures Contracts, Forward Contracts and options on foreign currencies, and except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities;
(13) sell any security which the Fund does not own unless by virtue of its ownership of other securities the Fund has at the time of sale a right to obtain securities without payment of further consideration equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon the same conditions;
(14) purchase or sell any put or call option or any combination thereof, provided, that this shall not prevent the purchase, ownership, holding or sale of warrants where the grantor of the warrants is the issuer of the underlying securities or the writing, purchasing and selling of puts, calls or combinations thereof with respect to securities, Futures Contracts and foreign currencies; or
(15) invest in securities which are restricted as to disposition under federal securities laws unless the Board of Trustees has determined that such securities are liquid based upon trading markets for the specific security, if more than 10% of the Fund's assets (taken at market value) would be invested in such securities.
These investment restrictions are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
3. MANAGEMENT OF THE FUND The Trust's Board of Trustees provides broad supervision over the affairs of the Fund. The Adviser is responsible for the management of the Fund's assets, and the officers of the Trust are responsible for its operations. The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman and Director
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
and Director (until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co. (investment counsel firm), Financial Vice President,
Treasurer and Director (retired October 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (until December 1991); The Neiman Marcus Group, Inc.,
Vice Chairman and Chief Financial Officer (from August 1987 to December 1991);
United States Filter Corporation, Director
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (from June 1990 until November
1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT
Private Investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President and Group Executive (until December 1990); OHM
Corporation, Director (since July, 1986); The Boston Company, Director; Boston
Safe Deposit and Trust Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary Massachusetts Financial Services Company, Vice President and Associate General Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
GEOFFREY L. KURINSKY,* Vice President
Massachusetts Financial Services Company, Senior Vice President
Each Trustee and officer holds comparable positions with certain MFS affiliates or with certain other funds of which MFS or a subsidiary of MFS is the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD, Messrs. Shames and Scott, Directors of MFD and Mr. Cavan, the Secretary of MFD, hold similar positions with certain other MFS affiliates. Mr. Bailey is a Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who currently receive a fee of $2,500 per year plus $235 per meeting and committee meeting attended, together with such Trustees out-of-pocket expenses) and has adopted a retirement plan for non-interested Trustees and Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 73 and if the Trustee has completed at least five years of service, he would be entitled to annual payments during his lifetime of up to 50% of such Trustee's average annual compensation based on the three years prior to his retirement depending on his length of service. A Trustee may also retire prior to age 73 and receive reduced payments if he has completed at least five years of service. Under the plan, a Trustee (or his beneficiaries) will also receive benefits for a period of time in the event the Trustee is disabled or dies. These benefits will also be based on the Trustee's average annual compensation and length of service. There is no retirement plan provided by the Trust for the interested Trustees (except Mr. Bailey). The Fund will accrue its allocable share of compensation expenses each year to cover current year's service and amortize past service cost.
Set forth in Appendix A hereto is certain information concerning the cash compensation paid to non-interested Trustees and Mr. Bailey and benefits accrued, and estimated benefits payable, under the retirement plan.
As of July 28, 1995, all Trustees and officers as a group owned less than [1%]
of the outstanding shares of the Fund not including 876,107.74 Class A shares
(which represent 2.3% of the outstanding shares of Class A shares of the Fund)
owned by employee benefit plans of MFS for which Mr. Brodkin is a Trustee.
As of July 28, 1995, Nationwide Life Insurance Co., P.O. Box 182029, Columbus, Ohio 43218, was the owner of approximately 7.52% of the outstanding Class A shares of the Fund. Merrill Lynch, Pierce, Fenner & Smith Inc., P.O. Box 45286, Jacksonville, Florida, was the owner of 5.08% of the outstanding Class B shares of the Fund. Merrill Lynch, Pierce, Fenner & Smith Inc., P.O. Box 45286, Jacksonville, FL 32232-5286 was the owner of 10.13% of the outstanding Class C shares and Church Development Fund Inc., 905 S. Euclid St., Fullerton, CA 92632-2808 was the owner of 11.42% of the outstanding Class C shares.
The Declaration of Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, unless, as to liabilities to the Trust or its shareholders, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices, or with respect to any matter unless it is adjudicated that they did not act in good faith in the reasonable belief that their actions were in the best interest of the Trust. In the case of settlement, such indemnification will not be provided unless it has been determined pursuant to the Declaration of Trust, that such officers and Trustees have not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.) which in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Adviser manages the assets of the Fund pursuant to an Investment Advisory Agreement, dated December 2, 1985 (the "Advisory Agreement"). The Adviser provides the Fund with overall investment advisory and administrative services, as well as general office facilities. Subject to such policies as the Trustees may determine, the Adviser makes investment decisions for the Fund. For these services and facilities, the Adviser receives a management fee computed and paid monthly on the basis of a formula based upon a percentage of the Fund's average daily net assets plus a percentage of its gross income (i.e., income other than gains from the sale of securities, gains from options and futures transactions and premium income from options written) in each case on an annualized basis for the Trust's then-current fiscal year. The applicable percentages are reduced as assets and income reach the following levels:
ANNUAL RATE OF ADVISORY FEE ANNUAL RATE OF ADVISORY FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ------------------------------------ --------------------------------
.225% of the first $200 million 2.75% of the first $20 million
.191% of average daily net assets in 2.34% of gross income in excess
excess of $200 million of $20 million
|
For the fiscal years ended April 30, 1993, 1994 and 1995, MFS received fees under the Advisory Agreement of $2,009,564, $2,114,447 and $2,179,512, respectively.
In order to comply with the expense limitations of certain state securities commissions, the Adviser will reduce its management fee or otherwise reimburse the Fund for any expenses, exclusive of interest, taxes, brokerage commissions and extraordinary expenses, incurred by the Fund in any fiscal year to the extent such expenses exceed the most restrictive of such state expense limitations. The Adviser will make appropriate adjustments to such reimbursements in response to any amendment or rescission of the various state requirements. Any such adjustment would not become effective until the beginning of the Fund's next fiscal year following the date of such amendment or the date such requirements become no longer applicable.
The Fund pays all of the Fund's expenses (other than those assumed by Adviser or MFD), including: governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Fund; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Fund; expenses of repurchasing and redeeming shares; expenses of preparing, printing and mailing share certificates, prospectuses, shareholders' reports, notices, proxy statements and reports to governmental officers and commissions; brokerage and other expenses connected with the execution of portfolio security transactions; insurance premiums; fees and expenses of the custodian for all services to the Fund, including safekeeping of funds and securities, keeping of books and accounts and calculation of the net asset value of shares of the Fund; and expenses of shareholders' meetings. Expenses relating to the issuance, registration and qualification of shares of the Fund and the preparation, printing and mailing of prospectuses for such purposes are borne by the Fund except that the Trust's Distribution Agreement with MFD requires MFD to pay for prospectuses that are to be used for sales purposes. Expenses of the Trust which are not attributable to a specific portfolio are allocated among the portfolios in a manner believed by management of the Trust to be fair and equitable. For a list of expenses, including the compensation paid to the Trustees who are not officers of the Adviser, for the fiscal year ended April 30, 1995, see "Statement of Operations" in the Annual Report to the Fund's shareholders.
MFS pays the compensation of the officers and of any Trustee who is an officer of MFS. The Adviser also furnishes at its own expense all necessary administrative services, including office space, equipment, clerical personnel, investment advisory facilities, and all executive and supervisory personnel necessary for managing the Fund's investments, effecting the Fund's portfolio transactions and, in general, administering the Fund's affairs.
The Advisory Agreement will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Fund's shares (as defined in "Investment Restrictions") and, in either case, by a majority of the Trustees who are not parties to the Advisory Agreement or interested persons of any such party. The Advisory Agreement terminates automatically if it is assigned and may be terminated without penalty by vote of a majority of the Fund's shares (as defined in "Investment Restrictions") or by either party on not more than 60 days' nor less than 30 days' written notice. The Advisory Agreement provides that MFS may render services to others and that neither the Adviser nor its personnel shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
Investors Bank & Trust Company (the "Custodian") is the custodian of the Trust's
assets. The Custodian's responsibilities include safekeeping and controlling the
Fund's cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest and dividends on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Trustees have reviewed and approved as in the best interest of
the Fund and its shareholders custodial arrangements with Chase Manhattan Bank,
N.A. for securities of the Fund held outside the U.S. The Custodian has
contracted with the Adviser for the Adviser to perform certain accounting
functions related to options transactions for which the Adviser receives
remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated December 2, 1985 (the "Agency
Agreement"). The Shareholder Servicing Agent's responsibilities under the Agency
Agreement include administering and performing transfer agent functions and
keeping records in connection with the issuance, transfer and redemption of each
class of the shares of the Fund. For these services, the Shareholder Servicing
Agent will receive a fee based on the net assets of each class of shares of the
Fund, computed and paid monthly. In addition, the Shareholder Servicing Agent
will be reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. The Custodian has contracted with the
Shareholder Servicing Agent to perform certain dividend and distribution
disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated as of
January 1, 1995 (the "Distribution Agreement"). Prior to January 1, 1995, MFS
Financial Services, Inc. ("FSI"), another wholly owned subsidiary of MFS, was
the Fund's distributor. Where this Statement of Additional Information refers to
MFD in relation to the receipt or payment of money with respect to a period or
periods prior to January 1, 1995, such reference shall be deemed to include FSI,
as the predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to dealers. The public offering price of Class A shares of the Fund is their net asset value next computed after the sale plus a sales charge which varies based upon the quantity purchased. The public offering price of Class A shares of the Fund is calculated by dividing the net asset value of a Class A share by the difference (expressed as a decimal) between 100% and the sales charge percentage of offering price applicable to the purchase (see "Purchases" in the Prospectus). The sales charge scale set forth in the Prospectus applies to purchases of Class A shares of the Fund alone or in combination with shares of all classes of certain other funds in the MFS Family of Funds (the "MFS Funds") and other funds (as noted under Right of Accumulation) by any person, including members of a family unit (e.g., husband, wife and minor children) and bona fide trustees for the benefit of such persons, and also applies to purchases made under the Right of Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs" below). A group might qualify to obtain quantity sales charge discounts (see "Investment and Withdrawal Programs" below).
Class A shares of the Fund may be sold at their net asset value to certain persons and in certain instances as described in the Prospectus. Such sales are made without a sales charge to promote good will with employees and others with whom MFS, MFD and/or the Fund have business relationships, and because the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the applicable public offering price of Class A shares. Dealer allowances expressed as a percentage of offering price for all offering prices are set forth in the Prospectus (see "Purchases" in the Prospectus). The difference between the total amount invested and the sum of (a) the net proceeds to the Fund and (b) the dealer commission is the commission paid to the distributor. Because of rounding in the computation of offering price, the portion of the sales charge paid to the distributor may vary and the total sales charge may be more or less than the sales charge calculated using the sales charge expressed as a percentage of offering price or as a percentage of the net amount invested as stated in the Prospectus. In the case of the maximum sales charge, the dealer retains 4% and MFD retains approximately 3/4 of 1% of the public offering price. In addition, MFD, on behalf of the Fund, pays commissions to dealers who initiate and are responsible for purchases of $1 million or more as described in the Prospectus.
CLASS B AND CLASS C SHARES: MFD acts as agent in selling Class B and Class C shares of the Fund to dealers. The public offering price of Class B and Class C shares is their net asset value next computed after the sale (see "Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to benefit themselves by a price change. On occasion, MFD may obtain brokers loans from various banks, including the custodian banks for the MFS Funds, to facilitate the settlement of sales of shares of the Fund to dealers. MFD may benefit from its temporary holding of funds paid to it by investment dealers for the purchase of Fund shares.
During the Fund's fiscal year ended April 30, 1995, MFD received sales charges of $135,514 and dealers received sales charges of $950,411, (as their concession on gross sales charges of $1,085,925), for selling Class A shares of the Fund; the Fund received $96,165,758 representing the aggregate net asset value of such shares. During the Fund's fiscal year ended April 30, 1994, MFD and dealers and certain other financial institutions received sales charges of $202,690 and $1,069,799, respectively, (as their concession on gross sales charges of $1,272,489), for selling Class A shares of the Fund. The Fund received $91,004,250 representing the aggregate net asset value of such shares. During the Fund's fiscal year ended April 30, 1993, MFD and dealers and certain other financial institutions received sales charges of $284,339 and $2,524,658, respectively, (as their concession on gross sales charges of $2,808,997) for selling Class A shares of the Fund. The Fund received $91,715,196 representing the aggregate net asset vlaue of such shares.
During the Fund's fiscal year ended April 30, 1995, the contingent deferred sales charge ("CDSC") imposed on redemption of Class A shares was $3,369. During the Fund's fiscal year ended April 30, 1995 and for the period September 7, 1993 through April 30, 1994, the CDSC imposed on redemption of Class B shares was $145,665 and $21,417, respectively.
The Distribution Agreement will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Fund's outstanding shares (as defined in "Investment Restrictions") and, in either case, by a majority of the Trustees who are not interested persons of any party to the Distribution Agreement. The Distribution Agreement terminates automatically if it is assigned and may be terminated without penalty by either party on not more than 60 days' nor less than 30 days' notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS Specific decisions to purchase or sell securities for the Fund are made by a portfolio manager who is an employee of the Adviser and who is appointed and supervised by its senior officers. Changes in the Fund's investments are reviewed by its Board of Trustees. The Fund's portfolio manager may serve other clients of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions is execution at the most favorable prices. The Adviser has complete freedom as to the markets in and the broker-dealers through which it seeks this result. Debt securities are traded principally in the over-the-counter market on a net basis through dealers acting for their own account and not as brokers. The cost of securities purchased from underwriters includes an underwriter's commission or concession, and the prices at which securities are purchased and sold from and to dealers include a dealer's mark-up or mark-down. The Adviser normally seeks to deal directly with the primary market-makers unless, in its opinion, better prices are available elsewhere. Securities firms or futures commission merchants may receive brokerage commissions on transactions involving Futures Contracts and Options on Futures Contracts. Subject to the requirement of seeking execution at the best available price, securities may, as authorized by the Advisory Agreement, be bought from or sold to dealers who have furnished statistical, research and other information or services to the Adviser. At present no recapture arrangements are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice of the NASD and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund and of the other investment company clients of MFD as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions.
In certain instances there may be securities which are suitable for the Fund's portfolio as well as for that of one or more of the other clients of the Adviser or any subsidiary of the Adviser. Investment decisions for the Fund and for such other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Fund is concerned. In other cases, however, the Fund believes that its ability to participate in volume transactions will produce better executions for the Fund.
For the fiscal year ended April 30, 1995, the Fund acquired and sold securities issued by Morgan Stanley Group, Inc., a regular broker-dealer of the Fund.
5. SHAREHOLDER SERVICES INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following programs designed to enable shareholders to add to their investment or withdraw from it with a minimum of paper work. These are described below and, in certain cases, in the Prospectus. The programs involve no extra charge to shareholders (other than a sales charge in the case of certain Class A share purchases) and may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described below) anticipates purchasing $100,000 or more of Class A shares of the Fund alone or in combination with shares of any class of MFS Funds or MFS Fixed Fund (a bank collective investment fund) within a 13-month period (or 36-month period, in the case of purchases of $1 million or more), the shareholder may obtain Class A shares of the Fund at the same reduced sales charge as though the total quantity were invested in one lump sum by completing the Letter of Intent section of the Account Application or filing a separate Letter of Intent application (available from the Shareholder Servicing Agent) within 90 days of the commencement of purchases. Subject to acceptance by MFD and the conditions mentioned below, each purchase will be made at a public offering price applicable to a single transaction of the dollar amount specified in the Letter of Intent application. The shareholder or his dealer must inform MFD that the Letter of Intent is in effect each time shares are purchased. The shareholder makes no commitment to purchase additional shares, but if his purchases within 13 months (or 36 months in the case of purchases of $1 million or more) plus the value of shares credited toward completion of the Letter of Intent do not total the sum specified, he will pay the increased amount of the sales charge as described below. Instructions for issuance of shares in the name of a person other than the person signing the Letter of Intent application must be accompanied by a written statement from the dealer stating that the shares were paid for by the person signing such Letter. Neither income dividends nor capital gain distributions taken in additional shares will apply toward the completion of the Letter of Intent. Dividends and distributions of other MFS Funds automatically reinvested in shares of the Fund pursuant to the Distribution Investment Program will also not apply toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if necessary), 5% of the dollar amount specified in the Letter of Intent application shall be held in escrow by the Shareholder Servicing Agent in the form of shares registered in the shareholder's name. All income dividends and capital gain distributions on escrowed shares will be paid to the shareholder or to his order. When the minimum investment so specified is completed (either prior to or by the end of the 13-month period or 36-month period, as applicable), the shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent will redeem an appropriate number of the escrowed shares in order to realize such difference. Shares remaining after any such redemption will be released by the Shareholder Servicing Agent. By completing and signing the Account Application or separate Letter of Intent application the shareholder irrevocably appoints the Shareholder Servicing Agent his attorney to surrender for redemption any or all escrowed shares with full power of substitution in the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts on the purchase of Class A shares when his new investment, together with the current offering price value of all holdings of all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount level. See "Purchases" in the Prospectus for the sales charges on quantity purchases. For example, if a shareholder owns shares valued at $75,000 and purchases an additional $25,000 of Class A shares of the Fund, the sales charge for the $25,000 purchase would be at the rate of 4% (the rate applicable to single transactions of $100,000). A shareholder must provide the Shareholder Servicing Agent (or his investment dealer must provide MFD) with information to verify that the quantity sales charge discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains made by the Fund with respect to a particular class of shares may be automatically invested in shares of the same class of one of the other MFS Funds, if shares of such fund are available for sale. Such investments will be subject to additional purchase minimums. Distributions will be invested at net asset value (exclusive of any sales charge) and not subject to any CDSC. Distributions will be invested at the close of business on the payable date for the distribution. A shareholder considering the Distribution Investment Program should obtain and read the prospectus of the other fund and consider the differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing Agent to send him (or anyone he designates) regular periodic payments based upon the value of his account. Such payments under a Systematic Withdrawal Plan ("SWP") must be at least $100, except in certain limited circumstances. The aggregate withdrawals of Class B shares in any year pursuant to a SWP generally are limited to 10% of the value of the account at the time of the establishment of the SWP. SWP payments are drawn from the proceeds of share redemptions (which would be a return of principal and, if reflecting a gain, would be taxable). Redemptions of Class B shares will be made in the following order: (i) any "Free Amount"; (ii) to the extent necessary, any "Reinvested Shares"; and (iii) to the extent necessary, the "Direct Purchase" subject to the lowest CDSC (as such terms are defined in "Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived in the case of redemptions of Class B shares pursuant to a SWP, but will not be waived in the case of SWP redemptions of Class A shares. To the extent that redemptions for such periodic withdrawals exceed dividend income reinvested in the account, such redemptions will reduce and may eventually exhaust the number of shares in the shareholder's account. All dividends and capital gain distributions for an account with a SWP will be reinvested in additional full and fractional shares of the Fund at the net asset value in effect at the close of business on the record date for such distributions. To initiate this service, shares having an aggregate value of at least $5,000 either must be held on deposit by, or certificates for such shares must be deposited with, the Shareholder Servicing Agent. With respect to Class A shares, maintaining a withdrawal plan concurrently with an investment program would be disadvantageous because of the sales charges included in share purchases and the imposition of a CDSC on certain redemptions. The shareholder may deposit into his account additional shares of the Fund, change the payee or change the dollar amount of each payment. The Shareholder Servicing Agent may charge the account for services rendered and expenses incurred beyond those normally assumed by the Fund with respect to the liquidation of shares. No charge is currently assessed against the account, but one could be instituted by the Shareholder Servicing Agent on 60 days' notice in writing to the shareholder in the event that the Fund ceases to assume the cost of these services. The Fund may terminate any SWP for an account if the value of the account falls below $5,000 as a result of share redemptions (other than as a result of a SWP) or an exchange of shares of the Fund for shares of another MFS Fund. Any SWP may be terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time by mailing a check payable to the Fund directly to the Shareholder Servicing Agent. The shareholder's account number and the name of his investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a single purchaser and, under the Right of Accumulation (but not a Letter of Intent), obtain quantity sales charge discounts on the purchase of Class A shares if the group (1) gives its endorsement or authorization to the investment program so it may be used by the investment dealer to facilitate solicitation of the membership, thus effecting economies of sales effort; (2) has been in existence for at least six months and has a legitimate purpose other than to purchase mutual fund shares at a discount; (3) is not a group of individuals whose sole organizational nexus is as credit cardholders of a company, policyholders of an insurance company, customers of a bank or broker-dealer, clients of an investment adviser or other similar group; and (4) agrees to provide certification of membership of those members investing money in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000 in any MFS Fund may exchange their shares for the same class of shares of other MFS Funds (and in the case of Class C shares, for shares of the MFS Money Market Fund) under the Automatic Exchange Plan, a dollar cost averaging program. The Automatic Exchange Plan provides for automatic exchanges of funds from the shareholder's account in an MFS Fund for investment in the same class of shares of other MFS Funds selected by the shareholder. Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to four different funds effective on the seventh day of each month or of every third month, depending on whether monthly or quarterly exchanges are elected by the shareholder. If the seventh day of the month is not a business day, the transaction will be processed on the next business day. Generally, the initial exchange will occur after receipt and processing by the Shareholder Servicing Agent of an application in good order. Exchanges will continue to be made from a shareholder's account in any MFS Fund as long as the balance of the account is sufficient to complete the exchanges. Additional payments made to a shareholder's account in that Fund will extend the period that exchanges will continue to be made under the Automatic Exchange Plan. However, if additional payments are added to an account subject to the Automatic Exchange Plan shortly before an exchange is scheduled, such funds may not be available for exchanges until the following month; therefore, care should be used to avoid inadvertently terminating the Automatic Exchange Plan through exhaustion of the account balance.
No transaction fee for exchanges will be charged in connection with the Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund will be subject to any applicable sales charge. Changes in amounts to be exchanged to each fund, the funds to which exchanges are to be made and the timing of exchanges (monthly or quarterly), or termination of a shareholder's participation in the Automatic Exchange Plan will be made after instructions in writing or by telephone (an "Exchange Change Request") are received by the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the record owner(s) exactly as shares of the Fund are registered; if by telephone -- proper account identification is given by the dealer or shareholder of record). Each Exchange Change Request (other than termination of participation in the program) must involve at least $50. Generally, if an Exchange Change Request is received by telephone or in writing before the close of business on the last business day of a month, the Exchange Change Request will be effective for the following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to make exhanges of shares from one MFS Fund to another and to withdraw from an MFS Fund, as well as a shareholder's other rights and privileges are not affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional information regarding the Automatic Exchange Plan, including the treatment of any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the other MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where such shares are acquired through direct purchase or reinvested dividends) who have redeemed their shares have a one-time right to reinvest the redemption proceeds in the same class of shares of any of the MFS Funds (if shares of the fund are available for sale) at net asset value (without a sales charge) and, if applicable, with credit for any CDSC paid. In the case of proceeds invested in shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund, the shareholder has the right to exchange such shares for shares of the same class of another MFS Fund at net asset value pursuant to the exchange privilege described below. Such a reinvestment must be made within 90 days of the redemption and is limited to the amount of the redemption proceeds. If the shares credited for any CDSC paid are then redeemed within six years of their initial purchase in the case of Class B shares or within 12 months of the initial purchase of certain Class A shares, a CDSC will be imposed upon redemption. Although redemptions and repurchases of shares are taxable events, a reinvestment within a certain period of time in the same fund may be considered a "wash sale" and may result in the inability to recognize currently all or a portion of a loss realized on the original redemption for federal income tax purposes. Please consult your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all of the shares for which payment has been received by the Fund (i.e., an established account) may be exchanged for shares of the same class of any of the other MFS Funds at net asset value (if available for sale). In addition, Class C shares may be exchanged for shares of MFS Money Market Fund at net asset value. Exchanges will be made after instructions in writing or by telephone (an "Exchange Request") are received for an established account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., in writing -- signed by the
record owner(s) exactly as the shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record), and
each exchange must involve either shares having an aggregate value of at least
$1,000 (except that the minimum is $50 for accounts of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by the
Shareholder Servicing Agent) or all the shares in the account. Each exchange
involves the redemption of shares of the Fund to be exchanged and the purchase
at net asset value (i.e., without a sales charge) of shares of the same class of
the other MFS Fund. Any gain or loss on the redemption of the shares exchanged
is reportable on the shareholder's federal income tax return, unless both the
shares received and the shares surrendered in the exchange are held in a
tax-deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone.If an Exchange
Request is received by the Shareholder Servicing Agent prior to the close of
regular trading on the Exchange the exchange usually will occur on that day if
all requirements set forth above have been complied with at that time. However,
payment of the redemption proceeds by the Fund, and thus the purchase of shares
of the other MFS Fund, may be delayed for up to seven days if the Fund
determines that such a delay would be in the best interest of all its
shareholders. Investment dealers which have satisfied criteria established by
MFD may also communicate a shareholder's Exchange Request to the Shareholder
Servicing Agent by facsimile subject to the restrictions and requirements set
forth above.
No CDSC is imposed on exchanges among MFS Funds, although liability for the CDSC is carried forward to the exchanged shares. For purposes of calculating the CDSC upon redemption of shares acquired in an exchange, the purchase of shares acquired in one or more exchanges is deemed to have occurred at the time of the original purchase of the exchanged shares. Any gain or loss on the redemption of the shares exchanged is reportable in the shareholders federal income tax return, unless such shares were held in a tax-deferred retirement plan.
Additional information with respect to any of the MFS Funds, including a copy of its current prospectus, may be obtained from investment dealers or the Shareholder Servicing Agent. A shareholder considering an exchange should obtain and read the prospectus of the other MFS Fund and consider the differences in objectives and policies before making any exchange. Shareholders of the other MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund acquired through direct purchase and dividends reinvested prior to June 1, 1992) have the right to exchange their shares for shares of the Fund, subject to the conditions, if any, set forth in their respective prospectuses. In addition, unitholders of the MFS Fixed Fund have the right to exchange their units (except units acquired through direct purchases) for shares of the Fund, subject to the conditions, if any, imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state- specific series of MFS Municipal Series Trust may only benefit residents of such states. Investors should consult with their own tax advisers to be sure this is an appropriate investment, based on their residency and each state's income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and is subject to certain limitations, including certain restrictions on purchases by market timer accounts (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may be purchased by all types of tax-deferred retirement plans. MFD makes available through investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts ("IRAs") (for individuals and their non- employed spouses who desire to make limited contributions to a tax-deferred retirement program and, if eligible, to receive a federal income tax deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code");
403(b) Plans (deferred compensation arrangements for employees of public school systems and certain non-profit organizations); and
Other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless another trustee or custodian is designated by the individual or group establishing the plan) and contain specific information about the plans. Each plan provides that dividends and distributions will be reinvested automatically. For further details with respect to any plan, including fees charged by the trustee, custodian or MFD, tax consequences and redemption information, see the specific documents for that plan. Plan documents other than those provided by MFD may be used to establish any of the plans described above. Third party administrative services, available for some corporate plans, may limit or delay the processing of transactions.
Investors should consult with their tax advisers before establishing any of the tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan qualified under Internal Revenue Code section 401(a) or 403(b) if the retirement plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(a) or 403(b) recordkeeping program made available by the Shareholder Servicing Agent.
6. TAX STATUS The Fund has elected to be treated and intends to qualify each year as a "regulated investment company" under Subchapter M of the Code, by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of Fund distributions, and the composition and holding period of the Fund's portfolio assets. Because the Fund intends to distribute all of its net investment income and net realized capital gains to shareholders in accordance with the timing requirements imposed by the Code, it is not expected that the Fund will be required to pay any federal income or excise taxes, although the Fund's foreign-source income may be subject to foreign withholding taxes. If the Fund should fail to qualify as a "regulated investment company" in any year, the Fund would incur a regular corporate federal income tax upon its taxable income and Fund distributions would generally be taxable as ordinary dividend income to the shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and any state or local taxes, on the dividends and capital gain distributions they receive from the Fund. Dividends from ordinary income, including certain foreign currency gains, and any distributions from net short-term capital gains, whether paid in cash or additional shares, are taxable to the Fund's shareholders as ordinary income for federal income tax purposes. Because the Fund expects to earn primarily interest income, it is expected that no Fund dividends will qualify for the dividends received deduction for corporations. Distributions from net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses), whether made in cash or additional shares, are taxable to the Fund's shareholders as long-term capital gains without regard to the length of time the shareholders have held their shares. Fund dividends that are declared in October, November or December to shareholders of record in such a month and paid the following January will be taxable to shareholders as if received on December 31 of the year in which they are declared.
Any dividend or other distribution will have the effect of reducing the per share net asset value of shares in the Fund by the amount of the distribution. Shareholders purchasing shares shortly before the record date of any distribution may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of the Fund by a shareholder that holds such shares as a capital asset will be treated as long-term capital gain or loss if the shares have been held for more than 12 months and otherwise as short-term capital gain or loss. However, any loss realized upon a disposition of shares in the Fund held for six months or less will be treated as long-term capital loss to the extent of any distributions of net capital gain made with respect to those shares. Any loss realized upon a disposition of shares may also be disallowed under rules relating to wash sales. Gain may be increased (or loss reduced) upon a redemption of Class A shares of the Fund within ninety days after their purchase followed by any purchase without payment of an additional sales charge (including purchases by exchange or by reinvestment) of Class A shares of the Fund or of another MFS Fund (or of any other shares of an MFS Fund generally sold subject to a sales charge).
The Fund's current dividend and accounting policies will affect the amount, timing and character of distributions to shareholders and may, under certain circumstances, make an economic return of capital taxable to shareholders. The Fund's investment in zero coupon securities, deferred interest bonds, PIK bonds, certain stripped securities and certain securities purchased at a market discount will cause it to recognize income prior to the receipt of cash payments with respect to these securities. In order to distribute this income and avoid a tax on the Fund, the Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold, potentially resulting in additional taxable gain or loss to the Fund.
An investment in a residual interest of a CMO that has elected to be treated as a real estate mortgage investment conduit, or "REMIC", can create complex tax problems, especially if the Fund has state or local governments or other tax-exempt organizations as shareholders.
The Fund's transactions in options, Futures Contracts, Options on Futures Contracts, Forward Contracts and Options on Foreign Currencies will be subject to special tax rules that may affect the amount, timing and character of distributions to shareholders. For example, certain positions held by the Fund on the last business day of a taxable year will be marked to market (i.e., treated as if closed out) on that day, and any gain or loss associated with the positions will be treated as 60% long-term and 40% short-term capital gain or loss. Certain positions held by the Fund that substantially diminish its risk of loss with respect to other positions in its portfolio will constitute "straddles", which are subject to special tax rules that may cause deferral of Fund losses, adjustments in the holding periods of Fund securities and conversion of short-term into long-term capital losses. Certain tax elections exist for straddles that may alter the effects of these rules. The Fund will limit its activities in options, Futures Contracts, Forward Contracts, and swaps and related transactions to the extent necessary to meet the requirements of Subchapter M of the Code.
Special tax considerations apply with respect to foreign investments of the Fund. For example, foreign exchange gains and losses realized by the Fund will generally be treated as ordinary income and losses. Use of foreign currencies for non-hedging purposes and investment, if any, by the Fund in certain "passive foreign investment companies" may be limited in order to avoid imposition of a tax on the Fund. Investment income received by the Fund from foreign securities may be subject to foreign income taxes withheld at the source; the Fund does not expect to be able to pass through to shareholders foreign tax credits and deductions with respect to such foreign taxes. The United States has entered into tax treaties with many foreign countries that may entitle the Fund to a reduced rate of tax or an exemption from tax on such income. The Fund intends to operate so as to qualify for treaty reduced rates where available. It is impossible to determine the effective rate of foreign tax in advance since the amount of the Fund's assets to be invested within various countries is not known.
Dividends and certain other payments to persons who are not citizens or residents of the U.S. or U.S. entities ("Non-U.S. Persons") are generally subject to U.S. tax withholding at the rate of 30%. The Fund intends to withhold U.S. federal income tax at the rate of 30% on dividends and certain other payments made to Non-U.S. Persons that are subject to such withholding, regardless of whether a lower treaty rate may be permitted. Any amounts over withheld may be recovered by such persons by filing a claim for refund with the U.S. Internal Revenue Service within the time period applicable to such claims. Distributions received from the Fund by Non-U.S. Persons may also be subject to tax under the laws of their own jurisdictions.
The Fund is also required in certain circumstances to apply backup withholding at a rate of 31% on taxable dividends and redemption proceeds paid to any shareholder (including a Non-U.S. Person) who does not furnish to the Fund certain information and certifications or who is otherwise subject to backup withholding. However, backup withholding will not be applied to payments which have been subject to 30% withholding.
As long as it qualifies as a regulated investment company under the Code, the Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of the Fund that are derived from interest on obligations of the U.S. Government and certain of its agencies and instrumentalities (but not from capital gains realized upon the disposition of such obligations) may be exempt from state and local taxes in certain states. The Fund intends to advise shareholders of the extent, if any, to which its distributions consist of such interest. Shareholders are urged to consult their tax advisers regarding the possible exclusion of such portion of their dividends for state and local income tax purposes as well as regarding the tax consequences of an investment in the Fund.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE NET ASSET VALUE -- The net asset value per share of each class of the Fund is determined each day during which the Exchange is open for trading. (As of the date of this Statement of Additional Information, the Exchange is open for trading every week day except for the following holidays or the days on which they are observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.) This determination is made once each day as of the close of regular trading on the Exchange by deducting the amount of the liabilities attributable to the class from the value of the assets attributable to the class and dividing the difference by the number of shares of the class outstanding. If acquired, preferred stocks, common stocks and warrants will be valued at the last sale price on an exchange on which they are primarily traded or at the last quoted bid price for unlisted securities. Debt securities (other than short-term obligations) in the Fund's portfolio are valued on the basis of valuations furnished by pricing services which utilize both dealer-supplied valuations and electronic data processing techniques which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices, because such valuations are believed to reflect more accurately the fair value of such securities. Use of the pricing services has been approved by the Board of Trustees. Short-term obligations with a remaining maturity in excess of 60 days will be valued based upon dealer supplied valuations. Other short-term obligations are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. Positions in listed options, Futures Contracts and Options on Futures Contracts will normally be valued at the settlement price on the exchange on which they are primarily traded. Positions in over-the-counter options will be valued using dealer supplied valuations. Forward Contracts will be valued using a pricing model taking into consideration market data from an external pricing source. Portfolio securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Board of Trustees.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total return, which is not reduced by
the CDSC (4% maximum for Class B shares) and therefore may result in a higher
rate of return, (ii) a total rate of return assuming an initial account value of
$1,000, which will result in a higher rate of return since the value of the
initial account will not be reduced by the current maximum sales charge
(currently 4.75%), and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance, and which may or may not
reflect the effect of the maximum or other sales charge or CDSC. The Fund's
average annual total rate of return for Class A shares, reflecting the initial
investment at the current maximum public offering price, for the one-, five- and
ten-year periods ended April 30, 1995 was, respectively, 2.63%, 8.86% and 9.76%.
The Fund's average annual total rate of return for Class A shares, not giving
effect to the sales charge on the initial investment for the one-, five- and
ten-year periods ended April 30, 1995 was, respectively, 7.78%, 9.93% and
10.30%. Total rate of return figures for Class A shares would have been lower if
fee waivers were not in place. The Fund's average annual total rate of return
for Class B shares reflecting the CDSC for the one-year period ended April 30,
1995 and the period September 7, 1993 through the Fund's fiscal year ended April
30, 1995 were 2.91% and -1.39%, respectively. The Fund's average annual total
rate of return for Class B shares, not giving effect to the CDSC, for the
one-year period ended April 30, 1995 and the period September 7, 1993 through
the Fund's fiscal year ended April 30, 1995 were 6.90% and 0.67%, respectively.
The Fund's average annual total rate of return for Class C shares for the
one-year period ended April 30, 1995 and the period January 3, 1994 through the
Fund's fiscal year ended April 30, 1995, were 7.00% and 1.59%, respectively.
PERFORMANCE RESULTS: The performance results for Class A shares below, based on an assumed initial investment of $10,000 in Class A shares, cover the period from January 1, 1986 to December 31, 1994. It has been assumed that dividends and capital gain distributions were reinvested in additional shares. These performance results, as well as any yield or total rate of return quotation provided by the Fund, should not be considered as representative of the performance of the Fund in the future since the net asset value and public offering price of shares of the Fund will vary based not only on the type, quality and maturities of the securities held in the Fund's portfolio, but also on changes in the current value of such securities and on changes in the expenses of the Fund. These factors and possible differences in the methods used to calculate yields and total rates of return should be considered when comparing the yield and total rate of return published for other investment companies or other investment vehicles. Total rate of return reflects the performance of both principal and income. Current net asset value as well as account balance information may be obtained by calling 1-800-MFS-TALK (637- 8255).
MFS BOND FUND
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VALUE OF
VALUE OF REINVESTED/ VALUE OF
YEAR ENDED INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
DECEMBER 31, INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
------------ --------------- ------------- ---------- -----
1986 9,525 0 0 9,525
1987 8,362 272 838 9,472
1988 8,284 269 1,708 10,261
1989 8,602 279 2,767 11,648
1990 8,486 276 3,730 12,492
1991 9,129 297 5,313 14,739
1992 8,966 346 6,355 15,667
1993 8,856 651 8,331 17,838
1994 7,881 579 8,582 17,042
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EXPLANATORY NOTES: The results assume that the initial investment was reduced by the current maximum applicable sales charge of 4.75%. No adjustment has been made for any income taxes payable by shareholders.
YIELD: Any yield quotation for a class of shares of the Fund is based on the annualized net investment income per share of that class for the 30-day period. The yield for each class of the Fund is calculated by dividing the net investment income allocated to that class earned during the period by the maximum offering price per share of that class of the Fund on the last day of the period. The resulting figure is then annualized. Net investment income per share of a class is determined by dividing (i) the dividends and interest allocated to that class during the period, minus accrued expenses of that class for the period by (ii) the average number of shares of the class entitled to receive dividends during the period multiplied by the maximum offering price per share on the last day of the period. The Fund's yield calculations for Class A shares assume a maximum sales charge of 4.75%. The yield calculation for Class B shares assumes no CDSC is paid. The yield for Class A shares of the Fund for the 30-day period ended April 30, 1995 was 6.52% not taking into account the fee waiver for Class A shares and 6.62% taking into account such waiver. The yield for Class B shares of the Fund for the 30-day period ended April 30, 1995 was 6.04%. The yield for Class C shares of the Fund for the 30-day period ended April 30, 1995 was 6.12%.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula prescribed by the SEC, is not indicative of the amounts which were or will be paid to the Fund's shareholders. Amounts paid to shareholders of each class are reflected in the quoted "current distribution rate" for that class. The current distribution rate for a class is computed by dividing the total amount of dividends per share paid by the Fund to shareholders of that class during the past 12 months by the maximum public offering price of that class at the end of such period. Under certain circumstances, such as when there has been a change in the amount of dividend payout, or a fundamental change in investment policies, it might be appropriate to annualize the dividends paid over the period such policies were in effect, rather than using the dividends during the past 12 months. The current distribution rate differs from the yield computation because it may include distributions to shareholders from sources other than dividends and interest, such as premium income for option writing, short-term capital gains and return of invested capital, and is calculated over a different period of time. The Fund's current distribution rate calculation for Class A shares assumes a maximum sales charge of 4.75%. The Fund's current distribution rate calculation for Class B shares assumes no CDSC is paid. The current distribution rate for Class A shares of the Fund for the 12-month period ended on April 30, 1995 was 7.59%. The current distribution rate for Class B shares of the Fund for the 12-month period ended April 30, 1995 was 6.88%. The current distribution rate for Class C shares of the Fund for the 12-month period ended April 30, 1995 was 6.89%.
GENERAL: From time to time each Fund may, as appropriate, quote Fund rankings or reprint all or a portion of evaluations of fund performance and operations appearing in various independent publications, including but not limited to the following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial World, Financial Planning, Investment Advisor, USA Today, Pensions and Investments, SmartMoney, Forbes, Global Finance, Registered Representative, Institutional Investor, the Investment Company Institute, Johnson's Charts, Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media General, Investment Company Data, The New York Times, Your Money, Strangers Investment Advisor, Financial Planning on Wall Street, Standard and Poor's, Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K. Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund performance may also be compared to the performance of other mutual funds tracked by financial or business publications or periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager as well as other investment personnel, including such persons' views on: the economy; securities markets; portfolio securities and their issuers; investment philosophies, strategies, techniques and criteria used in the selection of securities to be purchased or sold for the Fund; the Fund's portfolio holdings; the investment research and analysis process; the formulation and evaluation of investment recommendations; and the assessment and evaluation of credit, interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past performance of various indices such as those mentioned above and illustrations using hypothetical rates of return to illustrate the effects of compounding and tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, an investor invests a fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer shares when prices are high and more shares when prices are low. While such a strategy does not assure a profit or guard against a loss in a declining market, the investor's average cost per share can be lower than if fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund
to register under the Securities Act of 1933 ("Truth in
Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first Trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
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8. DISTRIBUTION PLANS The Trustees have adopted a Distribution Plan for each of Class A, Class B and Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that there is a reasonable likelihood that each Distribution Plan would benefit the Fund and the respective class of shareholders. The Distribution Plans are designed to promote sales, thereby increasing the net assets of the Fund. Such an increase may reduce the expense ratio to the extent the Fund's fixed costs are spread over a larger net asset base. Also, an increase in net assets may lessen the adverse effects that could result were the Fund required to liquidate portfolio securities to meet redemptions. There is, however, no assurance that the net assets of the Fund will increase or that the other benefits referred to above will be realized.
CLASS A DISTRIBUTION PLAN: The Class A Distribution Plan provides that the Fund will pay MFD up to (but not necessarily all of) an aggregate of 0.35% per annum of the average daily net assets attributable to the Class A shares annually in order that MFD may pay expenses on behalf of the Fund related to the distribution and servicing of its Class A shares. The expenses to be paid by MFD on behalf of the Fund include a service fee to securities dealers which enter into a sales agreement with MFD of up to 0.25% per annum of the portion of the Fund's average daily net assets attributable to the Class A shares owned by investors for whom that securities dealer is the holder or dealer of record. These payments are partial consideration for personal services and/or account maintenance performed by such dealers with respect to Class A shares. MFD may from time to time reduce the amount of the service fee paid for shares sold prior to a certain date. Currently, the service fee is reduced to 0.15% for shares purchased prior to March 1, 1991. MFD may also retain a distribution fee of 0.10% per annum of the Fund's average daily net assets attributable to Class A shares as partial consideration for services performed and expenses incurred in the performance of MFD's obligations as to Class A shares under the Distribution Agreement with the Fund. MFD, however, currently is waiving this 0.10% distribution fee and will not accept payment of this fee unless it first obtains the approval of the Board of Trustees. Any remaining funds may be used to pay for other distribution related expenses as described in the Prospectus. Service fees may be reduced for a securities dealer that is the holder or dealer of record for an investor who owns shares of the Fund having an aggregate net asset value at or above a certain dollar level. No service fee will be paid (i) to any securities dealer who is the holder or dealer of record for investors who own Class A shares having an aggregate net asset value less than $750,000, or such other amount as may be determined from time to time by MFD (MFD, however, may waive this minimum amount requirement from time to time if the dealer satisfies certain criteria), or (ii) to any insurance company which has entered into an agreement with the Fund and MFD that permits such insurance company to purchase shares from the Fund at their net asset value in connection with annuity agreements issued in connection with the insurance company's separate accounts. Dealers may from time to time be required to meet certain other criteria in order to receive service fees. MFD or its affiliates are be entitled to retain all service fees payable under the Class A Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services peformed by MFD or its affiliates for shareholder accounts. Certain banks and other financial institutions that have agency agreements with MFD will receive agency transaction and service fees that are the same as commissions and service fees to dealers.
During the fiscal year ended April 30, 1995 the Fund incurred expenses of $1,136,117 (equal to 0.25% per annum of its average daily net assets attributable to Class A shares) relating to the distribution and servicing of its Class A shares, of which MFD received $0 and securities dealers of the Fund and certain banks and other financial institutions received $1,136,117 (of which MFD retained $273,089).
CLASS B DISTRIBUTION PLAN: The Class B Distribution Plan provides that the Fund will pay MFD, as the Fund's distributor for its Class B shares, a daily distribution fee payable monthly and equal on an annual basis to 0.75% of the Fund's average daily net assets attributable to Class B shares and will pay MFD an annual service fee of up to 0.25% of the Fund's average daily net assets attributable to Class B shares (which MFD will in turn pay to securities dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per annum of the Fund's average daily net assets attributable to Class B shares owned by investors for whom that securities dealer is the holder or dealer of record). This service fee is intended to be additional consideration for all personal services and/or account maintenance services rendered by the dealer with respect to Class B shares. MFD will advance to dealers the first-year service fee at a rate equal to 0.25% per annum of the amount invested. As compensation therefor, MFD may retain the service fee paid by the Fund with respect to such shares for the first year after purchase. Dealers will become eligible for additional service fees with respect to such shares commencing in the thirteenth month following purchase. Except in the case of the first year service fee, no service fee will be paid to any securities dealer who is the holder or dealer of record for investors who own Class B shares having an aggregate net asset value of less than $750,000 or such other amount as may be determined from time to time by MFD. MFD, however, may waive this minimum amount requirement from time to time if the dealer satisfies certain criteria. Dealers may from time to time be required to meet certain other criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under the Class B Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts.
The purpose of distribution payments to MFD under the Class B Distribution Plan is to compensate MFD for its distribution services to the Fund. MFD pays commissions to dealers as well as expenses of printing prospectuses and reports used for sales purposes, expenses with respect to the preparation and printing of sales literature and other distribution related expenses, including, without limitation, the cost necessary to provide distribution- related services, or personnel, travel office expenses and equipment. The Class B Distribution Plan also provides that MFD will receive all CDSCs attributable to Class B shares (see "Distribution Plans" and "Purchases" in the Prospectus).
During the fiscal year ended April 30, 1995, the Fund incurred expenses of $516,264 (equal to 1.00% of its average daily net assets attributable to Class B shares) relating to the distribution and servicing of its Class B shares, of which MFD received $388,129 and securities dealers of the Fund and certain banks and other financial institutions received $128,135 (of which MFD retained $7,004).
CLASS C DISTRIBUTION PLAN: The Class C Distribution Plan provides that the Fund will pay MFD a distribution fee of up to 0.75% per annum of the Fund's average daily net assets attributable to Class C shares and will annually pay MFD a service fee of up to 0.25% per annum of the Fund's average daily net assets attibutable to Class C shares (which MFD will in turn pay to securities dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per annum of the Fund's daily net assets attributable to Class C shares owned by investors for whom that securities dealer is the holder or dealer of record).
The distribution/service fees attributable to Class C shares are designed to permit an investor to purchase such shares through a broker-dealer without the assessment of an initial sales charge or a CDSC while allowing MFD to compensate broker-dealers in connection with the sale of such shares.
The service fee is intended to be additional consideration for all personal services and/or account maintenance services rendered by the dealer with respect to Class C shares. MFD or its affiliates are entitled to retain all service fees payable under the Class C Distribution Plan with respect to accounts for which there is no dealer of record as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts.
The purpose of the distribution payments to MFD under the Class C Distribution Plan is to compensate MFD for its distribution services to the Fund. Distribution payments under the Plan will be used by MFD to pay securities dealers a distribution fee in an amount equal on an annual basis to 0.75% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom securities dealer is the holder or dealer of record. (Therefore, the total amount of distribution/service fees paid to a dealer on an annual basis is 1.00% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom the securities dealer is the holder or dealer of record.) MFD also pays expenses of printing prospectuses and reports used for sales purposes, expenses with respect to the preparation and printing of sales literature and other distribution-related expenses, including, without limitation, the compensation of personnel and all costs of travel, office expense and equipment. Since MFD's compensation is not directly tied to its expenses, the amount of compensation received by MFD during any year may be more or less than its actual expenses. For this reason, this type of distribution fee arrangement is characterized by the staff of the SEC as being of the "compensation" variety. However, the Fund is not liable for any expenses incurred by MFD in excess of the amount of compensation it receives. Certain banks and other financial institutions that have agency agreements with MFD will receive agency transaction and service fees that are the same as distribution and service fees to dealers. Fees payable under the Class C Distribution Plan are charged to, and therefore reduce, income allocated to Class C shares.
During the fiscal year ended April 30, 1995, the Fund incurred expenses of $76,241 (equal to 1.00% of its average daily net assets attributable to Class C shares) relating to the distribution and servicing of Class C shares, of which securities dealers of the Fund and certain banks and other financial institutions of which MFD retained $2,751.
GENERAL: Each of the Distribution Plans will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by vote of both the Trustees and a majority of the Trustees who are not "interested persons" or financially interested parties to such Plan ("Distribution Plan Qualified Trustees"). Each of the Distribution Plans also requires that the Fund and MFD each shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefor) under such Plan. Each of the Distribution Plans may be terminated at any time by vote of a majority of the Distribution Plan Qualified Trustees or by vote of the holders of a majority of the respective class of the Fund's shares (as defined in "Investment Restrictions"). All agreements relating to any of the Distribution Plans entered into between the Fund or MFD and other organizations must be approved by the Board of Trustees, including a majority of the Distribution Plan Qualified Trustees. Agreements under any of the Distribution Plans must be in writing, will be terminated automatically if assigned, and may be terminated at any time without payment of any penalty, by vote of a majority of the Distribution Plan Qualified Trustees or by vote of the holders of a majority of the respective class of the Fund's shares. None of the Distribution Plans may be amended to increase materially the amount of permitted distribution expenses without the approval of a majority of the respective class of the Fund's shares (as defined in "Investment Restrictions") or may be materially amended in any case without a vote of the Trustees and a majority of the Distribution Plan Qualified Trustees. The selection and nomination of Distribution Plan Qualified Trustees shall be committed to the discretion of the non-interested Trustees then in office. No Trustee who is not an "interested person" has any financial interest in any of the Distribution Plans or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES The Trust's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional Shares of Beneficial Interest (without par value) of one or more separate series and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in that series. The Trustees have currently authorized shares of the Fund and two other series. The Declaration of Trust further authorizes the Trustees to classify or reclassify the shares of the Fund into one or more classes. Pursuant thereto, the Trustees have authorized the issuance of three classes of shares of the Fund, Class A, Class B and Class C shares. Each share of a class of the Fund represents an equal proportionate interest in the assets of the Fund allocable to that class. Upon liquidation of the Fund, shareholders of each class of the Fund are entitled to share pro rata in the net assets of the Fund allocable to such class available for distribution to shareholders. The Trust reserves the right to create and issue additional series or classes of shares, in which case the shares of each class of a series would participate equally in the earnings, dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the election of Trustees and on other matters submitted to meetings of shareholders. Although Trustees are not elected annually by the shareholders, shareholders have under certain circumstances the right to remove one or more Trustees in accordance with the provisions of section 16(c) of the 1940 Act. No material amendment may be made to the Declaration of Trust without the affirmative vote of a majority of the Trust's shares. Shares have no preemptive or conversion rights (except as described in "Purchases -- Conversion of Class B Shares" in the Prospectus). Shares when issued are fully paid and non-assessable. The Trust may enter into a merger or consolidation, or sell all or substantially all of its assets (or all or substantially all of the assets belonging to any series of the Trust), if approved by the vote of the holders of two-thirds of the Trust's outstanding shares voting as a single class, or of the affected series of the Trust, as the case may be, except that if the Trustees of the Trust recommend such merger, consolidation or sale, the approval by vote of the holders of a majority of the Trust's or the affected series' outstanding shares (as defined in "Investment Restrictions") will be sufficient. The Trust or any series of the Trust may also be terminated (i) upon liquidation and distribution of its assets, if approved by the vote of the holders of two-thirds of its outstanding shares, or (ii) by the Trustees by written notice to the shareholders of the Trust or the affected series. If not so terminated, the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification and reimbursement of expenses out of the Trust property for any shareholder held personally liable for the obligations of the Trust. The Declaration of Trust also provides that the Trust shall maintain appropriate insurance (for example, fidelity bonding and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually but only upon the property of the Trust and that the Trustees will not be liable for any action or failure to act, but nothing in the Declaration of Trust protects a Trustee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
10. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS Deloitte & Touche LLP are the Trust's independent certified public accountants.
The Portfolio of Investments at April 30, 1995, the Statement of Assets and Liabilities at April 30, 1995, the Statement of Operations for the year ended April 30, 1995, the Statement of Changes in Net Assets for each of the two years in the period ended April 30, 1995, the Notes to Financial Statements and the Independent Auditors' Report, each of which is included in the Annual Report to shareholders of the Fund, are incorporated by reference into this Statement of Additional Information and have been so incorporated in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing. A copy of the Annual Report accompanies this Statement of Additional Information.
APPENDIX A
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND<F1> FUND EXPENSE<F1> OF SERVICE<F2> FUND COMPLEX<F3>
- ------------------------------------------------------------------------------------------------------
Richard B. Bailey $3,157 $ 479 8 $226,221
Peter G. Harwood 3,427 197 5 105,812
J. Atwood Ives 3,267 489 17 106,482
Lawrence T. Perera 2,997 1,687 23 96,592
William Poorvu 3,427 1,691 23 106,482
Charles W. Schmidt 3,157 1,604 16 98,397
Elaine R. Smith 3,157 467 27 98,397
David B. Stone 3,327 1,313 14 104,007
<F1>For fiscal year ended April 30, 1995.
<F2>Based on normal retirement age of 73.
<F3>For calendar year 1994. All Trustees served as Trustees of 20 funds within the MFS fund complex
(having aggregate net assets at December 31, 1994, of approximately $14 billion) except Mr.
Bailey, who served as Trustee of 56 funds within the MFS fund complex (having aggregate net assets
at December 31, 1994, of approximately $24 billion).
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT<F4>
YEARS OF SERVICE
------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- ------------------------------------------------------------------------------
$2,700 $405 $675 $ 945 $1,350
2,915 437 729 1,020 1,458
3,130 470 783 1,096 1,565
3,345 502 836 1,171 1,673
3,560 534 890 1,246 1,780
3,775 566 944 1,321 1,888
<F4>Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
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INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN
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) 225-2606
Mailing Address
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(RM)
BOND FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO] MFS
THE FIRST NAME IN MUTUAL FUNDS
MFB-13-9/95/.5M [11/211/311]
[LOGO: M F S ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS] YEAR ENDED
APRIL 30, 1995
MFS(R) BOND FUND
[GRAPHIC OMITTED: A 6 1/4" by 8 1/4" photo of gears.]
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MFS(R) BOND FUND
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President Investors Bank & Trust Company
Richard B. Bailey* - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Private Investor For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
J. Atwood Ives - Chairman and Chief Executive a touch-tone telephone.
Officer, Eastern Enterprises
For information on MFS mutual funds,
Lawrence T. Perera - Partner, Hemenway & Barnes call your financial adviser or, for an
information kit, call toll free:
William J. Poorvu - Adjunct Professor, Harvard 1-800-637-2929 any business day from
University Graduate School of Business 9 a.m. to 5 p.m. Eastern time (or leave
Administration a message anytime).
Charles W. Schmidt - Private Investor; INVESTOR SERVICE
Former Senior Vice President and Group Executive MFS Service Center, Inc.
(until 1990), Raytheon Company P.O. Box 2281
Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice President
and Secretary, Massachusetts Financial Services Company For current account service, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames* - President, Massachusetts 8 a.m. to 8 p.m. Eastern time.
Financial Services Company
For service to speech- or hearing-impaired,
Elaine R. Smith - Independent Consultant call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To use this
David B. Stone - Chairman, North American service, your phone must be equipped with a
Management Corp. (Investment Advisers) Telecommunications Device for the Deaf.)
INVESTMENT ADVISER For share prices, account balances and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, Massachusetts 02116-3741 telephone.
PORTFOLIO MANAGER
Geoffrey L. Kurinsky* -------------------------------------------
TOP-RATED SERVICE
TREASURER [SEAL] MFS was rated first when securities
W. Thomas London* firms evaluated the quality of
service they receive from 40
ASSISTANT TREASURER mutual fund companies. MFS got
James O. Yost* high marks for answering calls
quickly, processing transactions
SECRETARY accurately and sending statements
Stephen E. Cavan* out on time.
(Source: 1994 DALBAR Survey)
ASSISTANT SECRETARY -------------------------------------------
James R. Bordewick, Jr.*
Cover photo: Through their wide range of
investments, MFS mutual funds help you
*Affiliated with the Investment Adviser share in America's growth.
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LETTER TO SHAREHOLDERS
Dear Shareholders:
After moving higher through the fall of 1994, interest rates on long-term
fixed-income securities began a steady decline in early 1995 as fears that a
robust economy would spark inflationary pressures waned. As market
participants came to believe that the Federal Reserve Board's previous
tightening was successful in slowing the pace of economic growth, yields on
long-term U.S. Treasury bonds fell from 8% in late October 1994 to 7 1/4% by
the end of April of this year.
During the 12 months ended April 30, 1995, Class A shares of the Fund
provided a total return of +7.78%, Class B shares +6.90%, and Class C shares
+7.00%. These returns assume the reinvestment of distributions but exclude the
effects of any sales charges. The Fund's results exceeded (or in the case of
Class B shares, matched) the Lehman Brothers Government/Corporate Bond Index,
which returned +6.92% over the same period. This index is an unmanaged, market-
value-weighted index of U.S. Treasury and government agency securities
(excluding mortgage-backed securities) and investment-grade debt obligations of
domestic corporations. In addition, all classes of shares outperformed the
+6.41% average return of corporate bond funds rated BBB or higher tracked by
Lipper Analytical Services, Inc., an independent firm which reports mutual fund
performance. Class A shares ranked 10th, Class B shares ranked 24th and Class C
shares ranked 22nd out of the 74 funds in Lipper's corporate bond fund category.
Economic Outlook
As the economy enters its fifth year of expansion, it is evidencing a
decidedly decelerating trend from its robust pace of 1994, when gross domestic
product expanded by 4.1%. Estimated growth in this year's first quarter
diminished to an annual rate of 2.8%. Consumer spending slowed considerably
during the quarter and was accompanied by a correspondingly large increase in
inventories. As we begin the year's second quarter, the evidence suggests that
the economy has entered a phase of less-than-full-potential growth, as the
April unemployment rate showed a second consecutive monthly increase. We
expect the economy to continue to grow at this more subdued pace. We do not
anticipate that the slowdown will deteriorate into a recession and,
conversely, we remain mindful of the potential for a reliquified consumer
sector to reassert itself as the year progresses.
Interest Rates
As evidence of a slowdown has continued to mount, the fixed-income markets
have become increasingly convinced that the Federal Reserve has concluded its
monetary-tightening initiatives. Furthermore, as the economy has diminished in
its ability to create jobs and in its usage of available productive capacity,
apprehension concerning a cyclical upturn in inflation has receded. As a
result, long-term Treasury bond yields have declined to near 7.00% as of April
30, 1995, down from 7.87% at the beginning of the year and from their cyclical
peak of 8.15% in November 1994. Despite higher costs at the crude and
intermediate stages of production, prices have not increased appreciably at
the consumer level. For the 12 months ended in April of this year, the
Consumer Price Index, a popular measure of change in prices, increased by a
still moderate 3.1%. Continued benign growth in labor costs and the inability
of many businesses to effectively raise prices have combined to extend the
favorable price environment. Nevertheless, we do anticipate a minor cyclical
pickup in inflationary pressure this year to the 3% - 3 1/2% range.
The decline in interest rates has been particularly precipitious during the past month, leaving the market potentially vulnerable to a near-term correction. However, we believe continuing moderate growth will result in interest rates trending near to, and possibly somewhat lower than, present levels during the balance of this year.
Portfolio Performance and Strategy
Although interest rates fluctuated widely during the past 12 months, yields on
long-term U.S. government securities began and ended the fiscal year at
approximately 7%. As a result, the major portion of the Fund's total return
came from coupon income. During the past 12 months, the Fund benefited from
overweighted positions in the investment-grade and high-yield corporate
markets, both of which outperformed U.S. Treasury securities (although
principal value and interest on Treasury securities are guaranteed by the U.S.
government if held to maturity). The Fund's holdings in the airline sector had
a positive impact on performance as Delta, United and Qantas Airlines improved
in price versus other securities. The combination of ticket price increases,
fleet reductions and reduced commissions to travel agents resulted in an
improving cash flow for this sector. Other sectors in which the Fund benefited
from overweighted positions include tobacco (RJR Nabisco) and forest and paper
products (Georgia Pacific, Stone Container and Riverwood). In the non-dollar
area, performance was aided by a 4% position in Japanese and German bonds,
both of which benefited from the decline in interest rates in these markets as
well as from the appreciation of their currencies versus the U.S. dollar.
Looking forward, we have started to reduce our overweightings in both the investment-grade and high-yield corporate sectors because we believe these markets have reached speculative valuations. With these sectors trading at historically small premiums compared to U.S. Treasuries, we believe there is downside price potential if the economy begins to slow at a faster pace than we anticipate. Thus, we are re-deploying these assets into the U.S. Treasury and mortgage markets. Based on our view that much of the return to a lower interest rate environment is reflected in the current level of interest rates, we are maintaining an interest rate sensitivity of about an eight-year Treasury, which we consider to be a neutral posture for the portfolio.
We appreciate your support and welcome any questions or comments you may have.
- -------------------------- -----------------------
A 1 1/2" x 1 5/8" photo A 1 1/2" x 1 5/8" photo
of A. Keith Brodkin, of Geoffrey L. Kurinsky,
Chairman and President. Portfolio Manager.
- -------------------------- -----------------------
Respectfully,
/s/ A. Keith Brodkin /s/ Geoffrey L. Kurinsky
A. Keith Brodkin Geoffrey L. Kurinsky
Chairman and President Portfolio Manager
|
May 17, 1995
PORTFOLIO MANAGER PROFILE
Geoffrey Kurinsky began his career at MFS in 1987 in the Fixed Income Department. A graduate of the University of Massachusetts and Boston University's Graduate School of Management, he was named Assistant Vice President in 1988, Vice President in 1989 and Senior Vice President in 1993. In 1992, he became Portfolio Manager of MFS Bond Fund. Mr. Kurinsky is a Certified Public Accountant.
OBJECTIVES AND POLICIES
The Fund primarily seeks to provide as high a level of current income as is believed to be consistent with prudent investment risk. The secondary objective of the Fund is to protect shareholders' capital.
The Fund seeks to achieve its objectives by investing approximately 80% of its net assets in non-convertible investment-grade debt securities, securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, non-convertible investment-grade debt securities issued or guaranteed by national or state banks or bank holding companies, and commercial paper, repurchase agreements, cash and cash equivalents. Up to 20% of the Fund's assets may be invested in non-investment-grade debt securities. The Fund may also enter into options and futures transactions and forward foreign currency exchange contracts.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the federal tax status of all distributions paid during the calendar year 1995.
PERFORMANCE
The information below and on the following page illustrates the historical performance of MFS Bond Fund Class A shares in comparison to various market indicators. Fund results reflect the deduction of the 4.75% maximum sales charge; benchmark comparisions are unmanaged and do not reflect any fees or expenses. You cannot invest in an index. All results reflect the reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B share performance appears on the next page.
Class C shares were offered effective January 3, 1994. Information on Class C share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-Year Period Ended April 30, 1995)
MFS Bond Fund (Class A) $15,286 Lehman Brothers Government/ Corporate Bond Index $15,752 Consumer Price Index $11,784 ---------------------------------------------------------------------- |
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-Year Period Ended April 30, 1995)
MFS Bond Fund (Class A) $25,377
Lehman Brothers Government/
Corporate Bond Index $26,094
Consumer Price Index $14,216
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
MFS Bond Fund (Class A) including
4.75% sales charge +2.63% +5.98% +8.86% + 9.76%
- -------------------------------------------------------------------------------
MFS Bond Fund (Class A) at
net asset value +7.78% +7.70% +9.93% +10.30%
- -------------------------------------------------------------------------------
MFS Bond Fund (Class B) with CDSC+ +2.91% -- -- - 1.39%*
- -------------------------------------------------------------------------------
|
* For the period from the commencement of offering of Class B shares, September 7, 1993 to April 30, 1995.
+ These returns reflect the current maximum Class B contingent deferred sales charge (CDSC) of 4%.
# For the period from the commencement of offering of Class C shares, January 3, 1994 to April 30, 1995. Class C shares have no initial sales charge or CDSC but, along with Class B shares, have higher annual fees and expenses than Class A shares.
In the above table, we have included the average annual total returns of all corporate debt BBB-rated funds (including the Fund) tracked by Lipper Analytical Services, Inc. for the applicable time periods (74, 34, 26 and 14 funds for the 1-, 3-, 5- and 10-year periods ended April 30, 1995, respectively). Because these returns do not reflect any applicable sales charges, we have also included the Fund's results at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future results. The principal value and income return of an investment in a mutual fund will vary with changes in market conditions, and shares, when redeemed, may be worth more or less than their original cost.
All Class A share results reflect the applicable expense subsidy which is explained in the Notes to Financial Statements. Had the subsidy not been in effect, the results would have been less favorable. The subsidy may be rescinded by MFS at any time.
PORTFOLIO OF INVESTMENTS - April 30, 1995
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
U.S. Dollar Denominated - 82.0%
Corporate Asset Backed - 0.5%
A- Chase Manhattan Corp., 8.8s, 2000 $ 2,500 $ 2,576,550
- -------------------------------------------------------------------------------
Financial Institutions - 6.2%
Financial Services - 5.1%
BBB- Capital One Bank, 8.125s, 2000 $ 7,000 $ 7,088,480
A Citicorp, 8.8s, 2000 3,890 4,078,003
BB+ First USA Corp. (Bank of Wilmington),
7.65s, 2003 4,000 3,816,760
BBB+ General Motors Acceptance Corp., 5.95s, 1998 3,000 2,858,070
BBB+ General Motors Acceptance Corp.,
7.125s, 1998 5,000 4,965,200
BBB- Hartford National Corp., 9.85s, 1999 3,000 3,224,340
BB+ Sovereign Bancorp, Inc., 6.75s, 2000 2,600 2,411,110
------------
$ 28,441,963
- --------------------------------------------------------------------------------
Insurance - 1.1%
BB+ Americo Life, Inc., 9.25s, 2005# $ 250 $ 221,875
BBB CCP Insurance, Inc., 10.5s, 2004 3,000 3,014,670
BBB- Conseco, Inc., 8.125s, 2003 1,600 1,403,344
BBB- Markel Corp., 7.25s, 2003 1,537 1,404,126
--------------
$ 6,044,015
- --------------------------------------------------------------------------------
Total Financial Institutions $ 34,485,978
- --------------------------------------------------------------------------------
Foreign - U.S. Dollar Denominated - 7.5%
BB+ BNCE 04 Global, 8s, 2000 $ 2,500 $ 1,965,625
NR Banco Nacional de Companie, 7.25s, 2004 3,000 2,010,000
A+ Banco Santander, 7.875s, 2005 4,890 4,871,663
NR Fen Colombia, 6.625s, 1996# 3,040 2,941,200
A+ Grand Metropolitan Investment Corp.,
7.45s, 2035 2,500 2,500,000
NR Hidroelectrica Alicura, 8.375s, 1999# 4,325 3,503,250
AA- Korea Electric Power Corp., 7.75s, 2013 7,550 6,881,372
NR Republic of Argentina, Discount Ltd., due
3/31/23 3,000 1,785,000
NR Republic of Argentina, FRB, due 3/31/23 4,000 1,740,000
BBB- Republic of Colombia, 8.75s, 1999 2,000 1,970,000
NR Republic of Greece, 9.75s, 1999 3,905 4,061,200
A Republic of Malta, 7.5s, 2009# 5,000 4,827,000
BB South Africa Global, 9.625s, 1999 3,000 2,970,000
------------
$ 42,026,310
- --------------------------------------------------------------------------------
Industrials - 33.7%
Building - 1.9%
B American Standard, Inc., 10.5s, 2005 $ 2,000 $ 1,465,000
CCC+ Nortek, Inc., 9.875s, 2004 500 471,875
BBB- Owens Corning Fiberglass Corp., 8.875s, 2002 5,650 5,897,018
NR Owens Corning Fiberglass Corp., 9.9s, 2015# 1,500 1,577,813
B+ USG Corp., 9.25s, 2001 1,250 1,237,500
------------
$ 10,649,206
- --------------------------------------------------------------------------------
Chemicals - 0.3%
BB- Huntsman Corp., 10.625s, 2001 $ 1,000 $ 1,052,500
B NL Industries, Inc., 11.75s, 2003 750 796,875
------------
$ 1,849,375
- --------------------------------------------------------------------------------
Conglomerates
B- Bell & Howell Co., 10.75s, 2002 $ 200 $ 210,000
- --------------------------------------------------------------------------------
Consumer Goods and Services - 2.1%
NR Black & Decker Corp., 8.44s, 1999 $ 1,500 $ 1,541,295
BBB+ Laidlaw, 8.75s, 2025 5,000 4,979,350
NR Rouse Co., 8.55s, 2005 2,890 2,895,419
B+ Sealy Corp., 9.5s, 2003 1,000 970,000
B+ Westpoint Stevens, Inc., 9.375s, 2005 1,500 1,425,000
------------
$ 11,811,064
- --------------------------------------------------------------------------------
Containers - 1.9%
B+ Container Corp. of America, 10.75s, 2002 $ 750 $ 787,500
B+ Container Corp. of America, 9.75s, 2003 250 251,250
BB Owens-Illinois, Inc., 11s, 2003 2,000 2,165,000
B+ Owens-Illinois, Inc., 9.75s, 2004 500 493,750
B+ Riverwood International Corp., 10.75s, 2000 1,000 1,055,000
B+ Stone Consolidated Corp., 10.25s, 2000 1,100 1,128,875
B Stone Container Corp., 9.875s, 2001 5,000 4,975,000
------------
$ 10,856,375
- --------------------------------------------------------------------------------
Entertainment - 1.1%
BB- SCI Television, Inc., 11s, 2005 $ 500 $ 520,000
BBB- Time Warner, Inc., 9.125s, 2013 6,000 5,858,760
------------
$ 6,378,760
- --------------------------------------------------------------------------------
Food and Beverage Products - 2.0%
BBB- Borden, Inc., 9.875s, 1997 $ 3,000 $ 3,134,760
B+ Canandaigua Wine, Inc., 8.75s, 2003 500 485,000
B Coca-Cola Bottling Group Southwest, Inc.,
9s, 2003 1,000 960,000
BBB- RJR Nabisco, Inc., 8.75s, 2005 6,500 6,414,980
------------
$ 10,994,740
- --------------------------------------------------------------------------------
Forest and Paper Products - 3.0%
BBB- Georgia-Pacific Corp., 9.875s, 2021 $ 7,850 $ 8,550,848
BBB- Georgia-Pacific Corp., 9.125s, 2022 2,500 2,570,425
BBB- Georgia-Pacific Corp., 8.125s, 2023 1,000 952,860
BBB- Georgia-Pacific Corp., 8.625s, 2025 5,000 4,976,550
------------
$ 17,050,683
- --------------------------------------------------------------------------------
Medical and Health Products - 0.5%
|
BBB- FHP International Corp., 7s, 2003 $ 5,000 $ 4,667,850
BBB- Foundation Health Corp., 7.75s, 2003 2,600 2,501,070
B- OrNda Healthcorp., 12.25s, 2002 750 817,500
------------
$ 7,986,420
- --------------------------------------------------------------------------------
Metals and Minerals - 0.2%
B+ Kaiser Aluminum & Chemical Corp.,
9.875s, 2002 $ 1,000 $ 972,500
- --------------------------------------------------------------------------------
Oils - 2.9%
BBB Ashland Oil, Inc., 11.125s, 2017 $ 2,115 $ 2,371,084
BB+ Coastal Corp., 9.75s, 2003 1,540 1,683,004
BB+ Coastal Corp., 10.75s, 2010 5,000 5,983,550
B+ Gulf Canada, 9.25s, 2004 750 720,000
BBB- Parker & Parsley Petroleum, 8.875s, 2005 2,390 2,418,464
BBB Union Tex Pete Holdings, 8.5s, 2007 3,250 3,245,938
------------
$ 16,422,040
- --------------------------------------------------------------------------------
Printing and Publishing - 2.2%
BBB- News America Holdings, Inc., 7.5s, 2000 $ 3,200 $ 3,169,504
BBB- News America Holdings, Inc., 8.25s, 2018 2,760 2,613,416
BBB- NewsCorp, 7.75s, 2024 3,000 2,677,770
BB+ Valassis Inserts, 9.375s, 1999 3,650 3,727,891
------------
$ 12,188,581
- --------------------------------------------------------------------------------
Restaurants and Lodging - 0.2%
BB- Four Seasons Hotels, Inc., 9.125s, 2000# $ 1,000 $ 966,250
- --------------------------------------------------------------------------------
Special Products and Services - 0.3%
B- Eagle Industries, Inc., 0s, 2003 $ 1,000 $ 690,000
BB+ Mark IV Industries, Inc., 8.75s, 2003 400 394,000
BB- OSI Specialties, Inc., 9.25s, 2003 500 495,000
------------
$ 1,579,000
- --------------------------------------------------------------------------------
Steel - 1.1%
B+ AK Steel Holdings Corp., 10.75s, 2004 $ 2,000 $ 2,090,000
B Bayou Steel Corp., 10.25s, 2001 500 460,000
B+ Geneva Steel Co., 9.5s, 2004 1,000 850,000
B Weirton Steel Corp., 10.875s, 1999 2,000 2,020,000
BB Wheeling Pittsburgh, 9.375s, 2003 1,000 880,000
------------
$ 6,300,000
- --------------------------------------------------------------------------------
Stores - 1.9%
B Finlay Fine Jewelry, 10.625s, 2003 $ 1,000 $ 945,000
BBB K-Mart Corp., 8.8s, 2010 2,250 2,370,600
BBB K-Mart Corp., 9.78s, 2020 650 650,000
BBB K-Mart Corp., 8.25s, 2022 1,000 924,680
BBB K-Mart Corp., 7.95s, 2023 6,185 5,576,828
------------
$ 10,467,108
- --------------------------------------------------------------------------------
Supermarkets - 0.2%
BB+ Kroger Co., 9.25s, 2005 $ 450 $ 473,625
BB+ Safeway Stores, Inc., 9.65s, 2004 500 537,500
------------
$ 1,011,125
- --------------------------------------------------------------------------------
Telecommunications - 4.8%
B ACT III Broadcasting, 9.625s, 2003 $ 500 $ 482,500
BB- Cablevision Industries Corp., 9.25s, 2008 1,250 1,240,625
B Cablevision Systems Corp., 10.75s, 2004 1,000 1,040,000
BB- Century Communications Corp., 0s, 2003 2,500 1,125,000
B+ Jones Intercable, Inc., 10.5s, 2008 500 512,500
B MFS Communications, Inc., 0s, 2004 2,750 1,815,000
B Paging Network, Inc., 8.875s, 2006 1,500 1,327,500
BB+ Rogers Cablesystems Ltd., 9.625s, 2002 350 350,000
BBB- TCI Communications, Inc., 8.65s, 2004 1,375 1,371,521
BBB- Tele-Communications, 9.25s, 2023 18,115 17,335,149
CCC+ USA Mobile Communication, 9.5s, 2004 500 442,500
------------
$ 27,042,295
- --------------------------------------------------------------------------------
Transportation - 5.7%
BB Delta Air Lines, Inc., 9.75s, 2021 $ 4,644 $ 4,801,663
BB Delta Air Lines, Inc., 10.375s, 2022 2,890 3,116,807
A Jet Equipment Trust, "B", Notes, 10.91s,
2006# 7,500 7,940,775
BBB- Jet Equipment Trust, "C", Notes, 10.69s,
2015# 2,390 2,409,621
AA Northwest Airlines Trust, 9.25s, 2014 2,375 2,507,109
BBB+ Qantas Airways Ltd., 7.5s, 2003# 5,000 4,777,800
BB United Air Lines, Inc., 11.21s, 2014 2,890 3,251,539
BB United Air Lines, Inc., 9.75s, 2021 3,000 2,973,150
------------
$ 31,778,464
- --------------------------------------------------------------------------------
Total Industrials $189,370,436
- --------------------------------------------------------------------------------
Mortgage-Backed Pass-Throughs - 2.9%
NR Merrill Lynch Mortgage Investors, Inc.,
9.7s, 2008 $ 509 $ 518,131
NR Merrill Lynch Mortgage Investors, Inc.,
10.25s, 2009+ 1,812 1,842,660
NR Merrill Lynch Mortgage Investors, Inc.,
10.8s, 2009+ 582 585,286
NR Merrill Lynch Mortgage Investors, Inc.,
8.3s, 2011 2,543 2,539,492
NR Merrill Lynch Mortgage Investors, Inc.,
9s, 2011 1,976 2,010,905
NR Merrill Lynch Mortgage Investors, Inc.,
10s, 2011 2,292 2,383,786
NR Merrill Lynch Mortgage Investors, Inc.,
9.3s, 2016+ 4,500 4,544,055
B Merrill Lynch Mortgage Investors, Inc.,
8.238s, 2021+ 2,000 1,449,340
AAA Security Pacific National Bank, 8.5s, 2017(S) 145 145,896
------------
$ 16,019,551
- --------------------------------------------------------------------------------
U.S. Federal Agencies - 0.6%
GOV Federal Home Loan Mortgage Corp.,
9.5s, 2001 $ 15 $ 15,790
GOV Federal National Mortgage Assn., 9s, 2004 4 3,990
GOV Federal National Mortgage Assn., Stripped
Mortgage-Backed Security, "240", 7s, 2023 7,803 2,779,983
GOV Federal National Mortgage Assn., Stripped
Mortgage-Backed Security, "250", 7s, 2023 918 327,990
GOV Federal National Mortgage Assn., Stripped
Mortgage-Backed Security, "264", 8s, 2024 978 349,103
------------
$ 3,476,856
- --------------------------------------------------------------------------------
U.S. Government Guaranteed - 18.1%
Government National Mortgage Association - 0.1%
GOV GNMA, 9s, 2015 $ 125 $ 129,169
GOV GNMA, 13.25s, 2023 689 737,200
------------
$ 866,369
- --------------------------------------------------------------------------------
U.S. Treasury Obligations - 18.0%
GOV Stripped Principal Payments, 0s, 2018 $ 80,000 $ 13,557,600
GOV U.S. Treasury Notes, 11.25s, 1995 48,820 48,911,293
GOV U.S. Treasury Notes, 7.125s, 2000 2,690 2,715,635
GOV U.S. Treasury Notes, 7.75s, 2000 3,000 3,102,180
GOV U.S. Treasury Notes, 6.25s, 2003 1,615 1,537,786
GOV U.S. Treasury Notes, 7.25s, 2004 4,250 4,300,447
GOV U.S. Treasury Notes, 7.5s, 2005 6,000 6,184,680
GOV U.S. Treasury Bonds, 7.625s, 2025 19,896 20,570,673
------------
$100,880,294
- --------------------------------------------------------------------------------
Total U.S. Government Guaranteed $101,746,663
- --------------------------------------------------------------------------------
Utilities - 12.5%
Electric - 9.5%
BBB Commonwealth Edison, 9.5s, 2016 $ 1,700 $ 1,741,803
BBB Commonwealth Edison, 8.5s, 2022 2,000 1,860,000
BBB Commonwealth Edison, 8.625s, 2022 1,300 1,271,205
BBB DQU II Funding, 8.7s, 2016 5,000 4,993,700
B+ First PV Funding Corp., 10.3s, 2014 3,718 3,764,475
B+ First PV Funding Corp., 10.15s, 2016 2,000 1,990,000
BBB- Long Island Lighting Co., 7.85s, 1999 5,490 5,466,777
BBB- Long Island Lighting Co., 9.625s, 2024 4,100 3,941,904
BBB- Louisiana Power & Light Co., 10.67s, 2017 1,450 1,512,944
BB- Midland Funding Corp. I, 10.33s, 2002 3,344 3,335,838
BBB Mississippi Power & Light, 8.8s, 2005 4,340 4,335,703
BBB- Niagara Mohawk Power Co., 6.875s, 2001 3,000 2,837,760
BBB- Niagara Mohawk Power Co., 6.875s, 2003 3,000 2,706,390
BBB- Niagara Mohawk Power Co., 9.75s, 2005 1,890 2,071,194
BB+ PNPP II Funding, 9.12s, 2016 7,940 7,050,561
B Texas & New Mexico Power Co., 12.5s, 1999 3,868 4,201,653
------------
$ 53,081,907
- --------------------------------------------------------------------------------
Gas - 2.5%
BBB- ANR Pipeline Co., 7.375s, 2024 $ 3,100 $ 2,787,582
BB- California Energy Co., 0s, 2004 3,100 2,418,000
BBB- GG1B Funding Corp., 7.43s, 2011 3,010 2,592,121
BBB- Panhandle Eastern Corp., 8.625s, 2025 1,875 1,881,862
BBB Southern Union Co., 7.6s, 2024 5,000 4,513,850
------------
$ 14,193,415
- --------------------------------------------------------------------------------
Telephone - 0.5%
BBB+ Century Telephone Enterprises, 8.25s, 2024 $ 3,000 $ 2,923,800
- --------------------------------------------------------------------------------
|
Australian Dollars - 0.3%
AA Commonwealth of Australia, 6.25s, 1999 AUD 500 $ 328,923
AA Commonwealth of Australia, 8.75s, 2001 1,000 703,979
AA Treasury Corp. of Victoria, 10.25s, 1999 850 634,507
------------
$ 1,667,409
- --------------------------------------------------------------------------------
British Pounds - 0.6%
AAA United Kingdom Treasury, 6s, 1999 GBP 1,125 $ 1,665,711
AAA United Kingdom Treasury, 9.5s, 1999 750 1,253,559
------------
$ 2,919,270
- --------------------------------------------------------------------------------
Danish Kroner - 0.3%
AA+ Kingdom of Denmark, 9s, 1998 DKK 4,300 $ 814,279
AA+ Kingdom of Denmark, 9s, 2000 4,130 782,087
------------
$ 1,596,366
- --------------------------------------------------------------------------------
Deutsche Marks - 1.1%
NR German Unity Fund, 8.5s, 2001 DEM 370 $ 290,000
AAA Republic of Germany, 8.5s, 2000 1,110 870,400
AAA Republic of Germany, 6.5s, 2003 1,485 1,035,486
AAA Republic of Germany, 6.75s, 2004 480 338,508
AAA Treuhandanstalt Obligationen, 6.375s, 1999 3,512 2,545,092
AAA Treuhandanstalt Obligationen, 7.75s, 2002 1,800 1,355,027
------------
$ 6,434,513
- --------------------------------------------------------------------------------
Dutch Guilders - 0.6%
AAA Dutch State Loan, 6.25s, 1998 NLG 270 $ 174,810
AAA Dutch State Loan, 7s, 1999 1,340 885,686
AAA Dutch State Loan, 7.5s, 1999 1,190 801,477
AAA Dutch State Loan, 7.75s, 2005 1,880 1,263,779
------------
$ 3,125,752
- --------------------------------------------------------------------------------
French Francs - 0.2%
AAA Government of France, 8s, 1998 FRF 3,020 $ 626,942
AAA Government of France, 7s, 1999 2,510 502,713
AAA Government of France, 7.75s, 2000 1,280 263,514
------------
$ 1,393,169
- --------------------------------------------------------------------------------
Irish Punts - 0.1%
AA- Republic of Ireland, 9s, 2001 IEP 480 $ 793,152
- --------------------------------------------------------------------------------
Italian Lire
AA Republic of Italy, 9.5s, 1999 ITL 500,000 $ 267,529
- --------------------------------------------------------------------------------
New Zealand Dollars - 0.3%
AA Government of New Zealand, 8s, 1995 NZD 2,120 $ 1,416,799
- --------------------------------------------------------------------------------
Total Foreign - Non-U.S. Dollar Denominated $ 19,613,959
- --------------------------------------------------------------------------------
Total Bonds (Identified Cost, $476,974,122) $479,515,425
- --------------------------------------------------------------------------------
Warrant - 0.1%
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Host Marriott Corp., Warrant (Identified Cost, $0) 183,598 $ 734,392
- --------------------------------------------------------------------------------
Call Options Purchased - 0.1%
- --------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------
Canadian Dollars/July/1.375 CAD 559 $ 6,426
Japanese Bonds/August/100.304 JPY 80,000 66,320
Japanese Bonds/August/100.97 229,000 172,208
Japanese Bonds/July/110.164 165,000 15,015
Japanese Bonds/June/110.154 151,000 1,661
Japanese Bonds/May/110.07 129,000 387
- --------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $91,462) $ 262,017
- --------------------------------------------------------------------------------
Put Option Purchased
- --------------------------------------------------------------------------------
Deutsche Marks/British Pounds/July/2.29
(Premiums Paid, $10,900) DEM 1,818 $ 9,127
- --------------------------------------------------------------------------------
Short-Term Obligations - 1.0%
- --------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
IFCT, 0s, 1995 $ 130,000 $ 5,210,292
New Zealand T-Bills, due 1995 NZD 240 221,114
- --------------------------------------------------------------------------------
Total Short-Term Obligations (Identified Cost, $5,443,445) $ 5,431,406
- --------------------------------------------------------------------------------
Repurchase Agreement - 5.3%
- --------------------------------------------------------------------------------
Lehman Brothers, dated 4/28/95, due 5/01/95,
total to be received $29,788,639
(secured by U.S. Treasury Notes, 4.625s and
5.9s, due 2/15/15, market value $30,369,582),
at Cost and Value $ 29,774 $ 29,774,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $512,293,929) $515,726,367
- --------------------------------------------------------------------------------
Call Options Written - (0.1)%
- --------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- --------------------------------------------------------------------------------
Japanese Bonds/August/100.35 JPY 80,000 (65,840)
Japanese Yen/July/84.0 290,813 (98,304)
Japanese Yen/March/78.0 108,811 (50,486)
Deutsche Marks/British Pounds/July/2.1139 DEM 1,678 (3,267)
Deutsche Marks/July/1.42 2,259 (56,351)
British Pounds/September/1.64 GBP 1,016 (19,094)
- --------------------------------------------------------------------------------
Total Call Options Written (Premiums Received, $226,199) $ (293,342)
- --------------------------------------------------------------------------------
Put Options Written
- --------------------------------------------------------------------------------
Japanese Bonds/May/110.07 JPY 129,000 (27,864)
Japanese Yen/March/93.0 129,736 (13,829)
British Pounds/September/1.53 GBP 947 (10,172)
- --------------------------------------------------------------------------------
|
AUD = Australian Dollars ESP = Spanish Peseta JPY = Japanese Yen CAD = Canadian Dollars FRF = French Francs NLG = Dutch Guilders CHF = Swiss Francs GBP = British Pounds NZD = New Zealand Dollars DEM = Deutsche Marks IEP = Irish Punts SEK = Swedish Kronor DKK = Danish Kroner ITL = Italian Lire #SEC Rule 144A restriction. +Restricted security. |
(S)Security valued by or at the direction of the Trustees. See notes to financial statements
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
April 30, 1995
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $512,293,929) $515,726,367
Cash 25
Net receivable for forward foreign currency exchange contracts
purchased 1,852,383
Receivable for investments sold 50,907,209
Receivable for Fund shares sold 701,202
Interest receivable 11,961,614
Other assets 15,576
------------
Total assets $581,164,376
------------
Liabilities:
Payable for investments purchased $ 17,761,070
Payable for Fund shares reacquired 541,358
Written options outstanding, at value (premiums received,
$279,212) 345,207
Net payable for forward foreign currency exchange contracts
sold 1,423,035
Net payable for forward foreign currency exchange contracts 69,439
Payable to affiliates -
Management fee 22,720
Shareholder servicing agent fee 7,343
Distribution fee 124,577
Accrued expenses and other liabilities 191,971
------------
Total liabilities $ 20,486,720
------------
Net assets $560,677,656
------------
Net assets consist of:
Paid-in capital $589,505,543
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 3,792,712
Accumulated net realized loss on investments and foreign
currency transactions (31,689,131)
Accumulated distributions in excess of net investment income (931,468)
------------
Total $560,677,656
------------
Shares of beneficial interest outstanding 44,126,806
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $477,055,594 / 37,534,683 shares of beneficial
interest outstanding) $12.71
------
Offering price per share (100/95.25) $13.34
------
Class B shares:
Net asset value, offering price, and redemption price per share
(net assets of $75,451,467 / 5,947,776 shares of beneficial
interest outstanding) $12.69
------
Class C shares:
Net asset value, offering price, and redemption price per share
(net assets of $8,170,595 / 644,347 shares of beneficial
interest outstanding) $12.68
------
|
On sales of $100,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales charge may be imposed on redemptions of Class A and Class B shares.
See notes to financial statements
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended April 30, 1995
- --------------------------------------------------------------------------------
Net investment income:
Interest income $ 45,466,284
------------
Expenses -
Management fee $ 2,179,512
Trustees' compensation 43,089
Shareholder servicing agent fee (Class A) 677,154
Shareholder servicing agent fee (Class B) 113,851
Shareholder servicing agent fee (Class C) 11,431
Distribution and service fee (Class A) 1,586,158
Distribution and service fee (Class B) 516,264
Distribution and service fee (Class C) 76,241
Custodian fee 285,424
Postage 117,093
Auditing fees 76,000
Printing 75,641
Legal fees 9,045
Miscellaneous 282,150
------------
Total expenses $ 6,049,053
Reduction of expenses by distributor (450,041)
------------
Net expenses $ 5,599,012
------------
Net investment income $ 39,867,272
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(35,834,528)
Written option transactions 665,664
Foreign currency and forward foreign currency exchange
contracts and other transactions denominated in
foreign currency 221,573
Futures contracts (492,101)
------------
Net realized loss on investments $(35,439,392)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 33,798,801
Written options (126,086)
Foreign currency and forward foreign currency exchange
contracts 1,126,006
------------
Net unrealized gain on investments $ 34,798,721
------------
Net realized and unrealized loss on investments
and foreign currency $ (640,671)
------------
Increase in net assets from operations $ 39,226,601
------------
|
See notes to financial statements
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended April 30, 1995 1994
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 39,867,272 $ 36,765,499
Net realized gain (loss) on investments and
foreign currency transactions (35,439,392) 9,804,674
Net unrealized gain (loss) on investments and
foreign currency translation 34,798,721 (36,489,141)
------------ ------------
Increase in net assets from operations $ 39,226,601 $ 10,081,032
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(32,067,842) $(36,774,502)
From net investment income (Class B) (3,235,246) (727,539)
From net investment income (Class C) (481,518) (87,368)
From net realized gain on investments and
foreign currency transactions -- (28,374,260)
In excess of net investment income (Class A) -- (742,918)
In excess of net investment income (Class B) -- (28,444)
In excess of net realized gain on investments
and foreign currency transactions -- (524,526)
From paid-in capital (3,268,079) (4,887,050)
------------ ------------
Total distributions declared to shareholders $(39,052,685) $(72,146,607)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $155,634,237 $168,550,753
Net asset value of shares issued to shareholders
in reinvestment of distributions 25,974,677 47,755,155
Cost of shares reacquired (121,456,901) (144,305,708)
------------ ------------
Increase in net assets from Fund share
transactions $ 60,152,013 $ 72,000,200
------------ ------------
Total increase in net assets $ 60,325,929 $ 9,934,625
Net assets:
At beginning of period 500,351,727 490,417,102
------------ ------------
At end of period (including accumulated
undistributed (distributions in excess of)
net investment income of $61,630 and
$(752,957), respectively) $560,677,656 $500,351,727
------------ ------------
|
See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended April 30, 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $12.75 $14.39 $13.70 $13.25 $12.69 $12.80 $13.20 $14.04
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations<F2> -
Net investment
income<F3> $ 0.98 $ 1.02 $ 1.04 $ 1.13 $ 1.14 $ 1.20 $ 1.15 $ 1.16
Net realized and unrealized gain
(loss) on investments (0.05) (0.63) 0.74 0.45 0.59 (0.14) (0.38) (0.42)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 0.93 $ 0.39 $ 1.78 $ 1.58 $ 1.73 $ 1.06 $ 0.77 $ 0.74
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment
income $(0.89) $(1.06) $(1.04) $(1.13) $(1.17) $(1.17) $(1.17) $(1.15)
In excess of net investment income -- (0.02) -- -- -- -- -- --
From net realized gain on
investments -- (0.80) (0.05) -- -- -- -- (0.43)
In excess of net realized gain on
investments -- (0.01) -- -- -- -- -- --
From paid-in capital (0.08) (0.14) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.97) $(2.03) $(1.09) $(1.13) $(1.17) $(1.17) $(1.17) $(1.58)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $12.71 $12.75 $14.39 $13.70 $13.25 $12.69 $12.80 $13.20
------ ------ ------ ------ ------ ------ ------ ------
Total return<F1> 7.78% 2.12% 13.42% 12.39% 13.65% 7.69% 5.49% 5.18%
Ratios (to average net assets)/
Supplemental data<F3>:
Expenses 1.00% 0.96% 0.88% 0.91% 0.79% 0.75% 0.83% 0.76%
Net investment income 7.91% 7.17% 7.82% 8.39% 8.82% 9.10% 8.93% 8.85%
Portfolio turnover 306% 410% 330% 243% 189% 186% 160% 287%
Net assets at end of period
(000 omitted) $477,056 $459,311 $490,417 $448,261 $315,722 $293,242 $299,485 $310,403
- --------------
<F1> Total returns for Class A shares do not include the applicable sales charge
(except for reinvestment dividends prior to March 1, 1991). If the charge
had been included, the results would have been lower.
<F2> Per share data for the periods subsequent to April 30, 1993 are based on
average shares outstanding.
<F3> The distributor did not impose a portion of its distribution fee
attributable to Class A shares for the periods indicated. If this fee had
been incurred by the Fund, the net investment income per share and the
ratios would have been:
Net investment income $ 0.97 $ 1.01 -- -- -- -- -- --
Ratios (to average net assets):
Expenses 1.10% 1.02% -- -- -- -- -- --
Net investment income 7.81% 7.10% -- -- -- -- -- --
|
See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------
Year Ended April 30, 1987 1986 1995 1994<F1> 1995 1994<F2>
- -----------------------------------------------------------------------------------------------
Class A Class B Class C
- -----------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $14.62 $12.69 $12.73 $14.99 $12.72 $13.57
------ ------ ------ ------ ------ ------
Income from investment
operations<F6> -
Net investment income $ 1.24 $ 1.43 $ 0.88 $ 0.56 $ 0.88 $ 0.29
Net realized and
unrealized gain (loss)
on investments (0.27) 1.94 (0.05) (1.30) (0.05) (0.90)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.97 $ 3.37 $ 0.83 $(0.74) $ 0.83 $(0.61)
------ ------ ------ ------ ------ ------
Less distributions
declared to shareholders -
From net investment
income $(1.15) $(1.44) $(0.80) $(0.59) $(0.80) $(0.22)
------ ------ ------ ------ ------ ------
In excess of net
investment income -- -- -- (0.02) -- --
From net realized gain
on investments (0.40) -- -- (0.80) -- --
------ ------ ------ ------ ------ ------
In excess of net
realized gain on
investments -- -- -- (0.01) -- --
From paid-in capital -- -- (0.07) (0.10) (0.07) (0.02)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(1.55) $(1.44) $(0.87) $(1.52) $(0.87) $(0.24)
------ ------ ------ ------ ------ ------
Net asset value - end
of period $14.04 $14.62 $12.69 $12.73 $12.68 $12.72
------ ------ ------ ------ ------ ------
Total return<F5> 6.15% 26.73% 6.90% (5.42)%<F4> 7.00% (4.57)%<F4>
Ratios (to average net
assets)/Supplemental data:
Expenses 0.68% 0.79% 1.84% 1.83%<F3> 1.75% 1.80%<F3>
Net investment income 8.84% 10.29% 7.17% 6.39%<F3> 7.17% 6.57%<F3>
Portfolio turnover 334% 218% 306% 410% 306% 410%
Net assets at end of
period (000 omitted) $318,329 $319,316 $75,451 $33,413 $8,171 $7,627
- ---------
<F1> For the period from the commencement of offering of Class B shares, September 7, 1993 to April 30, 1994.
<F2> For the period from the commencement of offering of Class C shares, January 3, 1994 to April 30, 1994.
<F3> Annualized.
<F4> Not annualized.
<F5> Total returns for Class A shares do not include the applicable sales charge (except for reinvestment dividends prior to
March 1, 1991). If the charge had been included, the results would have been lower.
<F6> Per share data for the periods subsequent to April 30, 1993 are based on average shares outstanding.
|
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization MFS Bond Fund (the Fund) is a diversified series of MFS Fixed Income Trust (the Trust). The Trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open- end management investment company.
(2) Significant Accounting Policies Investment Valuations - Debt securities (other than short-term obligations which mature in 60 days or less), including listed issues and forward contracts, are valued on the basis of valuations furnished by dealers or by a pricing service with consideration to factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon exchange or over-the-counter prices. Short- term obligations, which mature in 60 days or less, are valued at amortized cost, which approximates value. Non-U.S. dollar denominated short-term obligations are valued at amortized cost as calculated in the base currency and translated into U.S. dollars at the closing daily exchange rate. Futures contracts, options and options on futures contracts listed on commodities exchanges are valued at closing settlement prices. Over-the-counter options are valued by brokers through the use of a pricing model which takes into account closing bond valuations, implied volatility and short-term repurchase rates. Equity securities listed on securities exchanges or reported through the NASDAQ system are valued at last sale prices. Unlisted equity securities or listed equity securities for which last sale prices are not available are valued at last quoted bid prices. Securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with institutions that the Fund's investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. The Fund requires that the securities purchased in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the Fund to obtain those securities in the event of a default under the repurchase agreement. The Fund monitors, on a daily basis, the value of the securities transferred to ensure that the value, including accrued interest, of the securities under each repurchase agreement is greater than amounts owed to the Fund under each such repurchase agreement.
Foreign Currency Translation - Investment valuations, other assets, and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investments and income and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions. Gains and losses attributable to foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written
call options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options
may also be used as a part of an income producing strategy reflecting the view
of the Fund's management on the direction of interest rates.
Futures Contracts - The Fund may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering such contracts, the Fund is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Fund. The Fund's investment in financial futures contracts is designed to hedge against anticipated future changes in interest or exchange rates or securities prices. The Fund may also invest in financial futures contracts for non-hedging purposes. For example, interest rate futures may be used in modifying the duration of the portfolio without incurring the additional transaction costs involved in buying and selling the underlying securities. Should interest or exchange rates or securities prices move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal Reserve System and to member firms of the New York Stock Exchange or subsidiaries thereof. The loans are collateralized at all times by cash or securities with a market value at least equal to the market value of securities loaned. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities in the form of fees or from all or a portion of the income from investment of the collateral. The Fund would also continue to earn income on the securities loaned. At April 30, 1995, the Fund had no securities on loan.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The Fund will enter into forward contracts for hedging purposes. For hedging purposes, the Fund may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. It may also use contracts in a manner intended to protect foreign currency-denominated securities from declines in value due to unfavorable exchange rate movements. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and original issue discount are amortized or accreted for both financial statement and tax reporting purposes as required by federal income tax regulations. Dividend income is recorded on the ex-dividend date for dividends received in cash. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The Fund uses the effective interest method for reporting interest income on payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded ratably by the Fund at a constant yield to maturity. Legal fees and other related expenses incurred to preserve and protect the value of a security owned are added to the cost of the security; other legal fees are expensed. Capital infusions, which are generally non-recurring, incurred to protect or enhance the value of high-yield debt securities, are reported as an addition to the cost basis of the security. Costs that are incurred to negotiate the terms or conditions of capital infusions or that are expected to result in a plan of reorganization are considered workout expenses and are reported as realized losses. Ongoing costs incurred to protect or enhance an investment, or costs incurred to pursue other claims or legal actions, are reported as operating expenses.
Tax Matters and Distributions - The Fund's policy is to comply with the provisions of the Internal Revenue Code (the Code) applicable to regulated investment companies and to distribute to shareholders all of its net taxable income, including any net realized gain on investments. Accordingly, no provision for federal income or excise tax is provided. The Fund files a tax return annually using tax accounting methods required under provisions of the Code which may differ from generally accepted accounting principles, the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported on these financial statements may differ from that reported on the Fund's tax return and, consequently, the character of distributions to shareholders reported in the financial highlights may differ from that reported to shareholders on Form 1099-DIV.
Foreign taxes have been provided for on interest and dividend income earned on foreign investments in accordance with the applicable country's tax rates and to the extent unrecoverable are recorded as a reduction of investment income. Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial reporting basis and requires that only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains. During the year ended April 30, 1995, $4,261,177 was reclassified from accumulated distributions in excess of net investment income to paid-in capital and $4,274,787 was reclassified to accumulated net realized loss on investments and foreign currency transactions from paid-in capital due to differences between book and tax accounting for mortgage-backed securities and currency transactions. This change had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A, Class B and Class C shares. Class B and Class C shares were first offered to the public on September 7, 1993 and January 3, 1994, respectively. The three classes of shares differ in their respective shareholder servicing agent, distribution and service fees. Shareholders of each class also bear certain expenses that pertain only to that particular class. All shareholders bear the common expenses of the Fund pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses, including distribution and shareholder service fees.
(3) Transactions with Affiliates Investment Adviser - The Fund has an investment advisory agreement with Massachusetts Financial Services Company (MFS) to provide overall investment advisory and administrative services, and general office facilities. The management fee, computed daily and paid monthly at an effective annual rate of 0.20% of average daily net assets and 2.50% of investment income, amounted to $2,179,512. The Fund pays no compensation directly to its Trustees who are officers of the investment adviser, or to officers of the Fund, all of whom receive remuneration for their services to the Fund from MFS. Certain of the officers and Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan for all its independent Trustees. Included in Trustees' compensation is a net periodic pension expense of $17,173 for the year ended April 30, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received $135,514 as its portion of the sales charge on sales of Class A shares of the Fund.
The Trustees have adopted separate distribution plans for Class A, Class B and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A Distribution Plan provides that the Fund will pay MFD up to 0.35% of its average daily net assets attributable to Class A shares annually in order that MFD may pay expenses on behalf of the Fund related to the distribution and servicing of its shares. These expenses include a service fee to each securities dealer that enters into a sales agreement with MFD of up to 0.25% per annum of the Fund's average daily net assets attributable to Class A shares which are attributable to that securities dealer, a distribution fee to MFD of up to 0.10% per annum of the Fund's average daily net assets attributable to Class A shares, commissions to dealers and payments to MFD wholesalers for sales at or above a certain dollar level, and other such distribution-related expenses that are approved by the Fund. MFD is waiving the 0.10% distribution fees for an indefinite period. Fees incurred under the distribution plan during the year ended April 30, 1995 were 0.25% of average daily net assets attributable to Class A shares on an annualized basis, net of waiver, and amounted to $1,136,117 (of which MFD retained $273,089).
The Class B and Class C Distribution Plans provide that the Fund will pay MFD a monthly distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to 0.25% per annum, of the Fund's average daily net assets attributable to Class B and Class C shares. MFD will pay to securities dealers that enter into a sales agreement with MFD, all or a portion of the service fee attributable to Class B and Class C shares, and will pay to such securities dealers all of the distribution fee attributable to Class C shares. The service fee is intended to be additional consideration for services rendered by the dealer with respect to Class B and Class C shares. Fees incurred under the distribution plans during the year ended April 30, 1995 were 1.00% of average daily net assets attributable to Class B and Class C shares on an annualized basis and amounted to $516,264 and $76,241, respectively (of which MFD retained $7,004 and $2,751, respectively).
A contingent deferred sales charge is imposed on shareholder redemptions of Class A shares, on purchases of $1 million or more, in the event of a shareholder redemption within twelve months following the share purchase. A contingent deferred sales charge is imposed on shareholder redemptions of Class B shares in the event of a shareholder redemption within six years of purchase. MFD receives all contingent deferred sales charges. Contingent deferred sales charges imposed during the year ended April 30, 1995 were $3,369 and $145,665 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned $677,154, $113,851 and $11,431 for Class A, Class B and Class C shares, respectively, for its services as shareholder servicing agent. The fee is calculated as a percentage of the average daily net assets of each class of shares at an effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities Purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $672,255,486 $747,658,965
------------ ------------
Investments (non-U.S. government securities) $810,987,907 $719,182,591
------------ ------------
|
The cost and unrealized appreciation or depreciation in value of the investments owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $512,281,480
------------
Gross unrealized appreciation $ 9,364,991
Gross unrealized depreciation (5,920,104)
------------
Net unrealized appreciation $ 3,444,887
------------
|
At April 30, 1995, the Fund, for federal income tax purposes, had a capital loss carryforward of $26,331,803, which may be applied against any net taxable realized gains of each succeeding year until the earlier of its utilization or expiration on April 30, 2003.
(5) Shares of Beneficial Interest The Fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Class A Shares 1995 1994
Year Ended April 30, ---------------------------- ---------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
Shares sold 7,570,354 $93,377,941 7,914,447 $113,756,001
Shares issued to shareholders in
reinvestment of distributions 1,937,817 23,874,476 3,359,622 46,806,912
Shares reacquired (7,998,695) (98,722,760) (9,339,094) (133,331,602)
---------- ----------- ---------- ------------
Net increase 1,509,476 $18,529,657 1,934,975 $ 27,231,311
---------- ----------- ---------- ------------
Class B Shares 1995 1994<F1>
Year Ended April 30, ---------------------------- -----------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
Shares sold 4,205,737 $51,952,884 3,260,832 $45,927,787
Shares issued to shareholders in
reinvestment of distributions 147,546 1,814,601 66,023 901,347
Shares reacquired (1,029,710) (12,650,424) (702,652) (10,169,421)
---------- ----------- --------- -----------
Net increase 3,323,573 $41,117,061 2,624,203 $36,659,713
---------- ----------- --------- -----------
<F1>For the period from the commencement of offering of Class B shares, September
7, 1993 to April 30, 1994.
Class C Shares 1995 1994<F2>
Year Ended April 30, ---------------------------- -----------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
Shares sold 835,445 $10,303,412 657,894 $ 8,866,965
Shares issued to shareholders in
reinvestment of distributions 23,176 285,600 3,564 46,896
Shares reacquired (813,659) (10,083,717) (62,073) (804,685)
-------- ----------- ------- -----------
Net increase 44,962 $ 505,295 599,385 $ 8,109,176
-------- ----------- ------- -----------
<F2>For the period from the commencement of offering of Class C shares, January
3, 1994 to April 30, 1994.
|
(6) Line of Credit The Fund entered into an agreement which enables it to participate with other funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit with a bank which permits borrowings up to $350 million, collectively. Borrowings may be made to temporarily finance the repurchase of Fund shares. Interest is charged to each fund, based on its borrowings, at a rate equal to the bank's base rate. In addition, a commitment fee, based on the average daily unused portion of the line of credit, is allocated among the participating funds at the end of each quarter. The commitment fee allocated to the Fund for the year ended April 30, 1995 was $6,040.
(7) Financial Instruments The Fund trades financial instruments with off-balance sheet risk in the normal course of its investing activities in order to manage exposure to market risks such as interest rates and foreign currency exchange rates. These financial instruments include written options, forward foreign currency exchange contracts and futures contracts. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and does not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of obligations under these financial instruments at April 30, 1995, is as follows:
Written
Option 1995 Calls 1995 Puts
Transactions -------------------------------- ------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- ------------------------------------------------------------------------------
OUTSTANDING, BEGINNING OF PERIOD -
Deutsche Marks 25,809 $292,684 8,053 $ 23,009
Japanese Yen 275,199 43,757 1,647,517 236,050
Swedish Kronor/
Deutsche Marks -- -- 16,125 21,432
Options written -
Australian Dollars 4,025 21,166 3,546 29,408
British Pounds 1,016 17,524 947 17,524
Canadian Dollars -- -- 1,913 7,764
Deutsche Marks 27,983 147,907 41,114 231,426
Deutsche Marks/
British Pounds 1,678 10,900 4,975 21,919
Italian Lire/
Deutsche Marks 3,265,343 21,836 3,816,574 15,416
Japanese Yen 1,041,183 233,624 1,842,381 145,962
Japanese Yen/
Deutsche Marks 224,976 51,744 -- --
Spanish Pesetas/
Deutsche Marks -- -- 421,123 29,613
Swedish Kronor/
Deutsche Marks 3,102 2,343 4,992 3,127
Swiss Francs/
Deutsche Marks 1,163 4,896 -- --
Options terminated in
closing transactions-
Australian Dollars (1,925) (15,122) (1,446) (16,700)
Canadian Dollars -- -- (1,913) (7,764)
Deutsche Marks (18,577) (208,262) (28,333) (197,175)
Deutsche Marks/
British Pounds -- -- (4,975) (21,919)
Italian Lire/
Deutsche Marks -- -- (2,728,920) (13,573)
Japanese Yen (561,559) (51,517) (2,793,884) (306,205)
Japanese Yen/
Deutsche Marks (224,976) (51,744) -- --
Spanish Pesetas/
Deutsche Marks -- -- (421,123) (29,613)
Swedish Kronor/
Deutsche Marks (3,102) (2,343) -- --
Options exercised -
Australian Dollars -- -- (2,100) (12,708)
Deutsche Marks (27,373) (155,020) -- --
Italian Lire/
Deutsche Marks -- -- (1,087,654) (1,843)
Swedish Kronor/
Deutsche Marks -- -- (16,125) (21,432)
Swiss Francs/
Deutsche Marks (1,163) (4,896) -- --
Options expired -
Australian Dollars (2,100) (6,044) -- --
Deutsche Marks (5,583) (61,641) (20,834) (57,260)
Italian Lire/
Deutsche Marks (3,265,343) (21,836) -- --
Japanese Yen (275,199) (43,757) (437,278) (40,318)
Swedish Kronor/
Deutsche Marks -- -- (4,992) (3,127)
------- -------- ------- --------
OUTSTANDING, END OF
PERIOD 484,577 $226,199 259,683 $ 53,013
------- -------- ------- --------
OUTSTANDING, END OF
PERIOD CONSISTS OF -
British Pounds 1,016 $ 17,524 947 $ 17,524
------- -------- ------- --------
Deutsche Marks 2,259 $ 15,668 -- $ --
------- -------- ------- --------
Japanese Yen 479,624 $182,107 258,736 $ 35,489
------- -------- ------- --------
Deutsche Marks/
British Pounds 1,678 $ 10,900 -- $ --
------- -------- ------- --------
|
At April 30, 1995, the Fund had sufficient cash and/or securities at least equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
- --------------------------------------------------------------------------------------------------------------
Sales 6/09/95 - 7/05/95 AUD 2,470,001 $ 1,815,257 $ 1,789,608 $ 25,649
6/09/95 - 7/07/95 CAD 1,172,699 839,186 861,514 (22,328)
7/10/95 - 7/10/95 CHF 2,871,827 2,568,539 2,512,263 56,276
5/02/95 - 8/16/95 DEM 41,866,768 29,600,454 30,250,586 (650,132)
5/08/95 - 5/08/95 DKK 7,899,087 1,440,046 1,450,287 (10,241)
7/05/95 - 7/10/95 ESP 255,147,699 1,937,217 2,055,408 (118,191)
5/02/95 - 8/02/95 FRF 12,229,741 2,461,412 2,476,452 (15,040)
6/21/95 - 7/07/95 GBP 3,049,385 4,883,276 4,905,835 (22,559)
5/04/95 - 8/04/95 IEP 1,036,124 1,682,368 1,689,226 (6,858)
5/02/95 - 7/10/95 JPY 526,117,639 5,788,936 6,300,519 (511,583)
5/04/95 - 6/26/95 NLG 6,199,284 3,936,964 3,999,830 (62,866)
5/12/95 - 7/24/95 NZD 3,288,606 2,119,900 2,202,413 (82,513)
7/13/95 - 7/13/95 SEK 1,826,066 246,811 249,460 (2,649)
----------- ----------- -----------
$59,320,366 $60,743,401 $(1,423,035)
----------- ----------- -----------
Purchases 7/05/95 - 7/05/95 AUD 702,461 $ 534,081 $ 508,600 $ (25,481)
7/07/95 - 7/07/95 CAD 586,571 415,987 430,648 14,661
7/10/95 - 7/10/95 CHF 2,871,827 2,469,770 2,512,263 42,493
5/02/95 - 8/16/95 DEM 35,314,283 24,918,274 25,509,413 591,139
7/05/95 - 7/10/95 ESP 173,055,120 1,341,520 1,393,994 52,474
5/02/95 - 5/02/95 FRF 3,830,104 789,061 777,793 (11,268)
6/21/95 - 7/07/95 GBP 1,027,344 1,646,372 1,652,977 6,605
5/04/95 - 5/04/95 IEP 518,062 845,892 845,394 (498)
6/09/95 - 6/09/95 ITL 331,619,610 199,135 196,370 (2,765)
5/02/95 - 7/10/95 JPY 1,048,898,593 11,365,736 12,547,867 1,182,131
5/04/95 - 6/26/95 NLG 1,567,942 1,007,818 1,010,185 2,367
7/13/95 - 7/13/95 SEK 1,826,066 248,934 249,459 525
----------- ----------- -----------
$45,782,580 $47,634,963 $ 1,852,383
----------- ----------- -----------
|
Forward foreign currency purchases and sales under master netting arrangements and closed forward foreign currency exchange contracts excluded above amounted to a net payable of $69,439 at April 30, 1995.
At April 30, 1995, the Fund had sufficient cash and/or securities to cover any commitments under these contracts.
(8) Restricted Securities The Fund may invest not more than 10% of its net assets in securities which are subject to legal or contractual restrictions on resale. At April 30, 1995, the Fund owned the following restricted securities (constituting 6.70% of net assets) which may not be publicly sold without registration under the Securities Act of 1933. The Fund does not have the right to demand that such securities be registered. The value of these securities is determined by valuations supplied by a pricing service or brokers. Certain of these securities may be offered and sold to "qualified institutional buyers" under Rule 144A of the 1933 Act.
Description Date of Acquisition Par Amount Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
Americo Life, Inc., 9.25s, 2005 4/30/93 $ 250,000 $ 254,687 $ 221,875
Fen Columbia, 6.625s, 1996 3/22/95 3,040,000 2,918,400 2,941,200
Four Seasons Hotels, Inc., 9.125s, 2000 1/26/94 1,000,000 965,824 966,250
Hidroelectrica Alicura, 8.375s, 1999 4/12/94 4,325,000 4,070,906 3,503,250
Jet Equipment Trust, "B", Notes, 10.91s, 2006 12/21/94 - 4/25/95 7,500,000 7,649,175 7,940,775
Jet Equipment Trust, "C", Notes, 10.69s, 2015 4/07/95 2,390,000 2,390,000 2,409,621
Merrill Lynch Home Equity Loan, 9.3s, 2016 12/16/92 4,500,000 4,516,875 4,544,055
Merrill Lynch Mortgage Investors, Inc., 10.25s, 2009 4/07/92 1,812,412 1,864,518 1,842,660
Merrill Lynch Mortgage Investors, Inc., 10.8s, 2009 4/08/92 582,213 601,134 585,286
Merrill Lynch Mortgage Investors, Inc., 8.238s, 2021 6/22/94 2,000,000 1,386,250 1,449,340
Owens Corning Fiberglass, 9.9s, 2015 3/07/95 1,500,000 1,500,000 1,577,813
Qantas Airways Ltd., 7.5s, 2003 6/24/93 5,000,000 4,961,000 4,777,800
Republic of Malta, 7.5s, 2009 3/17/94 - 4/18/95 5,000,000 4,903,246 4,827,000
-----------
$37,586,925
-----------
|
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Fixed Income Trust and the Shareholders of MFS Bond
Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Bond Fund (one of the series
constituting MFS Fixed Income Trust) as of April 30, 1995, the related
statement of operations for the year then ended, the statement of changes in
net assets for the years ended April 30, 1995 and 1994, and the financial
highlights for each of the years in the ten-year period ended April 30, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned at April 30, 1995 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of MFS Bond Fund at April 30, 1995, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 2, 1995
MFS(R) BOND FUND NUMBER
1
500 Boylston Street DALBAR
TOP-RATED SERVICE
Boston, MA 02116
|
[Logo] MFS
THE FIRST NAME IN MUTUAL FUNDS
MFB-2 6/95/47.5M 11/211/311
PROSPECTUS
September 1, 1995
MFS(R) LIMITED Class A Shares of Beneficial Interest
MATURITY FUND Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- --------------------------------------------------------------------------------
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Page
----
1. Expense Summary ................................................... 2
2. The Fund .......................................................... 3
3. Condensed Financial Information ................................... 4
4. Investment Objectives and Policies ................................ 5
5. Management of the Fund ............................................ 10
6. Information Concerning Shares of the Fund ......................... 11
Purchases ..................................................... 11
Exchanges ..................................................... 15
Redemptions and Repurchases ................................... 16
Distribution Plans ............................................ 18
Distributions ................................................. 20
Tax Status .................................................... 20
Net Asset Value ............................................... 21
Description of Shares, Voting Rights and Liabilities .......... 21
Performance Information ....................................... 21
Expenses ...................................................... 22
7. Shareholder Services .............................................. 22
Annex A ........................................................... 25
Appendix .......................................................... 28
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
|
MFS LIMITED MATURITY FUND
500 Boylston St., Boston, MA 02116 (617) 954-5000
MFS Limited Maturity Fund (the "Fund") is a diversified series of MFS(R) Series Trust IX (the "Trust"), an open-end management investment company presently consisting of three series. The primary investment objective of the Fund is to provide as high a level of current income as is believed to be consistent with prudent investment risk. The secondary objective of the Fund is to protect shareholders' capital. See "Investment Objectives and Policies." The minimum initial investment is generally $1,000 per account (see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc. ("MFD"), respectively, both of which are located at 500 Boylston Street, Boston, Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
This Prospectus sets forth concisely the information concerning the Trust and the Fund that a prospective investor ought to know before investing. The Trust on behalf of the Fund has filed with the Securities and Exchange Commission (the "SEC") a Statement of Additional Information, dated September 1, 1995, which contains more detailed information about the Trust and the Fund and is incorporated into this Prospectus by reference. See page 22 for a further description of the information set forth in the Statement of Additional Information. A copy of the Statement of Additional Information may be obtained without charge by contacting the Shareholder Servicing Agent (see back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
1. EXPENSE SUMMARY
CLASS A CLASS B CLASS C
------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares
(as a percentage of offering price) ............................... 2.50% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) ............. See below<F1> 4.00% 0.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ..................................................... 0.40% 0.40% 0.40%
Rule 12b-1 Fees ..................................................... 0.15%<F2> 0.94%<F3> 1.00%<F3>
Other Expenses ................................................... 0.40% 0.40% 0.40%
----- ----- -----
Total Operating Expenses ............................................ 0.95% 1.74% 1.80%
- --------------
<F1> Purchases of $1 million or more are not subject to an initial sales charge; however, a contingent deferred sales
charge ("CDSC") of 1% will be imposed on such purchases in the event of certain redemption transactions within 12
months following such purchases (see "Purchases").
<F2> The Fund has adopted a Distribution Plan for its Class A shares in accordance with Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"), which provides that it will pay distribution/ service fees
aggregating up to (but not necessarily all of) 0.35% per annum of the average daily net assets attributable to
Class A shares (see "Distribution Plans"). Currently, the service fee has been set at 0.15% per annum, and the
distribution fee, equal to 0.10% per annum of the Fund's average daily net assets attributable to Class A shares,
is not being imposed. After a substantial period of time, distribution expenses paid under this Plan, together with
the initial sales charge, may total more than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
<F3> The Fund has adopted separate Distribution Plans for its Class B and its Class C shares in accordance with Rule
12b-1 under the 1940 Act, which provide that it will pay distribution/service fees aggregating up to (but not
necessarily all of) 1.00% per annum of the average daily net assets attributable to the Class B shares under the
Class B Distribution Plan and the Class C shares under the Class C Distribution Plan (see "Distribution Plans").
Except in the case of the first year Class B service fee, this fee has been set at 0.15% of the Fund's average
daily net assets attributable to Class B shares. After a substantial period of time, distribution expenses paid
under these Plans, together with any CDSC payable upon redemption of Class B shares, may total more than the
maximum sales charge that would have been permissible if imposed entirely as an initial sales charge.
|
An investor would pay the following dollar amounts of expenses on a $1,000 investment in the Fund, assuming (a) 5% annual return and (b) redemption at the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
- ------ ------- ------------------ -------
(1)
1 year ......................... $ 34 $ 58 $ 18 $ 18
3 years ........................ 55 85 55 57
5 years ........................ 76 114 94 97
10 years ........................ 139 184(2) 184(2) 212
- --------------
(1) Assumes no redemption.
|
(2) Class B shares convert to Class A shares approximately eight years after purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding the various costs and expenses that a shareholder of the Fund will bear directly or indirectly. More complete descriptions of the following expenses are set forth in the following sections of the Prospectus: (i) varying sales charges on share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii) management fees -- "Management of the Fund"; and (iv) Rule 12b-1 (i.e., distribution plan) fees -- "Distribution Plans."
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2. THE FUND
The Fund is a diversified series of the Trust, an open-end, management investment company which was organized as a trust under the laws of The Commonwealth of Massachusetts in 1985. The Trust presently consists of three series, each of which represents a portfolio with separate investment policies. Shares of the Fund are continuously sold to the public and the Fund uses the proceeds to buy securities for its portfolio. Three classes of shares of the Fund currently are offered to the general public. Class A shares are offered at net asset value plus an initial sales charge (or a CDSC in the case of certain purchases of $1 million or more) and subject to a Distribution Plan providing for an annual distribution and service fee. Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC and a Distribution Plan providing for an annual distribution and service fee. Class B shares will convert to Class A shares approximately eight years after purchase. Class C shares are offered at net asset value without an initial sales charge or a CDSC but subject to a Distribution Plan providing for an annual distribution and service fee which are equal to the Class B annual distribution and service fee. Class C shares do not convert to any other class of shares of the Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of the Fund. The Adviser is responsible for the management of the Fund's assets and the officers of the Trust are responsible for the Fund's operations. The Adviser manages the portfolio from day to day in accordance with the Fund's investment objectives and policies. A majority of the Trustees are not affiliated with the Adviser. The selection of investments and the way they are managed depend on the conditions and trends in the economy and the financial marketplaces. The Fund also offers to buy back (redeem) its shares from its shareholders at any time at net asset value, less any applicable CDSC.
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial statements included in the Fund's Annual Report to shareholders which are incorporated by reference into the Statement of Additional Information in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing.
FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C
------------------------------------------- --------------------- ----------
YEAR ENDED APRIL 30,
------------------------------------------------------------------------------
1995 1994 1993 1992<F1> 1995 1994<F2> 1995<F3>
------ ------ ------ ------ ------ ------ ------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period $ 7.14 $ 7.46 $ 7.29 $ 7.31 $ 7.14 $ 7.50 $ 7.08
------ ------ ------ ------ ------ ------ ------
Income from investment operations<F6> --
Net investment income<F10> .......... $ 0.46 $ 0.44 $ 0.48 $ 0.08 $ 0.41 $ 0.21 $ 0.37
Net realized and unrealized gain
(loss) on investments ............. (0.04) (0.32) 0.17<F7> (0.02)<F7> (0.05) (0.33) (0.01)
------ ------ ------ ------ ------ ------ ------
Total from investment operations .. $ 0.42 $ 0.12 $ 0.65 $ 0.06 $ 0.36 $(0.12) $ 0.36
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders<F8> --
From net investment income .......... $(0.46) $(0.42) $(0.48) $(0.08) $(0.40) $(0.23) $(0.33)
In excess of net investment income .. -- (0.02) -- -- -- (0.01) --
------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders .................... $(0.46) $(0.44) $(0.48) $(0.08) $(0.40) $(0.24) $(0.33)
------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period ...... $ 7.10 $ 7.14 $ 7.46 $ 7.29 $ 7.10 $ 7.14 $ 7.11
====== ====== ====== ====== ====== ====== ======
TOTAL RETURN<F9> ...................... 6.09% 1.61% 9.17% 4.98%<F4> 5.20% (1.69)%<F5> 5.25%<F5>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA<F10>:
Expenses ............................ 0.95% 0.85% 0.60% 0.55%<F4> 1.81% 1.74%<F4> 1.85%<F4>
Net investment income ............... 6.54% 5.99% 6.40% 6.22%<F4> 5.73% 4.90%<F4> 6.01%<F4>
PORTFOLIO TURNOVER .................... 498% 861% 472% 72% 498% 861% 498%
NET ASSETS AT END OF PERIOD (000 OMITTED) $85,773 $100,297 $67,470 $4,924 $17,334 $12,072 $4,450
- --------------
<F1> For the period from the commencement of investment operations, February 26, 1992 to April 30, 1992.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to April 30, 1994.
<F3> For the period from the commencement of offering of Class C shares, July 1, 1994 to April 30, 1995.
<F4> Annualized.
<F5> Not annualized.
<F6> Per share data for the periods subsequent to April 30, 1994 are based on average shares outstanding.
<F7> The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing
of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F8> For the year ended April 30, 1993, the per share distribution from net realized gain on investments was $0.0021.
<F9> Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
<F10> The investment adviser did not impose a portion of its management fee and assumed some of the operating expenses of the
Fund for the periods indicated. If these fees and expenses had been incurred by the Fund, the net investment income per
share and the ratios would have been:
Net investment income ............... $ 0.46 $ 0.42 $ 0.43 $ 0.07 $ 0.41 $ 0.20 $ 0.37
RATIOS (TO AVERAGE NET ASSETS):
Expenses .......................... 0.97% 1.07% 1.29% 1.44%<F4> 1.82% 1.96%<F4> 1.88%<F4>
Net investment income ............. 6.52% 5.77% 5.70% 5.33%<F4> 5.72% 4.68%<F4> 5.98%<F4>
|
4. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES -- The Fund's primary investment objective is to provide as high a level of current income as is believed to be consistent with prudent investment risk. The Fund's secondary objective is to protect shareholders' capital. Any investment involves risk and there can be no assurance that the Fund will achieve its investment objectives. The Fund's investment objectives and policies are not fundamental and may be changed without shareholder approval. A change in the Fund's investment objective may result in the Fund having an investment objective different from the objective which the shareholder considered appropriate at the time of investment in the Fund.
INVESTMENT POLICIES -- In seeking to achieve its investment objectives, the Fund invests, under normal market conditions, substantially all of its assets in the following securities:
1. Debt securities (including corporate asset-backed securities and mortgage pass-through securities discussed below) which have a rating within the four highest grades as determined by Standard & Poor's Ratings Group ("S&P") (AAA, AA, A or BBB) or by Fitch Investors Service, Inc. ("Fitch") or Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) and comparable unrated securities; for a description of these rating categories, see the Appendix to this Prospectus;
2. Debt securities issued or guaranteed by the United States ("U.S.") Government or its agencies, authorities or instrumentalities ("U.S. Government Securities"); or
3. Commercial paper, repurchase agreements and cash or cash equivalents (such as certificates of deposit and bankers' acceptances).
The Fund will only invest in securities rated within the four highest grades, as determined by S&P, Fitch or Moody's, and comparable unrated securities. In addition, the dollar weighted average quality of the Fund will be within the three highest grades, as determined by S&P, Fitch or Moody's (or the Adviser in the case of unrated securities).
Under normal market conditions, substantially all the securities in the Fund's portfolio will have remaining maturities of five years or less or estimated remaining average lives of five years or less. In the case of mortgage-backed and corporate asset-backed securities as well as collateralized mortgage obligations, the average life is likely to be substantially shorter than stated final maturity as a result of unscheduled principal prepayments.
For purposes of the foregoing investment policy, securities having a certain maturity will be deemed to include securities with an equivalent "duration" of such securities. "Duration" is a commonly used measure of the longevity of a debt instrument that takes into account the full stream of payments received on the instrument, including both interest and principal payments, based on their present values. A debt instrument's duration is derived by discounting principal and interest payments to their present value using the instrument's current yield to maturity and taking the dollar-weighted average time until those payments will be received. Contractual rights to dispose of a security will be considered in calculating duration because such rights limit the period during which the Trust bears a market risk with respect to the security.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset- backed securities. These securities, issued by trusts and special purpose corporations, are backed by a pool of assets, such as credit card and automobile loan receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. The underlying assets (e.g., loans) are also subject to prepayments which shorten the securities weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection; and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default ensures payment through insurance policies or letters of credit obtained by the issuer or sponsor from third parties. The Fund will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an investment in such a security.
U.S. GOVERNMENT SECURITIES: The U.S. Government Securities in which the Fund may invest include (i) U.S. Treasury obligations, all of which are backed by the full faith and credit of the U.S. Government and (ii) U.S. Government Securities, some of which are backed by the full faith and credit of the U.S. Treasury, e.g., direct pass-through certificates of the Government National Mortgage Association ("GNMA"); some of which are backed only by the credit of the issuer itself, e.g., obligations of the Student Loan Marketing Association; and some of which are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations, e.g., obligations of the Federal National Mortgage Association ("FNMA").
U.S. Government Securities also include interest in trusts or other entities representing interests in obligations that are issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through securities. Mortgage pass-through securities are securities representing interests in "pools" of mortgage loans. Monthly payments of interest and principal by the individual borrowers on mortgages are passed through to the holders of the securities (net of fees paid to the issuer or guarantor of the securities) as the mortgages in the underlying mortgage pools are paid off. The average lives of mortgage pass-throughs are variable when issued because their average lives depend on prepayment rates. The average life of these securities is likely to be substantially shorter than their stated final maturity as a result of unscheduled principal prepayment. Prepayments on underlying mortgages result in a loss of anticipated interest, and all or part of a premium if any has been paid, and the actual yield (or total return) to the Fund may be different than the quoted yield on the securities. Mortgage prepayments generally increase with falling interest rates and decrease with rising interest rates. Like other fixed income securities, when interest rates rise the value of a mortgage pass-through security generally will decline; however, when interest rates are declining, the value of mortgage pass-through securities with prepayment features may not increase as much as that of other fixed-income securities.
Payment of principal and interest on some mortgage pass-through securities (but not the market value of the securities themselves) may be guaranteed by the full faith and credit of the U.S. Government (in the case of securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S. Government (such as the FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported only by the discretionary authority of the U.S. Government to purchase the agency's obligations). Mortgage pass- through securities may also be issued by non-governmental issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers). Some of these mortgage pass-through securities may be supported by various forms of insurance or guarantees.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to earn additional income on available cash or as a temporary defensive measure. Under a repurchase agreement, the Fund acquires securities subject to the seller's agreement to repurchase at a specified time and price. If the seller becomes subject to a proceeding under the bankruptcy laws or its assets are otherwise subject to a stay order, the Fund's right to liquidate the securities may be restricted (during which time the value of the securities could decline). As discussed in the Statement of Additional Information, the Fund has adopted certain procedures intended to minimize any risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending portfolio securities. Such loans will usually be made to member firms (and subsidiaries thereof) of the New York Stock Exchange (the "Exchange") and to member banks of the Federal Reserve System, and would be required to be secured continuously by collateral in cash, letters of credit or U.S. Government securities maintained on a current basis at an amount at least equal to the market value of the securities loaned. The Fund will continue to collect the equivalent of interest on the securities loaned and will also receive either interest (through investment of cash collateral) or a fee (if the collateral is government securities). As with other extensions of credit there are risks of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. However, the loans would be made only to entities deemed by the Adviser to be of good standing, and when, in the judgment of the Adviser, the consideration which can be earned currently from securities loans of this type justifies the attendant risk.
DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES: The Fund may invest in dollar- denominated foreign debt securities. Investing in securities of foreign issuers generally involves risks not ordinarily associated with investing in securities of domestic issuers. These risks include changes in governmental administration or economic or monetary policy (in the U.S. or abroad) or circumstances in dealings between nations. Special considerations may also include more limited information about foreign issuers and different accounting standards. Foreign securities markets may also be less subject to government supervision than in the U.S. Investments in foreign countries could be affected by other factors including expropriation, confiscatory taxation and potential difficulties in enforcing contractual obligations. See the Statement of Additional Information for further discussion of dollar- denominated foreign debt securities, as well as the associated risks.
EMERGING MARKET SECURITIES: Consistent with the Fund's investment objective and policies and its ability to invest in foreign securities, the Fund may invest in securities of governments located in emerging countries or regions with relatively low gross national product per capita compared to the world's major economies, and in countries or regions with the potential for rapid economic growth (emerging markets). For these purposes, emerging markets will include any country: (i) having an "emerging stock market" as defined by the International Finance Corporation; (ii) with low- to middle-income economies according to the International Bank for Reconstruction and Development (the "World Bank"); (iii) listed in World Bank publications as developing; or (iv) determined by the Adviser to be an emerging market as defined above. The Fund may invest in securities of: (i) companies the principal securities trading market for which is an emerging market country; (ii) companies organized under the laws of, and with a principal office in, an emerging market country; (iii) companies whose principal activities are located in emerging market countries; or (iv) companies traded in any market that derive 50% or more of their total revenue from either goods or services produced in an emerging market or sold in an emerging market.
The risks of investing in foreign securities may be intensified in the case of investments in emerging markets. Securities of many issuers in emerging markets may be less liquid and more volatile than securities of comparable domestic issuers. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets of the Fund is uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to the purchaser. Certain markets may require payment for securities before delivery. Securities prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. In particular, countries with emerging markets may have relatively unstable governments, present the risk of nationalization of businesses, restrictions on foreign ownership, or prohibitions of repatriation of assets, and may have less protection of property rights than more developed countries. The economies of countries with emerging markets may be predominantly based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of substantial holdings difficult or impossible at times. Securities of issuers located in countries with emerging markets may have limited marketability and may be subject to more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be restricted or controlled to varying degrees. These restrictions or controls may at times preclude investment in certain foreign emerging market debt obligations and increase the expenses of the Fund.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, Ecuador, Mexico, Nigeria, 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.
ZERO COUPON BONDS: Fixed income securities in which the Fund may invest also include zero coupon bonds. Zero coupon bonds are debt obligations which are issued or purchased at a significant discount from face value. The discount approximates the total amount of interest the bonds will accrue and compound over the period until maturity, at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon bonds do not require the periodic payment of interest. Such investments may experience greater volatility in market value due to changes in interest rates than debt obligations which make regular payments of interest.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar roll" transactions with selected banks and broker-dealers pursuant to which the Fund sells mortgage-backed securities for delivery in the future (generally within 30 days) and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. The Fund will only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction.
SECURITIES RATED BBB/BAA: As described above, the Fund may invest in fixed income securities rated Baa by Moody's or BBB by S&P or Fitch and comparable unrated securities. These securities, while normally exhibiting adequate protection parameters, have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than in the case of higher grade fixed income securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
The Fund may invest a portion of its assets in collateralized mortgage
obligations or "CMOs", which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by certificates issued by GNMA, FNMA or FHLMC, but also may be collateralized
by whole loans or private mortgage pass-through securities (such collateral
collectively referred to as "Mortgage Assets"). The Fund may also invest a
portion of its assets in multiclass pass-through securities which are
interests in a trust composed of Mortgage Assets. CMOs (which include
multiclass pass-through securities) may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. 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 classes with different maturities. Each class of
CMOs, often referred to as a "tranche", is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Certain classes of CMOs have priority over others with respect to the receipt
of prepayments on the mortgages. Therefore, depending on the type of CMOs in
which the Fund invests, the investment may be subject to a greater or lesser
risk of prepayment than other types of mortgage-related securities.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of principal on each payment date to more than one class. PAC Bonds generally require payments of a specified amount of principal on each payment date. PAC Bonds are always parallel pay CMOs with the required principal payment on such securities having the highest priority after interest has been paid to all classes. For a further description of CMOs, parallel pay CMOs and PAC Bonds and the risks related to transactions therein, see the Statement of Additional Information.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued" or on a "forward delivery" basis, which means that the securities will be delivered to the Fund at a future date usually beyond customary settlement time. The commitment to purchase a security for which payment will be made on a future date may be deemed a separate security. In general, the Fund does not pay for such securities until received, and does not start earning interest on the securities until the contractual settlement date. While awaiting delivery of securities purchased on such bases, the Fund will normally invest in cash, cash equivalents and high grade debt securities.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value is linked to foreign currencies, interest rates, commodities, indices or other financial indicators. Most indexed securities are short to intermediate term fixed-income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be positively or negatively indexed (i.e., their value may increase or decrease if the underlying instrument appreciates), and may have return characteristics similar to direct investments in the underlying instrument or to one or more options on the underlying instrument. Indexed securities may be more volatile than the underlying instrument itself.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and sell futures contracts on fixed income securities or indices of such securities, including municipal bond indices and any other indices of fixed income securities which may become available for trading ("Futures Contracts"). The Fund may also purchase and write options on such Futures Contracts ("Options on Futures Contracts"). These instruments will be used to hedge against anticipated future changes in interest rates which otherwise might either adversely affect the value of the Fund's portfolio securities or adversely affect the prices of securities which the Fund intends to purchase at a later date. Such transactions may also be used for non-hedging purposes to the extent permitted by applicable law. Should interest rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of the hedging transactions and may realize a loss.
The Fund has adopted the additional restriction that it will not enter into a Futures Contract if, immediately thereafter, the value of securities and other obligations underlying all such Futures Contracts would exceed 50% of the value of the Fund's total assets. Moreover, the Fund will not purchase Options on Futures Contracts, if as a result, more than 5% of its total assets would be so invested. Futures Contracts and Options on Futures Contracts that are entered into by the Fund may be traded on U.S. and foreign exchanges.
Although the Fund will enter into certain transactions in Futures Contracts, for hedging purposes, such transactions nevertheless involve risks. For example, a lack of correlation between the instrument underlying a Futures Contract and the assets being hedged, or unexpected adverse price movements, could render the Fund's hedging strategy unsuccessful and could result in losses. The Statement of Additional Information contains a further description of Futures Contracts including a discussion of the risks related to transactions therein. Transactions entered into for non-hedging purposes involve greater risks and could result in losses which are not offset by gains on other portfolio assets.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not registered under the Securities Act of 1933, as amended ("1933 Act") ("restricted securities"), including those that can be offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A securities"). The Trust's Board of Trustees determines, based upon a continuing review of the trading markets for a specific 144A security, whether such security is liquid and thus not subject to the Fund's limitation on investing not more than 15% of its net assets in illiquid investments. The Board of Trustees has adopted guidelines and delegated to MFS the daily function of determining and monitoring the liquidity of Rule 144A securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Board will carefully monitor the Fund's investments in Rule 144A securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. Investing in restricted securities could have the effect of decreasing the level of liquidity in the Fund to the extent that qualified institutional buyers become for a time uninterested in purchasing Rule 144A securities held in the Fund's portfolio. Subject to the Fund's 15% limitation on investments in illiquid investments, the Fund may also invest in restricted securities that may not be sold under Rule 144A, which presents certain risks. As a result, the Fund might not be able to sell these securities when the Adviser wishes to do so, or might have to sell them at less than fair value. In addition, market quotations are less readily available. Therefore, judgment may at times play a greater role in valuing these securities than in the case of unrestricted securities.
PORTFOLIO TRADING: The Fund intends to engage in portfolio trading rather than holding portfolio securities to maturity. In trading portfolio securities, the Fund seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. The Fund cannot predict its annual portfolio turnover rate, but it is anticipated that such turnover rate will not exceed 300%. A high turnover rate involves greater expenses, including higher brokerage and transaction costs, to the Fund. For a description of the strategies which may be used by the Fund in trading portfolio securities, see "Investment Objectives, Policies and Restrictions -- Portfolio Trading" in the Statement of Additional Information.
The primary consideration in placing portfolio security transactions with broker-dealers is to obtain, and maintain the availability of, execution at the most favorable prices. Consistent with the foregoing primary consideration, the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (the "NASD") and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund and of the other investment company clients of MFD, as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. From time to time, the Adviser may direct certain portfolio transactions to broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's operating expenses (e.g., fees charged by the custodian of the Fund's assets). For a further discussion of portfolio trading, see the Statement of Additional Information.
The net asset value of the shares of an open-end investment company, such as the Fund, which invests primarily in fixed income securities, changes with the general level of interest rates. When interest rates decline, the market value of the portfolio can be expected to rise. Conversely, when interest rates rise, the market value of the portfolio can be expected to decline.
The Statement of Additional Information includes a discussion of other investment policies and a listing of specific investment restrictions which govern the Fund's investment policies. The specific investment restrictions listed in the Statement of Additional Information may be changed without shareholder approval unless otherwise indicated. (See "Investment Restrictions" in the Statement of Additional Information). The Fund's limitations, policies and rating restrictions are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- MFS manages the Fund pursuant to an Investment Advisory Agreement, dated January 8, 1992 (the "Advisory Agreement"). The Adviser provides the Fund with overall investment advisory and administrative services, as well as general office facilities. Geoffrey L. Kurinsky, a Senior Vice President of the Adviser, has been the Fund's portfolio manager since the Fund's inception in 1992 and has been employed by the Adviser since 1987. Subject to such policies as the Trustees may determine, the Adviser makes investment decisions for the Fund. Effective February 1, 1994, for its services and facilities, the Adviser receives a management fee, computed and paid monthly, at the rate of 0.40% per annum of the Fund's average daily net assets. For the Fund's fiscal year ended April 30, 1995, MFS received management fees under the Advisory Agreement of $453,367.
MFS also serves as investment adviser to each of the other funds in the MFS Family of Funds (the "MFS Funds") and to MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust, MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and seven variable accounts, each of which is a registered investment company established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the sale of various fixed/variable annuity contracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor organizations have a history of money management dating from 1924 and the founding of the first mutual fund in the United States, Massachusetts Investors Trust. Net assets under the management of the MFS organization were approximately $38.4 billion on behalf of approximately 1.7 million accounts as of July 31, 1995. As of such date, the MFS organization managed approximately $14.8 billion of assets invested in equity securities and approximately $19.2 billion of assets invested in fixed income securities. Approximately $3.1 billion of the assets managed by MFS are invested in securities of foreign issuers and non-U.S. dollar denominated securities of U.S. issuers. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.), which in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D. McNeil and John R. Gardner. Mr. Brodkin is the Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and a Senior Executive Vice President of MFS. Messrs. McNeil and Gardner are the Chairman and the President, respectively, of Sun Life. Sun Life, a mutual life insurance company, is one of the largest international life insurance companies and has been operating in the United States since 1895, establishing a headquarters office here in 1973. The executive officers of MFS report directly to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman, President and Trustee of the Trust. W. Thomas London, Stephen E. Cavan, James R. Bordewick, Jr., Robert A. Dennis, Geoffrey L. Kurinsky and James O. Yost, all of whom are officers of MFS, are officers of the Trust.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's oldest financial services institutions, the London-based Foreign & Colonial Investment Trust PLC, which pioneered the idea of investment management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG), the oldest publicly listed bank in Germany, founded in 1835. As part of this alliance, the portfolio managers and investment analysts of MFS and Foreign & Colonial will share their views on a variety of investment related issues such as the economy, securities markets, portfolio securities and their issuers, investment recommendations, strategies and techniques, risk analysis, trading strategies and other portfolio management matters. MFS will have access to the extensive international equity investment expertise of Foreign & Colonial, and Foreign & Colonial will have access to the extensive U.S. equity investment expertise of MFS. One or more MFS investment analysts are expected to work for an extended period with Foreign & Colonial's portfolio managers and investment analysts at their offices in London. In return, one or more Foreign & Colonial employees are expected to work in a similar manner at MFS' Boston offices.
In certain instances there may be securities which are suitable for the Fund's portfolio as well as for portfolios of other clients of MFS or clients of Foreign & Colonial. Some simultaneous transactions are inevitable when several clients receive investment advice from MFS and Foreign & Colonial, particularly when the same security is suitable for more than one client. While in some cases this arrangement could have a detrimental effect on the price or availability of the security as far as the Fund is concerned, in other cases, however, it may produce increased investment opportunities for the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of shares of the Fund and also serves as distributor for each of the other MFS Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency, certain dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES -- Shares of the Fund may be purchased at the public offering price through any dealer or other financial institution ("dealers") having a selling agreement with MFD. Dealers may also charge their customers fees relating to investments in the Fund.
The Fund offers three classes of shares (Class A, B and C shares) which bear sales charges and distribution fees in different forms and amounts, as described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus an initial sales charge, but in certain cases are offered at net asset value without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at net asset value plus an initial sales charge as follows:
SALES CHARGE* AS PERCENTAGE OF:
------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
Less Than $50,000 ...................................................... 2.50% 2.56% 2.25%
$50,000 but less than $100,000 ......................................... 2.25 2.30 2.00
$100,000 but less than $250,000 ........................................ 2.00 2.04 1.75
$250,000 but less than $500,000 ........................................ 1.75 1.78 1.50
$500,000 but less than $1,000,000 ...................................... 1.50 1.52 1.25
$1,000,000 or more ..................................................... None** None** See Below**
- --------------
*Because of rounding in the calculation of offering price, actual sales charges may be more or less than those calculated using
the percentages above.
**A CDSC will apply to such purchases, as discussed below.
|
MFD allows discounts to dealers (which are alike for all dealers) from the applicable public offering price, as shown in the above table. In the case of the maximum sales charge, the dealer retains 2.25% and MFD retains approximately 1/4 of 1% of the public offering price. The sales charge may vary depending on the number of shares of the Fund as well as certain other MFS Funds owned or being purchased, the existence of an agreement to purchase additional shares during a 13-month period (or 36-month period for purchases of $1 million or more) or other special purchase programs. A description of the Right of Accumulation, Letter of Intent and Group Purchase privileges by which the sales charge may be reduced is set forth in the Statement of Additional Information.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge). In the following two circumstances, Class A shares are also offered at net asset value without an initial sales charge but subject to a CDSC, equal to 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividend and capital gain distributions) or the total cost of such shares, in the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject to the Employee Retirement Income Security Act of 1974, as amended, if the sponsoring organization demonstrates to the satisfaction of MFD that either (a) the employer has at least 25 employees or (b) the aggregate purchases by the retirement plan of Class A shares of the MFS Funds will be in an amount of at least $250,000 within a reasonable period of time, as determined by MFD in its sole discretion.
In the case of such purchases, MFD will pay a commission to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
1% on sales up to $5 million, plus 0.25% on the amount in excess of $5
million. Purchases of $1 million or more for each shareholder account will be
aggregated over a 12-month period (commencing from the date of the first such
purchase) for purposes of determining the level of commissions to be paid
during the period with respect to such account. In addition, with respect to
sales to retirement plans under the second circumstance described above, MFD
may pay a commission, on sales in excess of $5 million to certain retirement
plans, of 1% to certain dealers which, at MFD's invitation, enter into an
agreement with MFD in which the dealer agrees to return any commission paid to
it on the sale (or on a pro rata portion thereof) if the shareholder redeems
his or her shares within a period of time after purchase as specified by MFD.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the initial sales charge imposed upon purchases of Class A shares and the CDSC imposed upon redemptions of Class A shares is waived. These circumstances are described in Annex A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT REDEMPTION DEFERRED SALES AFTER PURCHASE CHARGE -------------- -------------- First .................................................... 4% Second ................................................... 4% Third .................................................... 3% Fourth ................................................... 3% Fifth .................................................... 2% Sixth .................................................... 1% Seventh and following .................................... 0% |
For Class B shares purchased prior to January 1, 1993, the CDSC imposed upon redemption is as follows:
YEAR OF CONTINGENT REDEMPTION DEFERRED SALES AFTER PURCHASE CHARGE -------------- -------------- First .................................................... 6% Second ................................................... 5% Third .................................................... 4% Fourth ................................................... 3% Fifth .................................................... 2% Sixth .................................................... 1% Seventh and following .................................... 0% |
The CDSC imposed is assessed against the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. No CDSC is assessed against shares acquired through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B shares purchased through dealers. MFD will also advance to dealers the first year service fee payable under the Fund's Class B Distribution Plan (see "Distribution Plans" below) at a rate equal to 0.25% of the purchase price of such shares. Therefore, the total amount paid to a dealer upon the sale of Class B shares is 4% of the purchase price of the shares (commission rate of 3.75% plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption of Class B shares is waived. These circumstances are described in Annex A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain outstanding for approximately eight years will convert to Class A shares of the Fund. Shares purchased through the reinvestment of distributions paid in respect of Class B shares will be treated as Class B shares for purposes of the payment of the distribution and service fees under the Distribution Plan applicable to Class B shares. See "Distribution Plans" below. However, for purposes of conversion to Class A shares, all shares in a shareholder's account that were purchased through the reinvestment of dividends and distributions paid in respect of Class B shares (and which have not converted to Class A shares as provided in the following sentence) will be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A shares, a portion of the Class B shares then in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares not acquired through reinvestment of dividends and distributions that are converting to Class A shares bear to the shareholder's total Class B shares not acquired through reinvestment. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that such conversion will not constitute a taxable event for federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class B shares would continue to be subject to higher expenses than Class A shares for an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an initial sales charge or a CDSC. Class C shares do not convert to any other class of shares of the Fund. The maximum investment in Class C shares that may be made is $5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of 1986, as amended (the "Code") if the retirement plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan or another similar recordkeeping program made available by the Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial investment is $1,000 per account and the minimum additional investment is $50 per account. Accounts being established for monthly automatic investments and under payroll savings programs and tax-deferred retirement programs (other than IRAs) involving the submission of investments by means of group remittal statements are subject to a $50 minimum on initial and additional investments per account. The minimum initial investment for IRAs is $250 per account and the minimum additional investment is $50 per account. Accounts being established for participation in the Automatic Exchange Plan are subject to a $50 minimum on initial and additional investments per account. There are also other limited exceptions to these minimums for certain tax-deferred retirement programs. Any minimums may be changed at any time at the discretion of MFD. The Fund reserves the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges should be made for investment purposes only. The Fund and MFD each reserve the right to reject any specific purchase order or to restrict purchases by a particular purchaser (or group of related purchasers). The Fund or MFD may reject or restrict any purchases by a particular purchaser or group, for example, when such purchase is contrary to the best interests of the Fund's other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges among certain classes of shares of certain MFS Funds (as determined by MFD) which follow a timing pattern, and with individuals or entities acting on such shareholders' behalf (collectively, "market timers"), setting forth the terms, procedures and restrictions with respect to such exchanges. In the absence of such an agreement, it is the policy of the Fund and MFD to reject or restrict purchases by market timers if (i) more than two exchange purchases are effected in a timed account in the same calendar quarter or (ii) a purchase would result in shares being held in timed accounts by market timers representing more than (x) one percent of the Fund's net assets or (y) specified dollar amounts in the case of certain MFS Funds which may include the Fund and which may change from time to time. The Fund and MFD each reserve the right to request market timers to redeem their shares at net asset value, less any applicable CDSC, if either of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with respect to sales of Class A, Class B and Class C shares. In addition, from time to time, MFD may pay dealers 100% of the applicable sales charge on sales of Class A shares of certain specified MFS Funds sold by such dealer during a specified sales period. In addition, MFD or its affiliates may, from time to time, pay dealers an additional commission equal to 0.50% of the net asset value of all of the Class B shares of certain specified MFS Funds sold by such dealer during a specified sales period. In addition, from time to time, MFD, at its expense, may provide additional commissions, compensation or promotional incentives ("concessions") to dealers which sell shares of the Fund. Such concessions provided by MFD may include financial assistance to dealers in connection with preapproved conferences or seminars, sales or training programs for invited registered representatives, payment for travel expenses, including lodging, incurred by registered representatives for such seminars or training programs, seminars for the public, advertising and sales campaigns regarding one or more MFS Funds, and/or other dealer-sponsored events. From time to time, MFD may make expense reimbursements for special training of a dealer's registered representatives in group meetings or to help pay the expenses of sales contests. Other concessions may be offered to the extent not prohibited by state laws or any self-regulatory agency, such as the NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in certain investment programs (e.g., the Automatic Investment Plan) or other shareholder services, MFD or its affiliates may either (i) give a gift of nominal value, such as a hand-held calculator, or (ii) make a nominal charitable contribution on their behalf.
A shareholder whose shares are held in the name of, or controlled by, a dealer might not receive many of the privileges and services from the Fund (such as Right of Accumulation, Letter of Intent and certain recordkeeping services) that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds in the MFS Family of Funds (the "MFS Funds") at net
asset value (if available for sale). In addition, Class C shares may be
exchanged for shares of the MFS money market fund at net asset value. Shares
of one class may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales charges or CDSC will be imposed in connection with an exchange from shares of an MFS Fund to shares of any other MFS Fund, except with respect to exchanges from an MFS money market fund to another MFS Fund which is not an MFS money market fund (discussed below). With respect to an exchange involving shares subject to a CDSC, the CDSC will be unaffected by the exchange and the holding period for purposes of calculating the CDSC will carry over to the acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the imposition of an initial sales charge or a CDSC for exchanges from an MFS money market fund to another MFS Fund which is not an MFS money market fund. These rules are described under the caption "Exchanges" in the Prospectuses of those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by certain qualified retirement plans may be exchanged for units of participation of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and Units may be exchanged for Class A shares of any MFS Fund. With respect to exchanges between of Class A shares subject to a CDSC and Units, the CDSC will carry over to the acquired shares or Units and will be deducted from the redemption proceeds when such shares or Units are subsequently redeemed, assuming the CDSC is then payable (the period during which the Class A shares and the Units were held will be aggregated for purposes of calculating the applicable CDSC). In the event that a shareholder initially purchases Units and then exchanges into Class A shares subject to an initial sales charge of an MFS Fund, the initial sales charge shall be due upon such exchange, but will not be imposed with respect to any subsequent exchanges between such Class A shares and Units with respect to shares on which the initial sales charge has already been paid. In the event that a shareholder initially purchases Units and then exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period will commence upon such exchange, and the applicability of the CDSC with respect to subsequent exchanges shall be governed by the rules set forth in this paragraph above.
GENERAL: Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed
by the record owner(s) exactly as the shares are registered; if by telephone
- -- proper account identification is given by the dealer or shareholder of
record) and each exchange must involve either shares having an aggregate value
of at least $1,000 ($50 in the case of retirement plan participants whose
sponsoring organizations subscribe to the MFS FUNDamental 401(k) Plan or
another similar 401(k) recordkeeping system made available by the Shareholder
Servicing Agent) or all the shares in the account. If an Exchange Request is
received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the New York Stock Exchange (generally, 4:00 p.m.,
Eastern time) (the "Exchange"), the exchange usually will occur on that day if
all the requirements set forth above have been complied with at that time. No
more than five exchanges may be made in any one Exchange Request by telephone.
Additional information concerning this exchange privilege and prospectuses for
any of the other MFS Funds may be obtained from dealers or the Shareholder
Servicing Agent. A shareholder should read the prospectus of the other MFS
Fund and consider the differences in objectives, policies and restrictions
before making any exchange. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder
making the exchange. Exchanges by telephone are automatically available to
most non-retirement plan accounts and certain retirement plan accounts. For
further information regarding exchanges by telephone, see "Redemptions by
Telephone." The exchange privilege (or any aspect of it) may be changed or
discontinued and is subject to certain limitations, including certain
restrictions on purchases by market timers. Special procedures, privileges and
restrictions with respect to exchanges may apply to market timers who enter
into an agreement with MFD, as set forth in such agreement. See "Purchases --
General -- Right to Reject Purchase Orders/Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on any
date on which the Fund is open for business by redeeming shares at their net
asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however, subject
to a CDSC. See "Contingent Deferred Sales Charge" below. Because the net asset
value of shares of the account fluctuates, redemptions or repurchases, which are
taxable transactions, are likely to result in gains or losses to the
shareholder. When a shareholder withdraws an amount from his account, the
shareholder is deemed to have tendered for redemption a sufficient number of
full and fractional shares in his account to cover the amount withdrawn. The
proceeds of a redemption or repurchase will normally be available within seven
days, except for shares purchased or received in exchange for shares purchased
by check (including certified checks or cashier's checks). Payment of redemption
proceeds may be delayed for up to 15 days from the purchase date in an effort to
assure that such check has cleared.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the shares in his account by mailing or delivering to the Shareholder Servicing Agent (see back cover for address) a stock power with a written request for redemption or letter of instruction, together with his share certificates (if any were issued), all in "good order" for transfer. "Good order" generally means that the stock power, written request for redemption, letter of instruction or certificate must be endorsed by the record owner(s) exactly as the shares are registered and the signature(s) must be guaranteed in the manner set forth below under the caption "Signature Guarantee." In addition, in some cases "good order" will require the furnishing of additional documents. The Shareholder Servicing Agent may make certain de minimis exceptions to the above requirements for redemption. Within seven days after receipt of a redemption request in "good order" by the Shareholder Servicing Agent, the Fund will make payment in cash of the net asset value of the shares next determined after such redemption request was received, reduced by the amount of any applicable CDSC described above and the amount of any income tax required to be withheld, except during any period in which the right of redemption is suspended or date of payment is postponed because the Exchange is closed or trading on such Exchange is restricted or to the extent otherwise permitted by the 1940 Act if an emergency exists. See "Tax Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account by telephoning the Shareholder Servicing Agent toll-free at (800) 225- 2606. Shareholders wishing to avail themselves of this telephone redemption privilege must so elect on their Account Application, designate thereon a bank and account number to receive the proceeds of such redemption, and sign the Account Application Form with the signature(s) guaranteed in the manner set forth below under the caption "Signature Guarantee." The proceeds of such a redemption, reduced by the amount of any applicable CDSC and the amount of any income tax required to be withheld, are mailed by check to the designated account, without charge if the redemption proceeds do not exceed $1,000 and are wired in federal funds to the designated account if the redemption proceeds exceed $1,000. If a telephone redemption request is received by the Shareholder Servicing Agent by the close of regular trading on the Exchange on any business day, shares will be redeemed at the closing net asset value of the Fund on that day. Subject to the conditions described in this section, proceeds of a redemption are normally mailed or wired on the next business day following the date of receipt of the order for redemption. The Shareholder Servicing Agent will not be responsible for any losses resulting from unauthorized telephone transactions if it follows reasonable procedures designed to verify the identity of the caller. The Shareholder Servicing Agent will request personal or other information from the caller, and will normally also record calls. Shareholders should verify the accuracy of confirmation statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through his dealer (a repurchase), the shareholder can place a repurchase order with his dealer, who may charge the shareholder a fee. IF THE DEALER RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY, REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD.
REDEMPTION BY CHECK: Only Class A and Class C shares may be redeemed by check. A shareholder owning Class A shares of the Fund may elect to have a special account with State Street Bank and Trust Company (the "Bank") for the purpose of redeeming Class A or Class C shares from his or her account by check. The Bank will provide each Class A or Class C shareholder, upon request, with forms of checks drawn on the Bank. Only shareholders having accounts in which no share certificates have been issued will be permitted to redeem shares by check. Checks may be made payable in any amount not less than $500. Shareholders wishing to avail themselves of this redemption by check privilege should so request on their Account Application, must execute signature cards (for additional information, see the Account Application) with signature guaranteed in the manner set forth under the caption "Signature Guarantee" below, and must return any Class A or Class C share certificates issued to them. Additional documentation will be required from corporations, partnerships, fiduciaries or other such institutional investors. All checks must be signed by the shareholder(s) of record exactly as the account is registered before the Bank will honor them. The shareholders of joint accounts may authorize each shareholder to redeem by check. The check may not draw on monthly dividends which have been declared but not distributed. SHAREHOLDERS WHO PURCHASE CLASS A AND CLASS C SHARES BY CHECK (INCLUDING CERTIFIED CHECKS OR CASHIER'S CHECKS) MAY WRITE CHECKS AGAINST THOSE SHARES ONLY AFTER THEY HAVE BEEN ON THE FUND'S BOOKS FOR 15 DAYS. WHEN SUCH A CHECK IS PRESENTED TO THE BANK FOR PAYMENT, A SUFFICIENT NUMBER OF FULL AND FRACTIONAL SHARES WILL BE REDEEMED TO COVER THE AMOUNT OF THE CHECK, ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD. IF THE AMOUNT OF THE CHECK, PLUS ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD IS GREATER THAN THE VALUE OF CLASS A OR CLASS C SHARES HELD IN THE SHAREHOLDER'S ACCOUNT, THE CHECK WILL BE RETURNED UNPAID, AND THE SHAREHOLDER MAY BE SUBJECT TO EXTRA CHARGES. TO AVOID DISHONOR OF CHECKS DUE TO FLUCTUATIONS IN ACCOUNT VALUE, SHAREHOLDERS ARE ADVISED AGAINST REDEEMING ALL OR MOST OF THEIR ACCOUNT BY CHECK. CHECKS SHOULD NOT BE USED TO CLOSE A FUND ACCOUNT BECAUSE WHEN THE CHECK IS WRITTEN, THE SHAREHOLDER WILL NOT KNOW THE EXACT TOTAL VALUE OF THE ACCOUNT ON THE DAY THE CHECK CLEARS. There is presently no charge to the shareholder for the maintenance of this special account or for the clearance of any checks, but the Fund and the Bank reserve the right to impose such charges or to modify or terminate the redemption by check privilege at any time.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in
the case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month.
Class B shares purchased on or after January 1, 1993 will be aggregated on a
calendar month basis -- all transactions made during a calendar month,
regardless of when during the month they have occurred, will age one year at
the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior
to January 1, 1993, transactions will be aggregated on a calendar year basis
- -- all transactions made during a calendar year, regardless of when during the
year they have occurred, will age one year at the close of business on
December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's account for a particular class of shares represented by Direct Purchases exceeds the sum of the six calendar year aggregations (12 months in the case of purchases of $1 million or more of Class A shares or purchases by certain retirement plans of Class A shares) of Direct Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is ever assessed on additional shares acquired through the automatic reinvestment of dividends or capital gain distributions ("Reinvested Shares"). Therefore, at the time of redemption of a particular class, (i) any Free Amount is not subject to the CDSC and (ii) the amount of the redemption equal to the then-current value of Reinvested Shares is not subject to the CDSC, but (iii) any amount of the redemption in excess of the aggregate of the then-current value of Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will first be applied against the amount of Direct Purchases which will result in any such charge being imposed at the lowest possible rate. The CDSC to be imposed upon redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of registration, except as described in Annex A hereto.
GENERAL: The following information applies to redemptions and repurchases of all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the Fund requires, in certain instances as indicated above, that the shareholder's signature be guaranteed. In these cases the shareholder's signature must be guaranteed by an eligible bank, broker, dealer, credit union, national securities exchange, registered securities association, clearing agency or savings association. Signature guarantees shall be accepted in accordance with policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their shares have a one-time right to reinvest the redemption proceeds in the same class of shares of any of the MFS Funds (if shares of such Fund are available for sale) at net asset value (with a credit for any CDSC paid) within 90 days of the redemption pursuant to the Reinstatement Privilege. If the shares credited for any CDSC paid are then redeemed within six years of the initial purchase in the case of Class B shares or within 12 months of the initial purchase for certain Class A share purchases, a CDSC will be imposed upon redemption. Such purchases under the Reinstatement Privilege are subject to all limitations in the Statement of Additional Information regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations, the Fund has reserved the right to pay the redemption or repurchase price of shares of the Fund, either totally or partially, by a distribution in-kind of securities (instead of cash) from the Fund's portfolio. The securities distributed in such a distribution would be valued at the same amount as that assigned to them in calculating the net asset value for the shares being sold. If a shareholder received a distribution in-kind, the shareholder could incur brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of maintaining small accounts, the Fund reserves the right to redeem shares in any account for their then-current value if at any time the total investment in such account drops below $500 because of redemptions, except in the case of accounts being established for monthly automatic investments and certain payroll savings programs, Automatic Exchange Plan accounts and tax-deferred retirement plans, for which there is a lower minimum investment requirement. See "Purchases -- General -- Minimum Investment." Shareholders will be notified that the value of their account is less than the minimum investment requirement and allowed 60 days to make an additional investment before the redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and
its shareholders.
In certain circumstances, the fees described below have not yet been imposed or are being waived. These circumstances are described below under the heading "Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a service fee of up to 0.25% of the average daily net assets attributable to the class of shares to which the Distribution Plan relates (i.e., Class A, Class B or Class C shares, as appropriate) (the "Designated Class") annually in order that MFD may pay expenses on behalf of the Fund relating to the servicing of shares of the Designated Class. The service fee is used by MFD to compensate dealers which enter into a sales agreement with MFD in consideration for all personal services and/or account maintenance services rendered by the dealer with respect to shares of the Designated Class owned by investors for whom such dealer is the dealer or holder of record. MFD may from time to time reduce the amount of the service fees paid for shares sold prior to a certain date. Service fees may be reduced for a dealer that is the holder or dealer of record for an investor who owns shares of the Fund having an aggregate net asset value at or above a certain dollar level. Dealers may from time to time be required to meet certain criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under each Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay MFD a distribution fee based on the average daily net assets attributable to the Designated Class as partial consideration for distribution services performed and expenses incurred in the performance of MFD's obligations under its distribution agreement with the Fund. See "Management of the Fund -- Distributor" in the Statement of Additional Information. The amount of the distribution fee paid by the Fund with respect to each class differs under the Distribution Plans, as does the use by MFD of such distribution fees. Such amounts and uses are described below in the discussion of the separate Distribution Plans.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are charged to, and therefore reduce, income allocated to shares of the Designated Class. The Distribution Plans have substantially identical provisions with respect to their operating policies and their initial approval, renewal, amendment and termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered pursuant to an initial sales charge, a substantial portion of which is paid to or retained by the dealer making the sale (the remainder of which is paid to MFD). See "Purchases -- Class A Shares" above. In addition to the initial sales charge, the dealer also generally receives the ongoing 0.25% per annum service fee, as discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal, on an annual basis, to 0.10% of the Fund's average daily net assets attributable to Class A shares. As noted above, MFD may use the distribution fee to cover distribution-related expenses incurred by it under its distribution agreement with the Fund, including commissions to dealers and payments to wholesalers employed by MFD (e.g., MFD pays commission to dealers with respect to purchases of $1 million or more of Class A shares which are sold at net asset value but which are subject to a 1% CDSC for one year after purchase). See "Purchases -- Class A Shares" above. In addition, to the extent that the aggregate service and distribution fees paid under the Class A Distribution Plan do not exceed 0.35% per annum of the average daily net assets of the Fund attributable to Class A shares, the Fund is permitted to pay such distribution-related expenses or other distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC. See "Purchases -- Class B Shares" above. MFD will advance to dealers the first year service fee described above at a rate equal to 0.25% of the purchase price of such shares and, as compensation therefore, MFD may retain the service fee paid by the Fund with respect to such shares for the first year after purchase. Dealers will become eligible to receive the ongoing 0.25% per annum service fee with respect to such shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee equal, on an annual basis, to 0.75% of the Fund's average daily net assets attributable to Class B shares. As noted above, this distribution fee may be used by MFD to cover its distribution-related expenses under its distribution agreement with the Fund (including the 3.75% commission it pays to dealers upon purchase of Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value without a sales charge or a CDSC. See "Purchases -- Class C Shares" above. Unlike the case with respect to the sale of Class A and Class B shares, where the dealer retains a portion of the initial sales charge (Class A shares) or receives an up-front payment from MFD (Class B shares), a dealer who sells Class C shares does not receive any initial payment, but instead receives distribution and service fees equal, on an annual basis, to 1% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom the dealer is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to MFD under the Class C Distribution Plan (which MFD in turn pays to dealers), as discussed above, and a distribution fee paid to MFD (which MFD also in turn pays to dealers) under the Class C Distribution Plan equal, on an annual basis, to 0.75% of the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B and Class C distribution and service fees for its current fiscal year are 0.15%, 0.95% and 1.00% per annum, respectively. Currently, the service fee paid by the Fund to MFD attributable to Class A shares has been set at 0.15% per annum of the average daily net assets attributable to Class A shares, and the Class A distribution fee, equal to 0.10% per annum of the average daily net assets attributable to Class A shares, is not being imposed. The service fee attributable to Class B shares has been set at 0.15% per annum of the Fund's average daily net assets attributable to Class B shares, except in the case of the first year service fee which equals 0.25% per annum of the Fund's average daily net assets attributable to Class B shares.
DISTRIBUTIONS
The Fund intends to declare dividends daily and pay to its shareholders
substantially all of its net investment income as dividends on a monthly
basis. The Fund may make one or more distributions during the calendar year to
its shareholders from any long-term capital gains and also may make one or
more distributions during the calendar year to its shareholders from short-
term capital gains. Shareholders may elect to receive dividends and capital
gain distributions in either cash or additional shares of the same class with
respect to which the distribution is made. See "Tax Status" and "Shareholder
Services -- Distribution Options" below. Distributions paid by the Fund with
respect to Class A shares will generally be greater than those paid with
respect to Class B and Class C shares because expenses attributable to Class B
and Class C shares will generally be higher.
TAX STATUS
The Fund is treated under the Code as an entity separate from the other series
of the Trust. In order to minimize the taxes the Fund would otherwise be
required to pay, the Fund intends to qualify each year as a "regulated
investment company" under Subchapter M of the Code and to make distributions
to its shareholders in accordance with the timing requirements imposed by the
Code. It is not expected that the Fund will be required to pay any federal
income or excise taxes, although the Fund's foreign-source income may be
subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any state or local taxes, on the dividends and capital gain distributions they receive from the Fund, whether paid to shareholders in cash or reinvested in additional shares. The Fund expects that none of its dividends or distributions will be eligible for the dividends-received deduction for corporations. Shareholders of the Fund may not have to pay state and local taxes on dividends derived from interest on U.S. Government securities; investors should consult with their tax advisers in this regard. Shortly after the end of each calendar year, each shareholder will receive a statement dividends and distributions for that year, including any portion taxable as ordinary income, any portion taxable as long-term capital gains, any portion representing a return of capital (which is free of current taxes but results in a basis reduction), any portion representing interest on obligations of the U.S. government and certain of its agencies and instrumentalities, and the amount, if any, of federal income tax withheld.
Fund distributions will reduce the Fund's net asset value per share. Shareholders who buy shares shortly before the Fund makes a distribution of net capital gains or net short-term capital gains may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on dividends and certain other payments that are subject to withholding and that are made to persons who are neither citizens nor residents of the U.S., regardless of whether a lower rate may be permitted under an applicable treaty. The Fund is also required in certain circumstances to apply backup withholding at a rate of 31% on taxable dividends and redemption proceeds paid to a shareholder (including a shareholder who is neither a citizen nor a resident of the U.S.) who does not furnish to the Fund certain information and certifications or who is otherwise subject to backup withholding. However, backup withholding will not be applied on payments which have been subject to 30% withholding. Prospective investors should read the Fund's Account Application for information regarding backup withholding of federal income tax and should consult their own tax advisers as to the tax consequences to them of an investment in the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
during each such day as of the close of regular trading on the Exchange by
deducting the amount of the liabilities attributable to the class from the
value of the Fund's assets attributable to the class and dividing the
difference by the number of shares of the class outstanding. Assets in the
Fund's portfolio are valued on the basis of their market or other fair value,
as described in the Statement of Additional Information. The net asset value
per share of each class of shares is effective for orders received by the
dealer prior to its calculation and received by MFD prior to the close of that
business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of three series of the Trust, has three classes of shares,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without
par value). The Trust has reserved the right to create and issue additional
classes and series of shares, in which case each class of shares of a series
would participate equally in the earnings, dividends and assets attributable
to that class of shares of that particular series. Shareholders are entitled
to one vote for each share held and shares of each series would be entitled to
vote separately to approve investment advisory agreements or changes in
investment restrictions, but shares of all series vote together in the
election of Trustees and selection of accountants. Additionally, each class of
shares of a series will vote separately on any material increases in the fees
under its Distribution Plan or on any other matter that affects solely that
class of shares, but will otherwise vote together with all other classes of
shares of the series on all other matters. The Trust does not intend to hold
annual shareholder meetings. The Declaration of Trust provides that a Trustee
may be removed from office in certain instances (see "Description of Shares,
Voting Rights and Liabilities" in the Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in the Fund with each other class share, subject to the liabilities of the particular class. Shares have no pre-emptive or conversion rights (except as set forth above in "Purchases -- Conversion of Class B Shares"). Shares are fully paid and non-assessable. Should the Fund be liquidated, shareholders of each class are entitled to share pro rata in the net assets attributable to that class available for distribution to shareholders. Shares will remain on deposit with the Shareholder Servicing Agent and certificates will not be issued except in connection with pledges and assignments and in certain other limited circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance (e.g., fidelity bonding and errors and omissions insurance) existed and the Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote
fund rankings in the relevant fund category from various sources, such as the
Lipper Analytical Services, Inc. and Wiesenberger Investment Companies
Service. Yield quotations are based on the annualized net investment income
per share allocated to each class of the Fund over a 30-day period stated as a
percent of the maximum public offering price on the last day of that period.
Yield calculations for Class B shares assume no CDSC is paid. The current
distribution rate for each class is generally based upon the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months and is computed by dividing the amount of such dividends by the
maximum public offering price of that class at the end of such perdiod.
Current distribution rate calculations for Class B shares assume no CDSC is
paid. The current distribution rate differs from the yield calculation because
it may include distributions to shareholders from sources other than dividends
and interest, such as premium income from option writing, short-term capital
gains, and return of invested capital, and is calculated over a different
period of time. Total rate of return quotations will reflect the average
annual percentage change over stated periods in the value of an investment in
each class of shares of the Fund made at the maximum public offering price of
shares of that class with all distributions reinvested and which, if quoted
for periods of six years or less, will give effect to the imposition of the
CDSC assessed upon redemptions of the Fund's Class B shares. Such total rate
of return quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge or the
deduction of a CDSC, and which will thus be higher. All performance quotations
are based on historical performance and are not intended to indicate future
performance. Yield reflects only net portfolio income as of a stated period of
time and current distribution rate reflects only the rate of distributions
paid by the Fund over a stated period of time, while total rate of return
reflects all components of investment return over a stated period of time. The
Fund's quotations may from time to time be used in advertisements, shareholder
reports or other communications to shareholders. For a discussion of the
manner in which the Fund will calculate its yield, current distribution rate
and total rate of return, see the Statement of Additional Information. For
further information about the Fund's performance for the fiscal year ended
April 30, 1995, please see the Fund's Annual Report. A copy of the Annual
Report may be obtained without charge by contacting the Shareholder Servicing
Agent (see back cover for address and phone number). In addition to
information provided in shareholder reports, the Fund may, in its discretion
from time to time, make a list of all or a portion of its holdings available
to investors upon request.
EXPENSES
The Adviser has agreed to pay certain expenses of the Fund (except for the fees
paid under the Advisory Agreement and any Distribution Plan) until February 28,
2002 and to pay the expenses relating to the organization of the Fund, all
subject to reimbursement by the Fund. To accomplish such reimbursement, the
Adviser receives an expense reimbursement fee from the Fund in addition to the
investment advisory and distribution fees, computed and paid monthly at a rate
of 0.40% per annum of the average daily net assets of the Fund. The expense
reimbursement agreement terminates for the Fund on the earlier of either (i) the
date on which the payments made thereunder by the Fund equal the prior payment
of such reimbursable expenses by the Adviser or (ii) February 28, 2002. The
Adviser may also terminate the expense reimbursement agreement at any time by
written notice to the Trust. See "Investment Adviser" in the Statement of
Additional Information for further information.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below or concerning other aspects of the Fund, should contact the Shareholder Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive confirmation statements showing the transaction activity in his account. Cancelled checks, if any, will be sent to shareholders monthly. At the end of each calendar year, each shareholder will receive income tax information regarding reportable dividends and capital gain distributions for that year (see "Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts (except Systematic Withdrawal Plan accounts), and may be changed as often as desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional shares. This option will be assigned if no other option is specified.
-- Dividends in cash; capital gain distributions reinvested in additional shares.
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and fractional shares of the same class of shares at the net asset value in effect at the close of business on the last business day of the month. Dividends and capital gain distributions in amounts less than $10 will automatically be reinvested in additional shares of the Fund. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. Any request to change a distribution option must be received by the Shareholder Servicing Agent a reasonable time prior to the next business day of the month for a dividend or distribution in order to be effective for that dividend or distribution. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the Fund makes available the following programs designed to enable shareholders to add to their investment in an account with the Fund or withdraw from it with a minimum of paper work. The programs involve no extra charge to shareholders (other than a sales charge in the case of certain Class A share purchases) and may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as described in the Statement of Additional Information) anticipates purchasing $50,000 or more of Class A shares of the Fund alone or in combination with shares of Class B or Class C of the Fund or any of the classes of other MFS Funds or MFS Fixed Fund within a 13-month period (or 36-month period for purchases of $1 million or more), the shareholder may obtain such shares at the same reduced sales charge as though the total quantity were invested in one lump sum, subject to escrow agreements and the appointment of an attorney for redemptions from the escrow amount if the intended purchases are not completed, by completing the Letter of Intent section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts on the purchase of Class A shares when his new investment, together with the current offering price value of all holdings of all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund may be sold at net asset value (and without any applicable CDSC) through the automatic reinvestment of dividend and capital gain distributions from the same class of any other MFS Fund. Furthermore, distributions made by the Fund may be automatically invested at net asset value (and without any applicable CDSC) in shares of the same class of another MFS Fund, if shares of such Fund are available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing Agent to send him (or anyone he designates) regular periodic payments based upon the value of his account. Each payment under a Systematic Withdrawal Plan (a "SWP") must be at least $100, except in certain limited circumstances. The aggregate withdrawals of Class B shares in any year pursuant to a SWP will not be subject to a CDSC and are generally limited to 10% of the value of the account at the time of the establishment of the SWP. The CDSC will not be waived in the case of SWP redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or
investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000 in any MFS Fund may exchange their shares for the same class of shares of other MFS Funds (and, in the case of Class C shares, for shares of MFS Money Market Fund) under the Automatic Exchange Plan. The Automatic Exchange Plan provides for automatic monthly or quarterly exchanges of funds from the shareholder's account in an MFS Fund for investment in the same class of shares of other MFS Funds selected by the shareholder if such fund is available for sale. Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to four different funds. A shareholder should consider the objectives and policies of a fund and review its prospectus before electing to exchange money into such fund through the Automatic Exchange Plan. No transaction fee is imposed in connection with exchange transactions under the Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A shares of MFS Cash Reserve Fund will be subject to any applicable sales charge. For federal and (generally) state income tax purposes, an exchange is treated as a sale of shares exchanged and, therefore, could result in a capital gain or loss to the shareholder making the exchange. See the Statement of Additional Information for further information concerning the Automatic Exchange Plan. Investors should consult their tax advisers for information regarding the potential capital gain and loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares regardless of fluctuating share offering prices, a shareholder should consider his financial ability to continue his purchases through periods of low price levels. Maintaining a dollar cost averaging program concurrently with a withdrawal program could be disadvantageous because of the sales charges included in share purchases the case of Class A shares and because of the assessment of the CDSC for certain share redemptions in the case of Class A Shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C Shares" shares of the Fund may be purchased by all types of tax-deferred retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans, and other corporate pension and profit-sharing plans. Investors should consult with their tax adviser before establishing any of these tax-deferred retirement plans.
The Fund's Statement of Additional Information, dated September 1, 1995, contains more detailed information about the Fund, including, but not limited to, information related to (i) the Fund's investment objective, policies and restrictions, (ii) the Trustees, officers and investment adviser, (iii) portfolio transactions and brokerage commissions, (iv) the method used to calculate performance quotations, (v) the Fund's Class A, Class B and Class C Distribution Plans and (vi) various services and privileges offered by the Fund for the benefit of its shareholders, including additional information with respect to the exchange privilege.
ANNEX A
WAIVERS OF SALES CHARGES
This Annex sets forth the various circumstances in which all applicable sales charges are waived (Section I), the initial sales charge and the contingent deferred sales charge ("CDSC") for Class A shares is waived (Section II), and the CDSC for Class B shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES In the following circumstances, the initial sales charge imposed on purchases of Class A shares and the CDSC imposed on certain redemptions of Class A shares and on redemptions of Class B shares, as applicable, is waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of dividends and capital gains of any MFS Fund pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of assets of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees) and agents of MFS, Sun Life or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which MFD serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-adviser to any MFS Fund;
* Employees or registered representatives of dealers and other financial institution ("dealers") which have a sales agreement with MFD;
* Certain family members of any such individual and their spouses identified above and certain trusts, pension, profit-sharing or other retirement plans for the sole benefit of such persons, provided the shares are not resold except to an MFS Fund; and
* Institutional Clients of MFS or AMI.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a shareholder's account. See "Redemptions and Repurchases -- General -- Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new sales for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401(k)-1
(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS FUNDamental
401(k) Plan or another similar recordkeeping system made available by the
Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or more of the MFS Funds for more than 10 years from the later to occur of: (i) January 1, 1993 or (ii) the date such Plan first invests its assets in one or more of the MFS Funds. The sales charges will be waived in the case of a redemption of all of the Plan's shares in all MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds are withdrawn), unless immediately prior to the redemption, the aggregate amount invested by the Plan in shares of the MFS Funds (excluding the reinvestment of distributions) during the prior four years equals 50% or more of the total value of the Plan's assets in the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares transferred:
* To an IRA rollover account from an existing IRA account where any sales charges with respect to the shares being reregistered would have been waived had they been redeemed; and
* From a single account maintained for a 401(a) Plan to multiple accounts maintained by the Shareholder Servicing Agent on behalf of individual participants of such Plan, provided that the Plan sponsor subscribes to the MFS FUNDamental 401(k) Plan or another similar recordkeeping system made available by the Shareholder Servicing Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following circumstances the initial sales charge imposed on purchases of Class A shares and the contingent deferred sales charge imposed on certain redemption of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from another open-end management investment company not distributed or managed by MFD or its affiliates if: (i) the investment is made through a dealer and appropriate documentation is submitted to MFD; (ii) the redeemed shares were subject to an initial sales charge or deferred sales charge (whether or not actually imposed); (iii) the redemption occurred no more than 90 days prior to the purchase of Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not agreed with such company or its affiliates, formally or informally, to waive sales charges on Class A shares or provide any other incentive with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have entered into an agreement with MFD which includes a requirement that such shares be sold for the sole benefit of clients participating in a "wrap" account or a similar program under which such clients pay a fee to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators or dealers have entered into an administrative services agreement with MFD or one of its affiliates to perform certain administrative services, subject to certain operational and minimum size requirements specified from time to time by MFD or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares of Class A or Class B distributions which constitute required withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of 59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the shares are held solely in the deceased individual's name or in a living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if shares are held either solely or jointly in the disabled individual's name or in a living trust for the benefit of the disabled individual (in which case a disability certification form is required to be submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made under the following circumstances:
IRA'S, 401(A) PLANS, AND 403(B) PLANS ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant, as applicable, has attained the age of 70 1/2 years old, but only with respect to the minimum distribution under applicable Internal Revenue Code ("Code") rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participantowner has attained the age of 70 1/2 years old, but only with respect to the minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant
APPENDIX
DESCRIPTION OF BOND RATINGS
The ratings of Moody's and S&P represent their opinions as to the quality of various debt instruments. It should be emphasized, however, that ratings are not absolute standards of quality. Consequently, debt instruments with the same maturity, coupon and rating may have different yields while debt instruments of the same maturity and coupon with different ratings may have the same yield.
MOODY'S
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during other good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the effects of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
S&P
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.
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 jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
NR: indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeble future developments, short-term debt of these issuers is generally rated "F-1+".
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 considered to be adequate. Adverse changes in economic conditions, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information available from the issuer to be indadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive", indicating a potential upgrade, "Negative", for potential downgrade, or "Evolving", where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within 12 months.
- ------------------------------------------- -----------------------------------------
STOCK LIMITED MATURITY BOND
- ------------------------------------------- -----------------------------------------
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
- ------------------------------------------- -----------------------------------------
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
- ------------------------------------------- -----------------------------------------
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
- ------------------------------------------- -----------------------------------------
MFS(R) Emerging Growth Fund
- ------------------------------------------- -----------------------------------------
MFS(R) Gold & Natural Resources Fund WORLD
- ------------------------------------------- -----------------------------------------
MFS(R) Growth Opportunities Fund MFS(R) World Asset Allocation Fund
- ------------------------------------------- -----------------------------------------
MFS(R) Managed Sectors Fund MFS(R) World Equity Fund
- ------------------------------------------- -----------------------------------------
MFS(R) OTC Fund MFS(R) World Governments Fund
- ------------------------------------------- -----------------------------------------
MFS(R) Research Fund MFS(R) World Growth Fund
- ------------------------------------------- -----------------------------------------
MFS(R) Value Fund MFS(R) World Total Return Fund
- ------------------------------------------- -----------------------------------------
- ------------------------------------------- -----------------------------------------
STOCK AND BOND NATIONAL TAX-FREE BOND
- ------------------------------------------- -----------------------------------------
MFS(R) Total Return Fund MFS(R) Municipal Bond Fund
- ------------------------------------------- -----------------------------------------
MFS(R) Utilities Fund MFS(R) Municipal High Income Fund
- ------------------------------------------- (closed to new investors)
-----------------------------------------
- ------------------------------------------- MFS(R) Municipal Income Fund
BOND -----------------------------------------
- -------------------------------------------
MFS(R) Bond Fund -----------------------------------------
- ------------------------------------------- STATE TAX-FREE BOND
MFS(R) Government Mortgage Fund -----------------------------------------
- ------------------------------------------- Alabama, Arkansas, California,
MFS(R) Government Securities Fund Florida, Georgia, Louisiana, Maryland,
- ------------------------------------------- Massachusetts, Mississippi, New York,
MFS(R) High Income Fund North Carolina, Pennsylvania, South
- ------------------------------------------- Carolina, Tennessee, Texas, Virginia,
MFS(R) Intermediate Income Fund Washington, West Virginia
- ------------------------------------------- -----------------------------------------
MFS(R) Strategic Income Fund
(formerly MFS(R) Income & Opportunity Fund) -----------------------------------------
- ------------------------------------------- MONEY MARKET
-----------------------------------------
MFS(R) Cash Reserve Fund
-----------------------------------------
MFS(R) Government Money Market Fund
-----------------------------------------
MFS(R) Money Market Fund
-----------------------------------------
|
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
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) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA02107-9906
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA02110
[LOGO] M F S(SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) LIMITED MATURITY FUND
500 Boylston Street
Boston, MA 02116
MLM-1 9/95/48.5M 36/236/336
[LOGO] M F S(SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) LIMITED MATURITY FUND
Prospectus
September 1, 1995
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MFS LIMITED MATURITY FUND
(a series of MFS SERIES TRUST IX)
Supplement to be affixed to the
Prospectus for distribution in Missouri
The Series intends to engage in portfolio trading rather than holding portfolio securities to maturity. In trading portfolio securities, the Series seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. A high portfolio turnover may involve greater expenses, including higher brokerage and transaction costs, to the Series. Dividends from income and from net short-term capital gains, whether received in cash or reinvested in additional shares, are taxable to the Series' shareholders as ordinary income.
Missouri residents should also be aware that certain obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government (e.g., obligations of the Federal National Mortgage Association) are not backed by the full faith and credit of the U.S. Government.
The date of this Supplement is September 1, 1995.
MFS(R) LIMITED STATEMENT OF MATURITY FUND ADDITIONAL INFORMATION (A Member of the MFS Family of Funds(R)) September 1, 1995 |
1. Definitions .......................................................... 2
2. Investment Objectives, Policies and Restrictions ..................... 2
3. Management of the Fund ............................................... 7
Trustees ........................................................... 7
Officers ........................................................... 8
Investment Adviser ................................................. 8
Custodian .......................................................... 9
Shareholder Servicing Agent ........................................ 9
Distributor ........................................................ 10
4. Portfolio Transactions and Brokerage Commissions ..................... 10
5. Shareholder Services ................................................. 11
Investment and Withdrawal Programs ................................. 11
Exchange Privilege ................................................. 13
Tax-Deferred Retirement Plans ...................................... 13
6. Tax Status ........................................................... 14
7. Determination of Net Asset Value and Performance ..................... 15
8. Distribution Plans ................................................... 17
9. Description of Shares, Voting Rights and Liabilities ................. 18
10. Independent Accountants and Financial Statements ..................... 19
MFS LIMITED MATURITY FUND
A Series of MFS Series Trust IX
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
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This Statement of Additional Information sets forth information which may be of interest to investors but which is not necessarily included in the Fund's Prospectus, dated September 1, 1995. This Statement of Additional Information should be read in conjunction with the Prospectus, a copy of which may be obtained without charge by contacting the Shareholder Servicing Agent (see last page for address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
1. DEFINITIONS
"Fund" -- MFS Limited Maturity Fund, a diversified
series of the MFS Series Trust IX (the "Trust"),
a Massachusetts business trust. The Fund was
known as MFS Quality Limited Maturity Fund prior
to August 3, 1992. The Trust was known as MFS
Fixed Income Trust prior to January 18, 1995, and
as Massachusetts Financial Bond Fund prior to
January 7, 1992.
"MFS" or the "Adviser" -- Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus, dated September 1, 1995 of the
Fund.
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2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS INVESTMENT OBJECTIVES. The primary investment objective of the Fund is to provide as high a level of current income as is believed to be consistent with prudent investment risk. The secondary objective of the Fund is to protect shareholders' capital. Any investment involves risk and there can be no assurance that the Fund will achieve its investment objectives.
INVESTMENT POLICIES. The investment policies of the Fund are described in the Prospectus. In addition, certain of the Fund's investment policies are described in greater detail below.
LADDERING: As one way of managing the Fund's exposure to interest rate fluctuations, the Adviser will engage in a portfolio management strategy known as "laddering". Under this strategy, the Fund will allocate a portion of its assets in securities with remaining maturities of less than 1 year, a portion of its assets in securities with remaining maturities of 1 to 2 years, a portion of its assets in securities with remaining maturities of 2 to 3 years, a portion of its assets in securities with remaining maturities of 3 to 4 years and a portion of its assets in securities with remaining maturities of 4 to 5 years. Under normal market conditions, approximately 50% or more of the assets of the Fund will be devoted to this strategy. The Adviser will actively manage securities within each rung of the "ladder". "Laddering" does not require that individual bonds are held to maturity.
The Adviser believes that "laddering" provides additional stability to the Fund's portfolio by allocating the Fund's assets across a range of securities with shorter-term maturities. For example, in periods of rising interest rates and falling bond prices, the bonds with one- and two-year remaining maturities generally lose less of their value than bonds with four- and five-year remaining maturities; conversely, in periods of falling interest rates and corresponding rising bond prices, the principal value of the bonds with four- and five-year remaining maturities generally increase more than the bonds with one- and two-year remaining maturities. Furthermore, with the passage of time, individual bonds held in the Fund's portfolio tend to become less volatile as the time of their remaining maturity decreases. In addition, bonds with four- and five-year remaining maturities generally provide higher income than bonds with one- and two-year remaining maturities.
"Laddering" does not assure profit and does not protect against loss in a declining market.
REPURCHASE AGREEMENTS: As described in the Prospectus, the Fund may enter into repurchase agreements with sellers who are member firms (or a subsidiary thereof) of the New York Stock Exchange (the "Exchange") or members of the Federal Reserve System, recognized primary U.S. Government securities dealers or institutions which the Adviser has determined to be of comparable creditworthiness. The securities that the Fund purchases and holds through its agent are securities that are issued or guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities ("Government Securities"), the values of which are equal to or greater than the repurchase price agreed to be paid by the seller. The repurchase price may be higher than the purchase price, the difference being income to the Fund, or the purchase and repurchase prices may be the same, with interest at a standard rate due to the Fund together with the repurchase price on repurchase. In either case, the income to the Fund is unrelated to the interest rate on the Government securities.
The repurchase agreement provides that in the event the seller fails to pay the price agreed upon on the agreed upon delivery date or upon demand, as the case may be, the Fund will have the right to liquidate the securities. If at the time the Fund is contractually entitled to exercise its right to liquidate the securities, the seller is subject to a proceeding under the bankruptcy laws or its assets are otherwise subject to a stay order, the Fund's exercise of its right to liquidate the securities may be delayed and result in certain losses and costs to the Fund. The Fund has adopted and follows procedures which are intended to minimize the risks of repurchase agreements. For example, the Fund only enters into repurchase agreements after the Adviser has determined that the seller is creditworthy, and the Adviser monitors that seller's creditworthiness on an ongoing basis. Moreover, under such agreements, the value of the securities (which are marked to market every business day) is required to be greater than the repurchase price, and the Fund has the right to make margin calls at any time if the value of the securities falls below the agreed upon margin.
MORTGAGE PASS-THROUGH SECURITIES. The Fund may invest in mortgage pass-through securities as described in the Prospectus. Interests in pools of mortgage-related securities differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by prepayments of principal resulting from the sale, refinancing or foreclosure of the underlying property, net of fees or costs which may be incurred. Some mortgage pass-through securities (such as securities issued by the Government National Mortgage Association ("GNMA")) are described as "modified pass-through." These securities entitle the holder to receive all interest and principal payments owed on the mortgages in the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is the GNMA. GNMA is a wholly owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do not apply to the market value or yield of mortgage pass-though securities. GNMA securities are often purchased at a premium over the maturity value of the underlying mortgages. This premium is not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., those whose guarantees are not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases conventional residential mortgages (i.e., mortgages not insured or guaranteed by any governmental agency) from a list of approved seller/servicers which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks, credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S. Government for the purpose of increasing the availability of mortgage credit for residential housing. FHLMC issues Participation Certificates ("PCs") which represent interests in conventional mortgages (i.e., not federally insured or guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of interest and ultimate collection of principal regardless of the status of the underlying mortgage loans.
Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of mortgage loans. Such issuers may also be the originators and/or servicers of the underlying mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments in the former pools. However, timely payment of interest and principal of mortgage loans in these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. The Fund may also buy mortgage-related securities without insurance or guarantees.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: As described in the Prospectus, the Fund may invest a portion of its assets in collateralized mortgage obligations or "CMOs", which are debt obligations collateralized by mortgage loans or mortgage pass-through securities (such collateral referred to collectively as "Mortgage Assets"). Unless the context indicates otherwise, all references herein to CMOs include multiclass pass-through securities.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis. The principal of and interest on the Mortgage Assets may be allocated among the several classes of a series of a CMO in innumerable ways. In a common structure, payments of principal, including any principal prepayments, on the Mortgage Assets are applied to the classes of the series of a CMO in the order of their respective stated maturities or final distribution dates, so that no payment of principal will be made on any class of CMOs until all other classes having an earlier stated maturity or final distribution date have been paid in full.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO structures, must be retired by its stated maturity date or final distribution date but may be retired earlier.
DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES: The Fund may invest in dollar-denominated foreign debt securities as discussed in the Prospectus. Investing in dollar-denominated foreign debt securities generally represents a greater degree of risk than investing in domestic securities, due to less publicly available information, less securities regulation, war or expropriation. Special considerations may include higher brokerage costs and thinner trading markets. Investments in foreign countries could be affected by other factors including extended settlement periods.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund may enter into mortgage "dollar roll" transactions pursuant to which it sells mortgage-backed securities for delivery in the future and simultaneously contracts to repurchase substantially similar securities on a specified future date. During the roll period, the Fund foregoes principal and interest paid on the mortgage-backed securities. The Fund is compensated for the lost interest by the difference between the current sales price and the lower price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. The Fund may also be compensated by receipt of a commitment fee.
ZERO COUPON BONDS: As described in the Prospectus, fixed income securities in which the Fund may invest also include zero coupon bonds. 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. The Fund will accrue income on such investments for tax and accounting purposes, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Fund's distribution obligations.
LENDING OF PORTFOLIO SECURITIES: As described in the Prospectus, the Fund may seek to increase its income by lending portfolio securities. The Fund would have the right to call a loan and obtain the securities loaned at any time on customary industry settlement notice (which will usually not exceed five days). The Fund would not, however, have the right to vote any securities having voting rights during the existence of the loan, but would call the loan in anticipation of an important vote to be taken among holders of the securities or of the giving or withholding of their consent on a material matter affecting the investment.
"WHEN-ISSUED" SECURITIES: As described in the Prospectus, the Fund may purchase debt securities on a "when-issued" or on a "forward delivery" basis. When the Fund commits to purchase these securities on such basis, it will set up procedures consistent with the General Statement of Policy of the Securities and Exchange Commission (the "SEC") concerning such purchases. Since that policy currently recommends that an amount of the Fund's assets equal to the amount of the purchase be held aside or segregated to be used to pay for the commitment, the Fund will always have cash, short-term money market instruments or high quality debt securities sufficient to cover any commitments or to limit any potential risk. Although the Fund does not intend to make such purchases for speculative purposes and intends to adhere to the provisions of the SEC policy, purchases of securities on such bases may involve more risk than other types of purchases. For example, the Fund may have to sell assets which have been set aside in order to meet redemptions. Also, if the Fund determines it is necessary to sell the "when-issued" or "forward delivery" securities before delivery, the Fund may incur a loss because of market fluctuations since the time the commitment to purchase such securities was made.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, currencies, precious metals or other commodities, or other financial indicators. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or statistic. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the performance of the security, currency, or other instrument to which they are indexed, and may also be influenced by interest rate changes in the U.S. and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security, and their values may decline substantially if the issuer's creditworthiness deteriorates. Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies.
The policies described above and the policies with respect to Futures Contracts, Options on Futures Contracts, portfolio trading and the lending of portfolio securities described below are not fundamental and may be changed without shareholder approval, as may be the Fund's investment objectives.
FUTURES CONTRACTS: The Fund may enter into contracts for hedging purposes for the future delivery of domestic or foreign fixed income securities or contracts based on municipal bond or other financial indices including any index of domestic or foreign fixed income securities, as such contracts become available for trading ("Futures Contracts"). Such transactions may also be used for non-hedging purposes, to the extent permitted by applicable law. A "sale" of a Futures Contract means a contractual obligation to deliver the securities called for by the contract at a specified price in a fixed delivery month or, in the case of a Futures Contract, on an index of securities, to make or receive a cash settlement. A "purchase" of a Futures Contract means a contractual obligation to acquire the securities called for by the contract at a specified price in a fixed delivery month or, in the case of a Futures Contract on an index of securities, to make or receive a cash settlement. U.S. Futures Contracts have been designed by exchanges which have been designated as "contract markets" by the Commodity Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant, or brokerage firm, which is a member of the relevant contract market. Existing contract markets include the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange. Futures Contracts are traded on these markets, and, through their clearing corporations, the exchanges guarantee performance of the contracts as between the clearing members of the exchange. Futures Contracts purchased or sold by the Fund are also traded on foreign exchanges which are not regulated by the CFTC.
At the same time a Futures Contract is purchased or sold, the Fund must allocate cash or securities as a deposit payment ("initial deposit"). The initial deposit varies but may be as low as 5% or less of the value of the contract. Daily thereafter, the Futures Contract is valued and the payment of "variation margin" may be required since each day the Fund would provide or receive cash that reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to a Futures Contract based on fixed income securities, adjustments are made to recognize differences in value arising from the delivery of securities with a different interest rate from that specified in the contract. In some (but not many) cases, securities called for by a Futures Contract may not have been issued when the contract was written.
A Futures Contract based on an index of securities, such as a municipal bond index Futures Contract, provides for a cash payment, equal to the amount, if any, by which the value of the index at maturity is above or below the value of the index at the time the contract was entered into, times a fixed index "multiplier". The index underlying such a Futures Contract is generally a broad based index of securities designed to reflect movements in the relevant market as a whole. The index assigns weighted values to the securities included in the index, and its composition is changed periodically.
Although Futures Contracts call for the actual delivery or acquisition of securities or, in the case of Futures Contracts based on an index, the making or acceptance of a cash settlement at a specified future time, the contractual obligation is usually fulfilled before such date by buying or selling, as the case may be, on a commodities exchange, an identical Futures Contract calling for settlement in the same month, subject to the availability of a liquid secondary market. The Fund incurs brokerage fees when it purchases and sells Futures Contracts.
The purpose of the acquisition or sale of a Futures Contract, in the case of a portfolio such as that of the Fund, which holds or intends to acquire fixed income securities, is to attempt to protect the Fund from fluctuations in interest rates without actually buying or selling fixed income securities. For example, if the Fund owns bonds, and interest rates were expected to increase, the Fund might enter into Futures Contracts for the sale of debt securities. Such a sale would have much the same effect as selling an equivalent value of the long-term bonds owned by the Fund. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the Futures Contracts would increase at approximately the same rate, thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. The Fund could accomplish similar results by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase. However, since the futures market is more liquid than the cash market, the use of Futures Contracts as an investment technique allows the Fund to maintain a hedging position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, Futures Contracts may be purchased to attempt to hedge against anticipated purchases of bonds at higher prices. Since the fluctuations in the value of Futures Contracts should be similar to that of bonds, the Fund could take advantage of the anticipated rise in the value of bonds without actually buying them until the market had stabilized. At that time, the Futures Contracts could be liquidated and the Fund could then buy long-term bonds on the cash market. To the extent the Fund enters into Futures Contracts for this purpose, the assets in the segregated asset account maintained to cover the Fund's obligations with respect to such Futures Contracts will consist of cash, cash equivalents, or short-term money market instruments from its portfolio in an amount equal to the difference between the fluctuating market value of such Futures Contracts and the aggregate value of the initial and variation margin payments made by the Fund with respect to such Futures Contracts.
The ordinary spreads between prices in the cash and futures markets, due to differences in the nature of those markets, are subject to distortions. First, all participants in the futures market are subject to initial deposit and variation margin requirements. Rather than meeting additional variation margin requirements, investors may close out Futures Contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest rate trends by the Adviser may still not result in a successful transaction.
In addition, Futures Contracts entail risks. Although the Fund believes that use of such contracts will benefit the Fund, if the Adviser's investment judgment about the general direction of interest rates is incorrect, the Fund's overall performance would be poorer than if it had not entered into any such contract. For example, if the Fund has hedged against the possibility of an increase in interest rates which would adversely affect the price of bonds held in its portfolio and interest rates decrease instead, the Fund will lose part or all of the benefit of the increased value of its bonds which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell bonds from its portfolio to meet daily variation margin requirements. Such sales of bonds may be, but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time when it may be disadvantageous to do so. Transactions in Futures Contracts for non-hedging purposes involves greater risks, and could result in losses which are not offset by gains on other portfolio assets.
OPTIONS ON FUTURES CONTRACTS: The Fund intends to purchase and write options on Futures Contracts ("Options on Futures Contracts") for hedging purposes and for non-hedging purposes, to the extent permitted by applicable law. An Option on a Futures Contract provides the holder with the right to enter into a "long" position in the underlying Futures Contract (in the case of a call option) or a "short" position in the underlying Futures Contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or (in the case of certain options) on such date. Such Options on Futures Contracts will be traded on U.S. contract markets regulated by the CFTC as well as on foreign exchanges. Depending on the pricing of the option compared to either the price of the Futures Contract upon which it is based or the price of the underlying debt securities, it may or may not be less risky than ownership of the Futures Contract or underlying debt securities. As with the purchase of Futures Contracts, when the Fund is not fully invested it may purchase a call Option on a Futures Contract to hedge against a market advance due to declining interest rates.
The writing of a call Option on a Futures Contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the Futures Contract. If the futures price at expiration of the option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings. The writing of a put Option on a Futures Contract constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the Futures Contract. If the futures price at expiration of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, less related transaction costs, which provides a partial hedge against any increase in the price of securities which the Fund intends to purchase. If a put or call option the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it receives, less related transaction costs. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its futures positions, the Fund's losses from existing Options on Futures Contracts may to some extent be reduced or increased by changes in the value of portfolio securities. The writer of an Option on a Futures Contract is subject to the requirement of initial and variation margin payments. The Fund will cover the writing of call Options on Futures Contracts through purchases of the underlying Futures Contract or through ownership of the security, or securities included in the index, underlying the Futures Contract. The Fund may also cover the writing of call Options on Futures Contracts through the purchase of such Options, provided that the exercise price of the call purchased (a) is equal to or less than the exercise price of the call written; or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with the Fund's custodian. The Fund may cover the writing of put Options on Futures Contracts through sales of the underlying Futures Contract or through segregation of cash, short-term money market instruments or high quality debt securities in an amount equal to the value of the security or index underlying the Futures Contract. The Fund may also cover the writing of put Options on Futures Contracts through the purchase of such Options, provided that the exercise price of the put purchased is equal to or greater than the exercise price of the put written, or is less than the exercise price of the put written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. In addition, the Fund may cover put and call Options on Futures Contracts in accordance with the requirements of the exchange on which the option is traded and applicable laws and regulations.
The Fund may also purchase straddles on Options on Futures Contracts in order to protect against risk of loss arising as a result of anticipated changes in volatility in the interest rate or fixed income markets. Under such circumstances, if the anticipated changes in volatility in the market do not occur, the Fund could be required to forfeit one or both of the premiums paid for the Options.
The purchase of a put Option on a Futures Contract is similar in some respects to the purchase of protective put options on portfolio securities. The Fund will purchase a put Option on a Futures Contract to hedge the Fund's portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an Option on a Futures Contract is the premium paid for the Option plus related transaction costs, although in order to realize a profit it may be necessary to exercise the Option and close out the underlying Futures Contract. In addition to the correlation risks discussed above, the purchase of an Option also entails the risk that changes in the value of the underlying Futures Contract will not be fully reflected in the value of the option purchased.
ADDITIONAL RISKS OF INVESTING IN FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: Various additional risks exist with respect to the trading of Futures Contracts and Options on Futures Contracts. For example, the Fund's ability effectively to hedge all or a portion of its portfolio through transactions in such instruments will depend on the degree to which price movements in the underlying index or instrument correlate with price movements in the relevant portion of the Fund's portfolio. The trading of futures entails the additional risk of imperfect correlation between movements in the futures and the price of the underlying index or obligation. The anticipated spread between the prices may be distorted because of various factors, which are set forth under "Futures Contracts" above. When the Fund purchases or sells Futures Contracts based on an index of securities, the securities comprising such index will not be the same as the portfolio securities being hedged, thereby creating a risk that changes in the value of the index will not correlate with changes in the value of such portfolio securities.
The Fund's ability to engage in futures strategies will also depend on the availability of liquid markets in such instruments. The liquidity of a secondary market in a Futures Contract or option thereon may be adversely affected by "daily price fluctuation limits", established by exchanges, which limit the amount of fluctuation in the price of a contract during a single trading day and prohibit trading beyond such limit. In addition, the exchanges on which futures are traded may impose limitations governing the maximum number of positions on the same side of the market and involving the same underlying instrument which may be held by a single investor, whether acting alone or in concert with others (regardless of whether such contracts are held on the same or different exchanges or held or written in one or more accounts or through one or more brokers).
In addition, Futures Contracts and Options on Futures Contracts may be traded on foreign exchanges. Such transactions are subject to the risk of governmental actions affecting trading in or the prices of foreign currencies or securities. The value of such positions also could be adversely affected by (i) other complex foreign, political and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occuring in foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the Fund will not be deemed to be a "commodity pool" for purposes of the Commodity Exchange Act, regulations of the CFTC require that the Fund enter into transactions in Futures Contracts and Options on Futures Contracts only (i) for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging purposes, provided that the aggregate initial margin and premiums on such non-hedging positions does not exceed 5% of the liquidation value of the Fund's assets. In addition, the Fund must comply with the requirements of various state securities laws in connection with such transactions.
PORTFOLIO TRADING: As described in the Prospectus, the Fund intends to engage in portfolio trading rather than holding portfolio securities to maturity. Such trading may involve the selling of securities held for a short time, ranging from several months to less than a day and may be limited by tax restrictions.
In trading portfolio securities, the Fund may use the following strategies:
(1) shortening the average maturity of its portfolio in anticipation of a rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of its portfolio in anticipation of a decline in interest rates so as to maximize appreciation of principal;
(3) changing the average coupon of its portfolio when yield disparities reflect a change in investment value among securities trading at differing levels of premiums or discounts;
(4) selling one type of debt security (e.g., industrial bonds) and buying another (e.g., utility bonds) when disparities arise in the relative values of each; and
(5) changing from one debt security to an essentially similar debt security when their respective yields are distorted due to market factors.
These strategies may result in minor temporary increases or decreases in the Fund's current income available for distribution to its shareholders, and in its holding debt securities which sell at moderate to substantial premiums or discounts from face value. If the Fund's expectations of changes in interest rates or the Fund's evaluation of the normal yield relationship between two securities proves to be incorrect, the Fund's income, net asset value and potential capital gain may be reduced or its potential capital loss may be increased.
The Fund's limitations, policies and rating restrictions are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which cannot be changed without the approval of the holders of a majority of the Fund's shares (which, as used in this Statement of Additional Information, means the lesser of (i) more than 50% of the outstanding shares of the Trust or a series or class, as applicable, or (ii) 67% or more of the outstanding shares of the Trust or a series or class, as applicable, present at a meeting if the holders of more than 50% of the outstanding shares of the Trust or a series or class, as applicable, are represented in person or by proxy).
The Fund may not:
(1) borrow money in an amount in excess of 33 1/3% of its gross assets, and then only as a temporary measure for extraordinary or emergency purposes, or pledge, mortgage or hypothecate an amount of its assets (taken at market value) in excess of 33 1/3% of its gross assets, in each case taken at the lower of cost or market value and subject to a 300% asset coverage requirement (for the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies and payments of initial and variation margin in connection therewith are not considered a pledge of assets);
(2) underwrite securities issued by other persons except insofar as the Fund may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security;
(3) concentrate its investments in any particular industry, but if it is deemed appropriate for the achievement of its investment objectives, the Fund may invest up to 25% of its assets (taken at market value at the time of each investment) in securities of issuers in any one industry;
(4) purchase or sell real estate (including limited partnership interests but excluding securities of companies, such as real estate investment trusts, which deal in real estate or interests therein), or mineral leases, commodities or commodity contracts (except options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies) in the ordinary course of its business. The Fund reserves the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts (including options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies) acquired as a result of the ownership of securities. The Fund will not purchase securities for the purpose of acquiring real estate or mineral leases, commodities or commodity contracts (except options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies);
(5) make loans to other persons. For these purposes, the purchase of short-term commercial paper, the purchase of a portion or all of an issue of debt securities in accordance with its investment objectives and policies, the lending of portfolio securities, or the investment of the Fund's assets in repurchase agreements, shall not be considered the making of a loan;
(6) invest for the purpose of exercising control or management;
(7) purchase any securities or evidences of interest therein on margin, except to make deposits on margin in connection with options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies, and except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities;
(8) sell any security which the Fund does not own unless by virtue of its ownership of other securities the Fund has at the time of sale a right to obtain securities without payment of further consideration equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon the same conditions; or
(9) purchase or sell any put or call option or any combination thereof, provided, that this shall not prevent the purchase, ownership, holding or sale of warrants where the grantor of the warrants is the issuer of the underlying securities or the writing, purchasing and selling of puts, calls or combinations thereof with respect to securities, Futures Contracts and foreign currencies.
As a non-fundamental policy, the Fund will not invest in illiquid investments, including securities subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended or, in the case of unaudited securities where no market exists), unless the Board of Trustees has determined that such securities are liquid based on trading markets for the specific security, if more than 15% of the Fund's assets (taken at market value) would be invested in such securities.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain federal and
state statutes and regulatory policies, as a matter of operating policy of the
Fund, the Fund will not: (a) invest more than 5% of the Fund's total assets at
the time of investment in unsecured obligations of issuers which, including
predecessors, controlling persons, sponsoring entities, general partners and
guarantors, have a record of less than three years' continuous business
operation or relevant business experience; (b) purchase voting securities of any
issuer if such purchase, at the time thereof, would cause more than 10% of the
outstanding voting securities of such issuer to be held by the Fund; (c)
purchase securities issued by any other registered investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that the Fund shall not purchase
such securities if such purchase at the time thereof would cause (i) more than
5% of the Fund's total assets (taken at market value) to be invested in the
securities of any one issuer or (ii) more than 10% of the Fund's total assets
(taken at market value) to be invested in the securities of such issuers or
(iii) more than 3% of the outstanding voting securities of any such issuer to be
held by the Fund; and, provided further, that the Fund shall not purchase
securities issued by any open-end investment company; (iv) purchase or retain in
its portfolio any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer or Director of the Adviser if, after the purchase of the
securities of such issuer by the Fund, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, of such
issuer, and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or both.
In addition, as a non-fundamental policy, repurchase agreements maturing in more than seven days will be deemed to be illiquid for purposes of the Fund's limitation on investment in illiquid securities. Furthermore, purchases of warrants will not exceed 5% of the Fund's net assets. Included within that amount, but not exceeding 2% of the Fund's net assets, may be warrants not listed on the New York or American Stock Exchange.
As a "diversified" investment portfolio under the Investment Company Act of 1940
(the "1940 Act"), the Fund will maintain at least 75% of its assets in (i) cash,
(ii) cash items, (iii) U.S. Government Securities and (iv) other securities,
limited per issuer to blocks of less than 5% of the Fund's total assets.
The investment policies described under "State and Federal Restrictions" are not fundamental and may not be changed without shareholder approval.
3. MANAGEMENT OF THE FUND The Trust's Board of Trustees provides broad supervision over the affairs of the Fund. The Adviser is responsible for the investment management of the Fund's assets and the officers of the Trust are responsible for its operations. The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co. (investment counsel firm), Financial Vice President,
Treasurer and Director (retired October 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (until December 1991); The Neiman Marcus Group, Inc.,
Vice Chairman and Chief Financial Officer (from August 1987 to December 1991);
United States Filter Corporation, Director
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (from June 1990 until November
1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT
Private Investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President and Group Executive (until December 1990); OHM
Corporation Director; The Boston Company, Director; Boston Safe Deposit and
Trust Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary Massachusetts Financial Services Company, Vice President and Associate General Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
ROBERT A. DENNIS,* Vice President
Massachusetts Financial Services Company, Senior Vice President
GEOFFREY L. KURINSKY,* Vice President
Massachusetts Financial Services Company, Senior Vice President
Each Trustee and officer holds comparable positions with certain affiliates of MFS or with certain other funds of which MFS or a subsidiary is the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD, Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of MFD, and hold similar positions with certain other MFS affiliates. Mr. Bailey is a Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who currently receive a fee of $1,000 per year plus $65 per meeting and committee meeting attended, together with such Trustee's out-of-pocket expenses) and has adopted a retirement plan for non-interested Trustees and Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 73 and if the Trustee has completed at least five years of service, he would be entitled to annual payments during his lifetime of up to 50% of such Trustee's average annual compensation (based on the three years prior to his retirement) depending on his length of service. A Trustee may also retire prior to age 73 and receive reduced payments if he has completed at least five years of service. Under the plan, a Trustee (or his beneficiaries) will also receive benefits for a period of time in the event the Trustee is disabled or dies. These benefits will also be based on the Trustee's average annual compensation and length of service. There is no retirement plan provided by the Trust for the interested Trustees (except Mr. Bailey). The Fund will accrue its allocable share of compensation expenses each year to cover current year's service and amortize past service cost.
Set forth in Appendix A hereto is certain information concerning the cash compensation paid to non-interested Trustees and Mr. Bailey and benefits accrued, and estimated benefits payable, under the retirement plan.
As of July 28, 1995, all Trustees and officers as a group owned 2.5% of the outstanding Class A shares of the Fund. As of July 28, 1995, Merrill Lynch, Pierce, Fenner & Smith Inc., P.O. Box 45286, Jacksonville, FL 32232-5286, was the owner of approximately 5.68% of the outstanding Class B shares of the Fund.
The Declaration of Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, unless, as to liabilities to the Trust or its shareholders, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices, or with respect to any matter unless it is adjudicated that they did not act in good faith in the reasonable belief that their actions were in the best interest of the Trust. In the case of settlement, such indemnification will not be provided unless it has been determined pursuant to the Declaration of Trust, that such officers or Trustees have not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.) which
in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life").
The Adviser manages the assets of the Fund pursuant to an Investment Advisory Agreement, dated January 8, 1992 (the "Advisory Agreement"). The Adviser provides the Fund with overall investment advisory and administrative services, as well as general office facilities. Subject to such policies as the Trustees may determine, the Adviser makes investment decisions for the Fund. For its services and facilities, the Adviser receives a management fee, computed and paid monthly, at the rate of 0.40% per annum of the Fund's average daily net assets.
The Adviser has agreed to pay certain expenses of the Fund (except for the fees paid under the Advisory Agreement and the Distribution Plans) until February 28, 2002 and to pay the expenses relating to the organization of the Fund, all subject to reimbursement by the Fund. To accomplish such reimbursement, the Adviser receives an expense reimbursement fee from the Fund in addition to the investment advisory and distribution fees, computed and paid monthly at a rate of 0.40% per annum of the average daily net assets of the Fund. The expense reimbursement agreement terminates for the Fund on the earlier of either (i) the date on which the payments made thereunder by the Fund equal the prior payment of such reimbursable expenses by the Adviser or (ii) February 28, 2002. The Adviser may also terminate the expense reimbursement agreement at any time by written notice to the Trust.
For the Fund's fiscal year ended April 30, 1995, MFS received fees under the Advisory Agreement of $453,367 (equivalent on an annualized basis to 0.40% of average net assets).
For the Fund's fiscal year ended April 30, 1994, the Fund incurred fees under the Advisory Agreement of $478,523 (equivalent on an annualized basis to 0.51% of average net assets) of which $192,571 (equivalent on an annualized basis to 0.20% of average net assets) was not imposed. For the same period, MFS paid expenses of the Fund amounting to $391,561 (equivalent to 0.42% of the Fund's average daily net assets) for which the Fund reimbursed MFS $373,831 (equivalent to 0.40% of the Fund's average daily net assets).
For the Fund's fiscal year ended April 30, 1993, the Fund incurred fees under the Advisory Agreement of $176,818 (equivalent on an annualized basis to 0.55% of average net assets) of which $114,165 (equivalent on an annualized basis to 0.35% of average net assets) was not imposed. For the same period, MFS paid expenses of the Fund amounting to $238,135 (equivalent to 0.74% of the Fund's average daily net assets) for which the Fund reimbursed MFS $130,478 (equivalent to 0.40% of the Fund's average daily net assets).
In order to comply with the expense limitations of certain state securities commissions, the Adviser will reduce its management fee or otherwise reimburse the Fund for any expenses, exclusive of interest, taxes and brokerage commissions, incurred by the Fund in any fiscal year to the extent such expenses exceed the most restrictive of such state expense limitations. The Adviser will make appropriate adjustments to such reductions and reimbursements in response to any amendment or rescission of the various state requirements.
The Fund pays all of the Fund's expenses (other than those assumed by the Adviser or MFD) including: governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Fund; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Fund; expenses of repurchasing and redeeming shares; expenses of preparing, printing and mailing share certificates, periodic reports, notices and proxy statements to shareholders and to governmental officers and commissions; brokerage and other expenses connected with the execution, recording and settlement of portfolio security transactions; insurance premiums; fees and expenses of Investors Bank & Trust Company, the Fund's Custodian for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; expenses of calculating the net asset value of shares of the Fund; and expenses of shareholder meetings. Expenses relating to the issuance, registration and qualification of shares of the Fund and the preparation, printing and mailing of prospectuses are borne by the Fund except that the Fund's Distribution Agreement with MFD requires MFD to pay for prospectuses that are to be used for sales purposes. Expenses of the Trust which are not attributable to a specific series are allocated among the series in a manner believed by management of the Trust to be fair and equitable. MFS has agreed to pay the foregoing expenses of the Fund (except for the fees paid under the Advisory Agreement and the Distribution Plans) subject to reimbursement by the Fund as described in the Prospectus. For a list of expenses, including the compensation paid to the Trustees who are not officers of Adviser, for the fiscal year ended April 30, 1995, see "Statement of Operations" in the Annual Report to the Fund's shareholders.
MFS pays the compensation of the Trust's officers and of any Trustee who is an officer of MFS. The Adviser also furnishes at its own expense all necessary administrative services, including office space, equipment, clerical personnel, investment advisory facilities, and all executive and supervisory personnel necessary for managing the Fund's investments, effecting the Fund's portfolio transactions and, in general, administering the Fund's affairs.
The Advisory Agreement will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Fund's shares (as defined in "Investment Restrictions") and, in either case, by a majority of the Trustees who are not parties to the Advisory Agreement or interested persons of any such party. The Advisory Agreement terminates automatically if it is assigned and may be terminated without penalty by vote of a majority of the Fund's shares (as defined in "Investment Restrictions") or by either party on not more than 60 days' nor less than 30 days' written notice. The Advisory Agreement provides that if MFS ceases to serve as the Adviser to the Fund, the Fund will change its name so as to delete the initials "MFS." The Advisory Agreement further provides that MFS may render services to others. The Advisory Agreement also provides that neither the Adviser nor its personnel shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
Investors Bank & Trust Company (the "Custodian") is the custodian of the Trust's
assets. The Custodian's responsibilities include safekeeping and controlling the
Fund's cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest and dividends on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Trustees have reviewed and approved as in the best interest of
the Fund and its shareholders custodial arrangements with Chase Manhattan Bank,
N.A. for securities of the Fund held outside the United States. The Custodian
has contracted with the Adviser for the Adviser to perform certain accounting
functions related to options transactions for which the Adviser receives
remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated December 2, 1985 (the "Agency
Agreement"). The Shareholder Servicing Agent's responsibilities under the Agency
Agreement include administering and performing transfer agent functions and
keeping records in connection with the issuance, transfer and redemption of each
class of shares of the Fund. For these services, the Shareholder Servicing Agent
will receive a fee based on the net assets of each class of shares of the Fund,
computed and paid monthly. In addition, the Shareholder Servicing Agent will be
reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. The Custodian has contracted with the
Shareholder Servicing Agent to perform certain dividend and distribution
disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a distribution agreement, dated as of
January 1, 1995 (the "Distribution Agreement"). Prior to January 1, 1995, MFS
Financial Services, Inc. ("FSI"), another wholly owned subsidiary of MFS, was
the Fund's distributor. Where this SAI refers to MFD in relation to the receipt
or payment of money with respect to a period or periods prior to January 1,
1995, such reference shall be deemed to include FSI, as the predecessor in
interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A Shares of the Fund to dealers. The public offering price of the Class A shares of the Fund is their net asset value next computed after the sale plus a sales charge which varies based upon the quantity purchased. The public offering price of a Class A share of the Fund is calculated by dividing the net asset value of a Class A share by the difference (expressed as a decimal) between 100% and the sales charge percentage of offering price applicable to the purchase (see "Purchases" in the Prospectus). The sales charge scale set forth in the Prospectus applies to purchases of Class A shares of the Fund alone or in combination with shares of all classes of certain other funds in the MFS Family of Funds (the "MFS Funds") and other funds (as noted under Right of Accumulation) by any person, including members of a family unit (e.g., husband, wife and minor children) and bona fide trustees for the benefit of such persons, and also applies to purchases made under the Right of Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs" below. A group might qualify to obtain quantity sales charge discounts (see "Investment and Withdrawal Programs" below.
Class A shares of the Fund may be sold at their net asset value to certain persons and in certain transactions as described in the Prospectus. Such sales are made without a sales charge to promote good will with employees and others with whom MFS, MFD and/or the Fund have business relationships, and because the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the applicable public offering price of Class A shares. Dealer allowances expressed as a percentage of offering price for all offering prices are set forth in the Prospectus (see "Purchases" in the Prospectus). The difference between the total amount invested and the sum of (a) the net proceeds to the Fund and (b) the dealer commission is the commission paid to the distributor. Because of rounding in the computation of offering price, the portion of the sales charge paid to the distributor may vary and the total sales charge may be more or less than the sales charge calculated using the sales charge expressed as a percentage of offering price or as a percentage of the net amount invested as listed in the Prospectus. In the case of the maximum sales charge, the dealer retains 2 1/4% and MFD retains approximately 1/4 of 1% of the public offering price. In addition, MFD pays a commission to dealers who initiate and are responsible for purchases of $1 million or more as described in the Prospectus.
CLASS B AND CLASS C SHARES: MFD acts as agent in selling Class B and Class C shares of the Fund to dealers. The public offering price of Class B and Class C shares is their net asset value next computed after the sale (see "Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to benefit themselves by a price change. On occasion, MFD may obtain brokers loans from various banks, including the custodian banks for the MFS Funds, to facilitate the settlement of sales of shares of the Fund to dealers. MFD may benefit from its temporary holding of funds paid to it by investment dealers for the purchase of Fund shares.
During the Fund's fiscal year ended April 30, 1995, MFD received sales charges of $32,223 and dealers received sales charges of $284,007 (as their concession on gross sales charges of $316,230) for selling Class A shares of the Fund; the Fund received $27,804,903 representing the aggregate net asset value of such shares. During the Fund's fiscal year ended April 30, 1994, MFD received sales charges of $72,561 and dealers received sales charges of $1,044,318 (as their concession on gross sales charges of $1,116,879) for selling Class A shares of the Fund; the Fund received $85,507,092 representing the aggregate net asset value of such shares. During the Fund's fiscal year ended April 30, 1993, MFD received sales charges of $81,177 and dealers received sales charges of $795,661 (as their concession on gross sales charges of $876,838) for selling Class A shares of the Fund; the Fund received $71,060,292 representing the aggregate net asset value of such shares.
During the fiscal years ended April 30, 1994 and 1995, the contingent deferred sales charge ("CDSC") imposed on redemptions of Class B shares was $5,136 and $54,304, respectively.
The Distribution Agreement will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Trust's shares (as defined in "Investment Restrictions") and, in either case, by a majority of the Trustees who are not parties to such Distribution Agreement or interested persons of any such party. The Distribution Agreement terminates automatically if it is assigned and may be terminated without penalty by either party on not more than 60 days' nor less than 30 days' notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS Specific decisions to purchase or sell securities for the Fund are made by a portfolio manager who is an employee of the Adviser and who is appointed and supervised by its senior officers. Changes in the Fund's investments are reviewed by its Board of Trustees. The Fund's portfolio manager may serve other clients of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions is execution at the most favorable prices. The Adviser has complete freedom as to the markets in and the broker-dealers through which it seeks this result. Debt securities are traded principally in the over-the-counter market on a net basis through dealers acting for their own account and not as brokers. The cost of securities purchased from underwriters includes an underwriter's commission or concession, and the prices at which securities are purchased and sold from and to dealers include a dealer's mark-up or mark-down. The Adviser normally seeks to deal directly with the primary market-makers unless, in its opinion, better prices are available elsewhere. Securities firms or futures commission merchants may receive brokerage commissions on transactions involving Futures Contracts and Options on Futures Contracts. Subject to the requirement of seeking execution at the best available price, securities may, as authorized by the Advisory Agreement, be bought from or sold to dealers who have furnished statistical, research and other information or services to the Adviser. At present no recapture arrangements are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice of the NASD and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund and of the other investment company clients of MFD as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions.
In certain instances there may be securities which are suitable for the Fund's portfolio as well as for that of one or more of the other clients of the Adviser or any subsidiary of the Adviser. Investment decisions for the Fund and for such other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Fund is concerned. In other cases, however, the Fund believes that the Fund's ability to participate in volume transactions will produce better executions for the Fund.
For the fiscal year ended April 30, 1995, the Fund acquired and sold securities issued by Bear Stearns Co., a regular broker-dealer of the Fund.
5. SHAREHOLDER SERVICES INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following programs designed to enable shareholders to add to their investment or withdraw from it with a minimum of paper work. These are described below and, in certain cases, in the Prospectus. The programs involve no extra charge to shareholders (other than a sales charge in the case of certain Class A share purchases) and may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described below) anticipates purchasing $50,000 or more of Class A shares of the Fund alone or in combination with shares of any class of MFS Funds or MFS Fixed Fund (a bank collective investment fund) within a 13-month period (or 36-month period, in the case of purchases of $1 million or more), the shareholder may obtain Class A shares of the Fund at the same reduced sales charge as though the total quantity were invested in one lump sum by completing the Letter of Intent section of the Account Application or filing a separate Letter of Intent application (available from the Shareholder Servicing Agent) within 90 days of the commencement of purchases. Subject to acceptance by MFD and the conditions mentioned below, each purchase will be made at a public offering price applicable to a single transaction of the dollar amount specified in the Letter of Intent application. The shareholder or his dealer must inform MFD that the Letter of Intent is in effect each time shares are purchased. The shareholder makes no commitment to purchase additional shares, but if his purchases within 13 months (or 36 months in the case of purchases of $1 million or more) plus the value of shares credited toward completion of the Letter of Intent do not total the sum specified, he will pay the increased amount of the sales charge as described below. Instructions for issuance of shares in the name of a person other than the person signing the Letter of Intent application must be accompanied by a written statement from the dealer stating that the shares were paid for by the person signing such Letter. Neither income dividends nor capital gain distributions taken in additional shares will apply toward the completion of the Letter of Intent. Dividends and distributions of other MFS Funds automatically reinvested in shares of the Fund pursuant to the Distribution Investment Program will also not apply toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if necessary), 5% of the dollar amount specified in the Letter of Intent application shall be held in escrow by the Shareholder Servicing Agent in the form of shares registered in the shareholder's name. All income dividends and capital gain distributions on escrowed shares will be paid to the shareholder or to his order. When the minimum investment so specified is completed (either prior to or by the end of the 13-month period or 36-month period, as applicable), the shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed the Shareholder Servicing Agent will redeem an appropriate number of the escrowed shares in order to realize such difference. Shares remaining after any such redemption will be released by the Shareholder Servicing Agent. By completing and signing the Account Application or separate Letter of Intent application, the shareholder irrevocably appoints the Shareholder Servicing Agent his attorney to surrender for redemption any or all escrowed shares with full power of substitution in the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts on the purchase of Class A shares when that shareholder's new investment, together with the current offering price value of all holdings of all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount level. See "Purchases" in the Prospectus for the sales charges on quantity purchases. For example, if a shareholder owns shares with a current offering price value of $37,500 and purchases an additional $12,500 of Class A shares of the Fund, the sales charge for the $12,500 purchase would be at the rate of 2.25% (the rate applicable to single transactions of $50,000). A shareholder must provide the Shareholder Servicing Agent (or his investment dealer must provide MFD) with information to verify that the quantity sales charge discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains made by the Fund with respect to a particular class of shares may be automatically invested in shares of the same class of one of the other MFS Funds, if shares of such fund are available for sale. Such investments will be subject to additional purchase minimums. Distributions will be invested at net asset value (exclusive of any sales charge) and not subject to any contingent deferred sales charge ("CDSC"). Distributions will be invested at the close of business on the payable date for the distribution. A shareholder considering the Distribution Investment Program should obtain and read the prospectus of the other fund and consider the differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing Agent to send him (or anyone he designates) regular periodic payments based upon the value of his account. Such payments under a Systematic Withdrawal Plan ("SWP") must be at least $100, except in certain limited circumstances. The aggregate withdrawals of Class B shares in any year pursuant to a SWP generally are limited to 10% of the value of the account at the time of the establishment of the SWP. SWP payments are drawn from the proceeds of share redemptions (which would be a return of principal and, if reflecting a gain, would be taxable). Redemptions of Class B shares will be made in the following order: (i) any "Free Amount"; (ii) to the extent necessary, any "Reinvested Shares"; (iii) to the extent necessary, the earliest "Direct Purchase" subject to the lowest CDSC (as such terms are defined in "Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived in the case of redemptions of Class B shares pursuant to a SWP but will not be waived in the case of SWP redemptions of Class A shares. To the extent that redemptions for such periodic withdrawals exceed dividend income reinvested in the account, such redemptions will reduce and may eventually exhaust the number of shares in the shareholder's account. All dividend and capital gain distributions for an account with a SWP will be reinvested in additional full and fractional shares of the Fund at the net asset value in effect at the close of business on the record date for such distributions. To initiate this service, shares having an aggregate value of at least $5,000 either must be held on deposit by, or certificates for such shares must be deposited with, the Shareholder Servicing Agent. With respect to Class A shares, maintaining a withdrawal plan concurrently with an investment program would be disadvantageous because of the sales charges included in share purchases and the imposition of a CDSC on certain redemptions. The shareholder may deposit into the account additional shares of the Fund, change the payee or change the amount of each payment. The Shareholder Servicing Agent may charge the account for services rendered and expenses incurred beyond those normally assumed by the Fund with respect to the liquidation of shares. No charge is currently assessed against the account, but one could be instituted by the Shareholder Servicing Agent on 60 days' notice in writing to the shareholder in the event that the Fund ceases to assume the cost of these services. The Fund may terminate any SWP for an account if the value of the account falls below $5,000 as a result of share redemptions (other than as a result of a SWP) or an exchange of shares of the Fund for shares of another MFS Fund. Any SWP may be terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time by mailing a check payable to the Fund directly to the Shareholder Servicing Agent. The shareholder's account number and the name of his investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a single purchaser and, under the Right of Accumulation (but not a Letter of Intent), obtain quantity sales charge discounts on the purchase of Class A shares if the group: (1) gives its endorsement or authorization to the investment program so it may be used by the investment dealer to facilitate solicitation of the membership, thus effecting economies of sales effort; (2) has been in existence for at least six months and has a legitimate purpose other than to purchase mutual fund shares at a discount; (3) is not a group of individuals whose sole organizational nexus is as credit cardholders of a company, policyholders of an insurance company, customers of a bank or broker-dealer, clients of an investment adviser or other similar group; and (4) agrees to provide certification of membership of those members investing money in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000 in any MFS Fund may exchange their shares for the same class of shares of other MFS Funds under the Automatic Exchange Plan, a dollar cost averaging program. The Automatic Exchange Plan provides for automatic exchanges of funds from the shareholder's account in an MFS Fund for investment in the same class of shares of other MFS Funds selected by the shareholder. Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to four different funds effective on the seventh day of each month or of every third month, depending whether monthly or quarterly exchanges are elected by the shareholder. If the seventh day of the month is not a business day, the transaction will be processed on the next business day. Generally, the initial exchange will occur after receipt and processing by the Shareholder Servicing Agent of an application in good order. Exchanges will continue to be made from a shareholder's account in any MFS Fund, as long as the balance of the account is sufficient to complete the exchanges. Additional payments made to a shareholder's account will extend the period that exchanges will continue to be made under the Automatic Exchange Plan. However, if additional payments are added to an account subject to the Automatic Exchange Plan shortly before an exchange is scheduled, such funds may not be available for exchanges until the following month; therefore, care should be used to avoid inadvertently terminating the Automatic Exchange Plan through exhaustion of the account balance.
No transaction fee for exchanges will be charged in connection with the Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund will be subject to any applicable sales charge. Changes in amounts to be exchanged to each fund, the funds to which exchanges are to be made and the timing of exchanges (monthly or quarterly), or termination of a shareholder's participation in Automatic Exchange Plan will be made after instructions in writing or by telephone (an "Exchange Change Request") are received by the Shareholder Servicing Agent in proper form (i.e., if in writing --signed by the record owner(s) exactly as shares of the Fund are registered; if by telephone -- proper account identification is given by the dealer or shareholder of record). Each Transfer Change Request (other than termination of participation in the program) must involve at least $50. Generally, if an Exchange Change Request is received by telephone or in writing before the close of business on the last business day of a month, the Exchange Change Request will be effective for the following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to make exhanges of shares from one MFS Fund to another and to withdraw from an MFS Fund, as well as a shareholder's other rights and privileges are not affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional information regarding the Automatic Exchange Plan, including the treatment of any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the other MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where such shares are acquired through direct purchase or reinvested dividends) who have redeemed their shares have a one-time right to reinvest the redemption proceeds in the same class of shares of any of the MFS Funds (if shares of the fund are available for sale) at net asset value (without a sales charge) and, if applicable, with credit for any CDSC paid. In the case of proceeds invested in shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund the shareholder has the right to exchange the acquired shares for shares of another MFS Fund at net asset value pursuant to the exchange privilege described below. Such a reinvestment must be made within 90 days of the redemption and is limited to the amount of the redemption proceeds. If the shares credited for any CDSC paid are then redeemed within six years of the initial purchase in the case of Class B shares or 12 months of the initial purchase in the case of Class A shares, such CDSC will be imposed upon redemption. Although redemptions and repurchases of shares are taxable events, a reinvestment within a certain period of time in the same fund may be considered a "wash sale" and may result in the inability to recognize currently all or a portion of any loss realized on the original redemption for federal income tax purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all of the shares in an account for which payment has been received by the Fund (i.e., an established account) may be exchanged for shares of the same class of any of the other MFS Funds (if available for sale) at net asset value. In addition, Class C shares may be exchanged for shares of MFS Money Market Fund at net asset value. Exchanges will be made only after instructions in writing or by telephone (an "Exchange Request") are received for an established account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., in writing -- signed by the
record owner(s) exactly as the shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record), and
each exchange must involve either shares having an aggregate value of at least
$1,000 (except that the minimum is $50 for accounts of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by the
Shareholder Servicing Agent) or all the shares in the account. Each exchange
involves the redemption of shares of the Fund to be exchanged and the purchase
at net asset value (i.e., without a sales charge) of shares of the same class of
the other MFS Fund. Any gain or loss on the redemption of the shares exchanged
is reportable on the shareholder's federal income tax return, unless both the
shares received and the shares surrendered in the exchange are held in a
tax-deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone. If an Exchange
Request is received by the Shareholder Servicing Agent prior to the close of
regular trading on the Exchange, the exchange usually will occur on that day if
all the requirements set forth above have been complied with at that time.
However, payment of the redemption proceeds by the Fund, and thus the purchase
of shares of the other MFS Fund, may be delayed for up to seven days if the Fund
determines that such a delay would be in the best interest of all its
shareholders. Investment dealers which have satisfied criteria established by
MFD may also communicate a shareholder's Exchange Request to the Shareholder
Servicing Agent by facsimile subject to the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the CDSC is carried forward to the exchanged shares. For purposes of calculating the CDSC upon redemption of shares acquired in an exchange, the purchase of shares acquired in one or more exchanges is deemed to have occurred at the time of the original purchase of the exchanged shares. Any gain or loss on the redemption of the shares exchanged is reportable in the shareholders federal income tax return, unless such shares were held in a tax-deferred retirement plan.
Additional information with respect to any of the MFS Funds, including a copy of its current prospectus, may be obtained from investment dealers or the Shareholder Servicing Agent. A shareholder considering an exchange should obtain and read the prospectus of the other MFS Fund and consider the differences in objectives and policies before making any exchange. Shareholders of the other MFS Funds (except holders of shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of Cash Reserve Fund acquired through direct purchase and dividends reinvested prior to June 1, 1992) have the right to exchange their shares for shares of the Fund, subject to the conditions, if any, set forth in their respective prospectuses. In addition, unitholders of the MFS Fixed Fund have the right to except their units (exchange units acquired through direct purchases) for shares of the Fund, subject to the conditions, if any, imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantages for investment in each state-specific series of MFS Municipal Series Trust may only benefit residents of such states. Investors should consult with their own tax advisors to be sure that this is an appropriate investment, based on their residency and each state's income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may be purchased by all types of tax-deferred retirement plans. FSI makes available through investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts ("IRAs") (for individuals and their non- employed spouses who desire to make limited contributions to a tax-deferred retirement program and, if eligible, to receive a federal income tax deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code");
403(b) Plans (deferred compensation arrangements for employees of public school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless another trustee or custodian is designated by the individual or group establishing the plan) and contain specific information about the plans. Each plan provides that dividends and distributions will be reinvested automatically. For further details with respect to any plan, including fees charged by the trustee, custodian or MFD, tax consequences and redemption information, see the specific documents for that plan. Plan documents and forms other than those provided by MFD may be used to establish any of the plans described above. Third party administrative services, available for some corporate plans, may limit or delay the processing of transactions.
Investors should consult with their tax advisers before establishing any of the tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan qualified under Internal Revenue Code section 401(a) or 403(b) if the retirement plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(a) or 403(b) recordkeeping program made available by the Shareholder Servicing Agent.
6. TAX STATUS The Fund has elected to be treated and intends to qualify each year as a "regulated investment company" under Subchapter M of the Code, including requirements as to the nature of the Fund's gross income, the amount of Fund distributions, and the composition and holding period of the Fund's portfolio assets. Because the Fund intends to distribute all of its net investment income and net realized capital gains to shareholders in accordance with the timing requirements imposed by the Code, it is not expected that the Fund will be required to pay any federal income or excise taxes, although the Fund's foreign-source income may be subject to foreign withholding taxes. If the Fund should fail to qualify as a "regulated investment company" in any year, the Fund would incur a regular corporate federal income tax upon its taxable income and Fund distributions would generally be taxable as ordinary dividend income to the shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and any state or local taxes, on the dividends and capital gain distributions they receive from the Fund. Dividends from ordinary income and from net short-term capital gains, whether paid in cash or reinvested in additional shares, are taxable to the Fund's shareholders as ordinary income for federal income tax purposes. Because the Fund expects to earn primarily interest income, it is expected that no Fund dividends will qualify for the dividends received deduction for corporations. Distributions of net capital gains (i.e., the excess of net long-term capital gains over short-term capital losses), whether paid in cash or reinvested additional shares, are taxable to the Fund's shareholders as long-term capital gains without regard to the length of time shareholders have owned their shares. Fund dividends declared in October, November or December, payable to shareholders of record in such a month, that are paid the following January will be taxable to shareholders as if received on December 31 of the year in which the dividends are declared. The Fund will notify shareholders regarding the federal tax status of its distributions after the end of each calendar year.
Any distribution of net capital gains or net short-term capital gains will have the effect of reducing the per share net asset value of shares in the Fund by the amount of the distribution. Shareholders purchasing shares shortly before the record date of any such distribution may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of the Fund by a shareholder that holds such shares as a capital asset will be treated as long-term capital gain or loss if the shares have been held for more than twelve months and otherwise as a short-term capital gain or loss. However, any loss realized upon a disposition of shares in the Fund held for six months or less will be treated as a long-term capital loss to the extent of any distributions of net capital gain made with respect to those shares. Any loss realized upon a redemption of shares may also be disallowed under rules relating to wash sales. Gain may be increased (or loss reduced) upon a redemption of Class A shares of the Fund within ninety days after their purchase followed by any purchase (including purchases by exchange or by reinvestment) without payment of an additional sales charge of Class A shares of the Fund or of another MFS Fund (or any other shares of an MFS Fund generally sold subject to a sales charge).
Investment in residual interests of a CMO that has elected to be treated as a real estate mortgage investment conduit, or "REMIC," can create complex tax problems, especially if the Fund has state or local governments or other tax-exempt organizations as shareholders.
The Fund's current dividend and accounting policies will affect the amount, timing and character of distributions to shareholders. The Fund's investment in zero coupon securities, certain stripped securities and certain securities purchased at a market discount will cause the Fund to recognize income prior to the receipt of cash payments with respect to these securities. In order to distribute this income and avoid a tax on the Fund, the Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold, potentially resulting in additional taxable gain or loss to the Fund.
The Fund's transactions in Futures Contracts and Options on Futures Contracts will be subject to special tax rules that may affect the amount, timing and character of distributions to shareholders. For example, certain positions held by the Fund on the last business day of each taxable year will be marked to market (i.e., treated as if closed out) on such day, and any gain or loss associated with such positions will be treated as 60% long-term and 40% short-term capital gain or loss. Certain positions held by the Fund that substantially diminish its risk of loss with respect to other positions in its portfolio will constitute "straddles", which are subject to special tax rules that may cause deferral of the Fund's losses, adjustments in the holding periods of the Fund's securities and conversion of short-term into long-term capital losses. Certain tax elections exist for straddles which could alter the effects of these rules. The Fund will limit its holding in Futures Contracts and Options on Futures Contracts to the extent necessary to meet the requirements of Subchapter M of the Code.
Investment income received by the Fund from foreign securities may be subject to foreign income taxes withheld at the source; the Fund does not expect to be able to pass through to shareholders foreign tax credits with respect to such foreign taxes. The United States has entered into tax treaties with many foreign countries that may entitle the Fund to a reduced rate of tax or an exemption from tax on such income; the Fund intends to qualify for treaty reduced rates where available. It is impossible to determine the effective rate of foreign tax in advance since the amount of the Fund's assets to be invested within various countries is not known.
Dividends and certain other payments to persons who are not citizens or residents of the U.S. or U.S. entities ("Non-U.S. Persons") are generally subject to U.S. tax withholding at the rate of 30%. The Fund intends to withhold U.S. federal income tax at the rate of 30% on any payments made to Non-U.S. Persons that are subject to such withholding regardless of whether a lower treaty rate may be permitted. Any amounts overwithheld may be recovered by such persons by filing a claim for refund with the U.S. Internal Revenue Service within the time period applicable to such claims. Distributions received from the Fund by Non-U.S. Persons may also be subject to tax under the laws of their own jurisdiction. The Fund is also required in certain circumstances to apply backup withholding at a rate of 31% on taxable dividends and redemption proceeds paid to any shareholder (including a Non- U.S. Person) who does not furnish to the Fund certain information and certifications or who is otherwise subject to backup withholding. However, backup withholding will not be applied to payments which have been subject to 30% withholding.
As long as it qualifies as a regulated investment company under the Code, the Fund will not be required to pay Massachusetts income or excise taxes. Distributions of the Fund which are derived from interest on obligations of the U.S. Government and certain of its agencies and instrumentalities (but not from capital gains realized upon the disposition of such obligations) may be exempt from state and local taxes. The Fund intends to advise shareholders of the proportion of its dividends which consist of such interest. Residents of certain states may be subject to an intangibles tax or a personal property tax on all or a portion of the value of their shares. Shareholders are urged to consult their tax advisers regarding this and other state and local income tax matters.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE NET ASSET VALUE -- The net asset value per share of each class of the Fund is determined each day during which the Exchange is open for trading. (As of the date of this Statement of Additional Information, the Exchange is open for trading every weekday except for the following holidays or the days on which they are observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.) This determination is made once during each such day as of the close of regular trading on such Exchange by deducting the amount of the liabilities attributable to the class from the value of the assets attributable to the class and dividing the difference by the number of shares of that class outstanding. If acquired, preferred stocks, common stocks and warrants will be valued at the last sale price on an exchange on which they are primarily traded or at the last quoted bid price for unlisted securities. Debt securities (other than short-term obligations) in the Fund's portfolio are valued on the basis of valuations furnished by pricing services which utilize both dealer-supplied valuations and electronic data processing techniques which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices, because such valuations are believed to reflect more accurately the fair value of such securities. Use of the pricing service has been approved by the Board of Trustees. Short-term obligations with a remaining maturity in excess of 60 days will be valued based upon dealer supplied valuations. Other short-term obligations are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. Positions in listed options, Futures Contracts and Options on Futures Contracts will normally be valued at the settlement price on the exchange on which they are primarily traded. Forward Contracts will be valued using a pricing model taking into consideration market data from an external pricing source. Portfolio securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Board of Trustees.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price), to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total return, which is not reduced by
the CDSC (4% maximum for Class B shares) and therefore may result in a higher
rate of return, (ii) a total rate of return assuming an initial account value of
$1,000, which will result in a higher rate of return since the value of the
initial account will not be reduced by the current maximum sales charge
(currently 2.50%) and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance and which may or may not
reflect the effect of the maximum or other sales charge or CDSC. The Fund's
average annual total rate of return for Class A shares, reflecting the initial
investment at the current maximum public offering price for the one-year period
ended April 30, 1995 and for the period from the commencement of investment
operations, February 26, 1992 to April 30, 1995 were 3.48% and 4.70%,
respectively. The Fund's average annual total rate of return for Class A shares,
not giving effect to the sales charge on the initial investment, for the same
periods was 6.09% and 5.54%, respectively. Total rate of return figures for
Class A shares would have been lower had certain fee waivers not been in place.
The Fund's average annual total rate of return for Class B shares reflecting the
CDSC for the one-year period and the period September 7, 1993 through the Fund's
fiscal year ended April 30, 1995 was 1.22% and -0.35%, respectively. The Fund's
average annual total rate of return for Class B shares, not giving effect to the
CDSC, for the one-year period and the period September 7, 1993 through the
Fund's fiscal year ended April 30, 1995 was 5.20% and 2.07%, respectively. The
Fund's average annual total rate of return for Class C shares for the period
January 3, 1994 through April 30, 1995 was 5.25%.
PERFORMANCE RESULTS: Performance results, including any yield or total rate of return quotations provided by the Fund should not be considered as representative of the performance of the Fund in the future since the net asset value of shares of the Fund will vary based not only on the type, quality and maturities of the securities held in the Fund's portfolio, but also on changes in the current value of such securities and on changes in the expenses of the Fund. These factors and possible differences in the methods used to calculate yields and total rates of return should be considered when comparing the yield and total rate of return published for other investment companies or other investment vehicles. Total rate of return reflects the performance of both principal and income. Current net asset value as well as account balance information may be obtained by calling 1-800-MFS-TALK (637- 8255).
YIELD: Any yield quotation for a class of shares of the Fund is based on the annualized net investment income per share of that class over a 30-day period. The yield for a class is calculated by dividing the net investment income per share of that class earned during the period by the maximum offering price per share on the last day of that period. The resulting figure is then annualized. Net investment income per share of a class is determined by dividing (i) the dividends and interest earned by that class during the period, minus accrued expenses for the period by (ii) the average number of shares of that class entitled to receive dividends during the period multiplied by the maximum offering price per share on the last day of the period. The Fund's yield calculations for Class A shares assume a maximum sales charge of 2.50%. The yield calculation for Class B shares assumes no CDSC is paid. The yield for Class A shares of the Fund for the 30-day period ended April 30, 1995 was 6.12%. The yield for Class B shares of the Fund for the 30-day period ended April 30, 1995 was 5.47%. The yield for Class C Shares of the Fund for the 30- day period ended April 30, 1995 was 5.50%.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula prescribed by the SEC, is not indicative of the amounts which were or will be paid to the Fund's shareholders. Amounts paid to shareholders of each class are reflected in the quoted "current distribution rate" for that class. The current distribution rate for a class is computed by dividing the total amount of dividends per share paid by the Fund to shareholders of that class during the past 12 months by the maximum public offering price of that class at the end of such period. Under certain circumstances, such as when there has been a change in the amount of dividend payout, or a fundamental change in investment policies, it might be appropriate to annualize the dividends paid over the period such policies were in effect, rather than using the dividends during the past 12 months. The current distribution rate differs from the yield computation because it may include distributions to shareholders from sources other than dividends and interest, such as premium income from option writing, short-term capital gains and return of invested capital, and is calculated over a different period of time. The Fund's current distribution rate calculation for Class A shares assumes a maximum sales charge of 2.50%. The Fund's current distribution rate calculation for Class B shares assumes no CDSC is paid. The current distribution rate for Class A shares of the Fund for the 12-month period ended on April 30, 1995 was 6.45%. The current distribution rate for Class B shares of the Fund for the 12-month period ended April 30, 1995 was 5.60%. The current distribution rate for Class C Shares of the Fund for the 12-month period ended April 30, 1995 was 4.69%.
From time to time the Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial
World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals. The Fund may also
quote evaluations mentioned in independent radio or television broadcasts and
may use charts and graphs to illustrate the past performance of various indices
such as those mentioned above and illustrations using hypothetical rates of
return to illustrate the effects of compounding and tax-deferral. The Fund may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not assure a profit or guard against a loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals.
From time to time, the Fund may discuss or quote its current portfolio manager as well as other investment personnel, including such persons' views on: the economy; securities markets; portfolio securities and their issuers; investment philosophies, strategies, techniques and criteria used in the selection of securities to be purchased or sold for the Fund; the Fund's portfolio holdings; the investment research and analysis process; the formulation and evaluation of investment recommendations; and the assessment and evaluation of credit, interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past performance of various indices such as those mentioned above and illustrations using hypothetical rates of return to illustrate the effects of compounding and tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, an investor invests a fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer shares when prices are high and more shares when prices are low. While such a strategy does not assure a profit or guard against a loss in a declining market, the investor's average cost per share can be lower than if fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund
to register under the Securities Act of 1933 ("Truth in
Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager or MFS(R) Union Standard
Trust, the first Trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
|
8. DISTRIBUTION PLANS The Trustees have adopted a Distribution Plan for each of Class A, Class B and Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that there is a reasonable likelihood that each Distribution Plan would benefit the Fund and the respective class of shareholders. The Distribution Plans are designed to promote sales, thereby increasing the net assets of the Fund. Such an increase may reduce the expense ratio to the extent the Fund's fixed costs are spread over a larger net asset base. Also, an increase in net assets may lessen the adverse effects that could result were the Fund required to liquidate portfolio securities to meet redemptions. There is, however, no assurance that the net assets of the Fund will increase or that the other benefits referred to above will be realized.
CLASS A DISTRIBUTION PLAN: The Class A Distribution Plan provides that the Fund will pay MFD up to (but not necessarily all of) an aggregate of 0.35% per annum of the average daily net assets attributable to the Class A shares annually in order that MFD may pay expenses on behalf of the Fund related to the distribution and servicing of its Class A shares. The expenses to be paid by MFD on behalf of the Fund may include a service fee to securities dealers which enter into a sales agreement with MFD of up to 0.25% per annum of the portion of the Fund's average daily net assets attributable to the Class A shares owned by investors for whom that securities dealer is the holder or dealer of record. Currently, the service fee has been set at 0.15% per annum. The service fee may be increased without notice to shareholders. These payments are partial consideration for personal services and/or account maintenance performed by such dealers with respect to Class A shares. MFD may from time to time reduce the amount of the service fee paid for shares sold prior to a certain date. MFD may also retain a distribution fee of 0.10% per annum of the Fund's average daily net assets attributable to Class A shares as partial consideration for services performed and expenses incurred in the performance of MFD's obligations as to Class A shares under the Distribution Agreement with the Fund. MFD, however, is currently not imposing this 0.10% per annum distribution fee and will not accept future payments of this fee unless it first obtains approval of the Board of Trustees. Any remaining funds may be used to pay for other distribution related expenses as described in the Prospectus. Service fees may be reduced for a securities dealer that is the holder or dealer of record for an investor who owns shares of the Fund having a net asset value at or above a certain dollar level. No service fee will be paid (i) to any securities dealer who is the holder or dealer of record for investors who own Class A shares having an aggregate net asset value less than $750,000, or such other amounts as may be determined from time to time by MFD (MFD, however, may waive this minimum amount requirement from time to time if the dealer satisfies certain criteria), or (ii) to any insurance company which has entered into an agreement with the Fund and MFD that permits such insurance company to purchase shares from the Fund at their net asset value in connection with annuity agreements issued in connection with the insurance company's separate accounts. Dealers may from time to time be required to meet certain other criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under the Class A Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts. Certain banks and other financial institutions that have agency agreements will MFD will receive agency transaction and service fees that are the same as commissions and service fees to dealers.
During the fiscal year ended April 30, 1995 the Fund incurred expenses of $141,693 (equal to 0.15% of its average daily net assets attributable to Class A shares) relating to the distribution and servicing of its Class A shares, of which securities dealers of the Fund and certain banks and other financial institutions received $121,589 of which MFD retained $20,104.
CLASS B DISTRIBUTION PLAN: The Class B Distribution Plan provides that the Fund will pay MFD, as the Fund's distributor for its Class B shares, a daily distribution fee equal on an annual basis to 0.75% of the Fund's average daily net assets attributable to Class B shares and will pay MFD a service fee of up to 0.25% per annum of the Fund's average daily net assets attributable to Class B shares (which MFD will in turn pay to securities dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per annum of the Fund's average daily net assets attributable to Class B shares owned by investors for whom that securities dealer is the holder or dealer of record). Except in the case of the first year service fee, the service fee is reduced to 0.15% per annum of the Fund's average daily net assets attributable to Class B shares that are owned by investors for whom that securities dealer is the holder or dealer of record. This reduction may be amended or terminated without notice to shareholders. The first year service fee will be paid as noted below. This service fee is intended to be additional consideration for all personal services and/or account maintenance services rendered by the dealer with respect to Class B shares. MFD will advance to dealers the first-year service fee at a rate equal to 0.25% per annum of the amount invested. As compensation therefor, MFD may retain the service fee paid by the Fund with respect to such shares for the first year after purchase. Dealers will become eligible for additional service fees with respect to such shares commencing in the thirteenth month following purchase. Except in the case of the first year service fee, no service fee will be paid to any securities dealer who is the holder or dealer of record for investors who own Class B shares having an aggregate net asset value of less than $750,000 or such other amount as may be determined from time to time by MFD. MFD, however, may waive this minimum amount requirement from time to time if the dealer satisfies certain criteria. Dealers may from time to time be required to meet certain other criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under the Class B Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts.
The purpose of distribution payments to MFD under the Class B Distribution Plan is to compensate MFD for its distribution services to the Fund. MFD pays commissions to dealers as well as expenses of printing prospectuses and reports used for sales purposes, expenses with respect to the preparation and printing of sales literature and other distribution related expenses, including, without limitation, the cost necessary to provide distribution- related services, of personnel, travel, office expenses and equipment. The Class B Distribution Plan also provides that MFD will receive all CDSCs relating to Class B shares (see "Distribution Plans" and "Purchases" in the Prospectus).
During the fiscal year ended April 30, 1995, the Fund incurred expenses of $154,703 (equal to 1.00% of its average daily net assets attributable to Class B shares) relating to the distribution and servicing of its Class B shares, of which securities dealers of the Fund and certain banks and other financial institutions received $153,208 of which MFD retained $1,495.
CLASS C DISTRIBUTION PLAN: The Class C Distribution Plan provides that the Fund will pay MFD a distribution fee of up to 0.75% per annum of the Fund's average daily net assets attributable to Class C shares and will annually pay MFD a service fee of up to 0.25% per annum of the Fund's average daily net assets attibutable to Class C shares (which MFD will in turn pay to securities dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per annum of the Fund's daily net assets attributable to Class C shares owned by investors for whom that securities dealer is the holder or dealer of record).
The distribution/service fees attributable to Class C shares are designed to permit an investor to purchase such shares through a broker-dealer without the assessment of an initial sales charge or a CDSC while allowing MFD to compensate broker-dealers in connection with the sale of such shares.
The service fee is intended to be additional consideration for all personal services and/or account maintenance services rendered by the dealer with respect to Class C shares. MFD or its affiliates are entitled to retain all service fees payable under the Class C Distribution Plan with respect to accounts for which there is no dealer of record as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts.
The purpose of the distribution payments to MFD under the Class C Distribution Plan is to compensate MFD for its distribution services to the Fund. Distribution payments under the Plan will be used by MFD to pay securities dealers a distribution fee in an amount equal on an annual basis to 0.75% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom securities dealer is the holder or dealer of record. (Therefore, the total amount of distribution/service fees paid to a dealer on an annual basis is 1.00% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom the securities dealer is the holder or dealer of record.) MFD also pays expenses of printing prospectuses and reports used for sales purposes, expenses with respect to the preparation and printing of sales literature and other distribution-related expenses, including, without limitation, the compensation of personnel and all costs of travel, office expense and equipment. Since MFD's compensation is not directly tied to its expenses, the amount of compensation received by MFD during any year may be more or less than its actual expenses. For this reason, this type of distribution fee arrangement is characterized by the staff of the SEC as being of the "compensation" variety. However, the Fund is not liable for any expenses incurred by MFD in excess of the amount of compensation it receives. Certain banks and other financial institutions that have agency agreements with MFD will receive agency transaction and service fees that are the same as distribution and service fees to dealers. Fees payable under the Class C Distribution Plan are charged to, and therefore reduce, income allocated to Class C shares. During the period July 1, 1994 through April 30, 1995, the Fund incurred expenses of $35,437 (equal to 1.00% of its average daily net assets attributable to Class C shares) relating to the distribution and servicing of its Class C shares, of which securities dealers of the Fund and certain banks and other financial institutions received $34,855 of which MFD retained $582.
GENERAL: Each of the Distribution Plans will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by vote of both the Trustees and a majority of the Trustees who are not "interested persons" or financially interested parties to such Plan ("Distribution Plan Qualified Trustees"). Each of the Distribution Plans also requires that the Fund and MFD each shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefor) under such Plan. Each of the Distribution Plans may be terminated at any time by vote of a majority of the Distribution Plan Qualified Trustees or by vote of the holders of a majority of the respective class of the Fund's shares (as defined in "Investment Restrictions"). All agreements relating to any of the Distribution Plans entered into between the Fund or MFD and other organizations must be approved by the Board of Trustees, including a majority of the Distribution Plan Qualified Trustees. Agreements under any of the Distribution Plans must be in writing, will be terminated automatically if assigned, and may be terminated at any time without payment of any penalty, by vote of a majority of the Distribution Plan Qualified Trustees or by vote of the holders of a majority of the respective class of the Fund's shares. None of the Distribution Plans may be amended to increase materially the amount of permitted distribution expenses without the approval of a majority of the respective class of the Fund's shares (as defined in "Investment Restrictions") or may be materially amended in any case without a vote of the Trustees and a majority of the Distribution Plan Qualified Trustees. The selection and nomination of Distribution Plan Qualified Trustees shall be committed to the discretion of the non-interested Trustees then in office. No Trustee who is not an "interested person" has any financial interest in any of the Distribution Plans or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES The Trust's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional Shares of Beneficial Interest (without par value) of one or more separate series and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in that series. The Trustees have currently authorized shares of the Fund and two other series. The Declaration of Trust further authorizes the Trustees to classify or reclassify the shares of the Fund into one or more classes. Pursuant thereto, the Trustees have authorized the issuance of three classes of shares of the Trust's three series, Class A shares, Class B shares and Class C shares. Each share of a class of the Fund represents an equal proportionate interest in the assets of the Fund allocable to that class. Upon liquidation of the Fund, the shareholders of each class of the Fund are entitled to share pro rata in the net assets of the Fund allocable to such class available for distribution to shareholders. The Trust reserves the right to create and issue additional series or classes of shares, in which case the shares of each class would participate equally in the earnings, dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the election of Trustees and on other matters submitted to meetings of shareholders. Although Trustees are not elected annually by the shareholders, shareholders have under certain circumstances the right to remove one or more Trustees in accordance with the provisions of Section 16(c) of the 1940 Act. No material amendment may be made to the Declaration of Trust without the affirmative vote of the holders of a majority of the Trust's shares. Shares have no pre-emptive or conversion rights (except as described in "Purchases -- Conversion of Class B Shares" in the Prospectus). Shares are fully paid and non-assessable. The Trust may enter into a merger or consolidation, or sell or substantially all of its assets (or all or substantially all of the assets belonging to any series of the Trust), if approved by the vote of the holders of two-thirds of the Trust's outstanding shares voting as a single class, or of the affected series of the Trust, as the case may be, except that if the Trustees of the Trust recommend such merger, consolidation or sale, the approval by vote of the holders of a majority of the Trust's or the affected series' outstanding shares (as defined in "Investment Restrictions") will be sufficient. The Trust or any series of the Trust may also be terminated (i) upon liquidation and distribution of its assets, if approved by the vote of the holders of two-thirds of its outstanding shares, or (ii) by the Trustees by written notice to the shareholders of the Trust or the affected series. If not so terminated, the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification and reimbursement of expenses out of the Trust property for any shareholder held personally liable for the obligations of the Trust. The Declaration of Trust also provides that it shall maintain appropriate insurance (for example, fidelity bonding and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually but only upon the property of the Trust and that the Trustees will not be liable for any action or failure to act, but nothing in the Declaration of Trust protects a Trustee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
10. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS Deloitte & Touche LLP are the Trust's independent certified public accountants.
The Portfolio of Investments at April 30, 1995, the Statement of Assets and Liabilities at April 30, 1995, the Statement of Operations for the year ended April 30, 1995, the Statement of Changes in Net Assets for the two years ended April 30, 1995, the Notes to Financial Statements and the Independent Auditors' Report, each of which is included in the Annual Report to shareholders of the Fund, are incorporated by reference into this Statement of Additional Information and have been so incorporated in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing. A copy of the Annual Report accompanies this Statement of Additional Information.
APPENDIX A
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND<F1> FUND'S EXPENSE<F1> OF SERVICE<F2> FUND COMPLEX<F3>
- ---------------------------- ---------------- --------------------------- --------------------- ----------------------
Richard B. Bailey .......... $1,987 $150 8 $226,221
Peter G. Harwood ........... 2,137 110 5 105,812
J. Atwood Ives ............. 2,022 157 17 106,482
Lawrence T. Perera ......... 1,872 151 16 96,592
William Poorvu ............. 2,137 158 16 106,482
Charles W. Schmidt ......... 1,987 150 9 98,397
Elaine R. Smith ............ 1,987 146 26 98,397
David B. Stone ............. 2,087 154 9 104,007
- ------------
<F1> For fiscal year ended April 30, 1995.
<F2> Based on normal retirement age of 73.
<F3> For calendar year 1994. All Trustees served as Trustees of 20 funds within
the MFS Fund complex (having aggregate net assets at December 31, 1994, of
approximately $14 billion) except Mr. Bailey, who served as Trustee of 56
funds within the MFS Fund complex (having aggregate net assets at December
31, 1994, of approximately $24 billion).
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT<F4>
AVERAGE YEARS OF SERVICE
TRUSTEE FEES ------------------------------------------------------
3 5 7 10 OR MORE
--------------------------------------------------------------------------
$1,685 $253 $421 $590 $ 843
1,820 273 455 637 910
1,955 293 489 684 978
2,090 314 523 732 1,045
2,225 334 556 779 1,113
2,360 354 590 826 1,180
<F4> Other funds in the MFS Fund complex provide similar retirement benefits to
the Trustees.
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INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN
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) 225-2606
Mailing Address
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(RM)
LIMITED
MATURITY FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO] MFS
THE FIRST NAME IN MUTUAL FUNDS
MLM-13-9/95/.5M 36/236/336
[Logo] M F S Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
April 30, 1995
MFS(R) LIMITED MATURITY FUND
[A 6 1/4" by 8 1/4" photo of a house.]
|
MFS(R) LIMITED MATURITY FUND
TRUSTEES CUSTODIAN
A. Keith Brodkin<F1> - Chairman and President Investors Bank & Trust Company
Richard B. Bailey<F1> - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Private Investor For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
J. Atwood Ives - Chairman and Chief Executive a touch-tone telephone.
Officer, Eastern Enterprises
For information on MFS mutual funds,
Lawrence T. Perera - Partner, Hemenway & Barnes call your financial adviser or, for an
information kit, call toll free:
William J. Poorvu - Adjunct Professor, Harvard 1-800-637-2929 any business day from
University Graduate School of Business 9 a.m. to 5 p.m. Eastern time (or leave
Administration a message anytime).
Charles W. Schmidt - Private Investor; INVESTOR SERVICE
Former Senior Vice President and Group Executive MFS Service Center, Inc.
(until 1990), Raytheon Company P.O. Box 2281
Boston, MA 02107-9906
Arnold D. Scott<F1> - Senior Executive Vice President
and Secretary, Massachusetts Financial Services Company For current account service, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames<F1> - President, Massachusetts 8 a.m. to 8 p.m. Eastern time.
Financial Services Company
For service to speech- or hearing-impaired,
Elaine R. Smith - Independent Consultant call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To use this
David B. Stone - Chairman, North American service, your phone must be equipped with a
Management Corp. (Investment Advisers) Telecommunications Device for the Deaf.)
INVESTMENT ADVISER For share prices, account balances and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, Massachusetts 02116-3741 telephone.
PORTFOLIO MANAGER
Geoffrey L. Kurinsky<F1> TOP-RATED SERVICE
NUMBER MFS was rated first when securities firms
TREASURER 1 evaluated the quality of service they receive
W. Thomas London<F1> DALBAR from 40 mutual fund companies. MFS got high
marks for answering calls quickly, processing
transactions accurately and sending statements
ASSISTANT TREASURER out on time.
James O. Yost<F1> (Source: 1994 DALBAR Survey)
SECRETARY
Stephen E. Cavan<F1>
ASSISTANT SECRETARY
James R. Bordewick, Jr.<F1>
Cover photo: Through their wide range of
investments, MFS mutual funds help you
share in America's growth.
<F1>Affiliated with the Investment Adviser
|
LETTER TO SHAREHOLDERS
Dear Shareholders:
Although yields on short-term U.S. Treasury securities began and ended the
Fund's fiscal year at approximately the same level of 6.25%, interest rates
fluctuated widely during the 12 months ended April 30, 1995. The stronger pace
of economic activity during 1994 sparked a series of Federal Reserve Board
actions to tighten monetary policy and restrain inflationary pressures. Interest
rates rose from 6.25% on October 31, 1994 to nearly 8% by the end of December,
but as it became apparent that the Federal Reserve's initiatives were successful
in slowing the pace of growth and that fears of higher rates of inflation were
overblown, yields started to decline and ended the fiscal year on April 30 at
the same 6.25% level. For the 12 months ended April 30, 1995, Class A shares of
the Fund provided a total return of +6.09% and Class B shares +5.20%. Class C
shares of the Fund became available on July 1, 1994, and provided a total return
of +5.25% for the 10 months ended April 30, 1995. These returns assume the
reinvestment of distributions but exclude the effects of any sales charges.
Economic Outlook
As the economy enters its fifth year of expansion, it is evidencing a decidedly
decelerating trend from its robust pace of 1994, when gross domestic product
expanded by 4.1%. Estimated growth in this year's first quarter diminished to an
annual rate of 2.8%. Consumer spending slowed considerably during the quarter
and was accompanied by a correspondingly large increase in inventories. As we
begin the year's second quarter, the evidence suggests that the economy has
entered a phase of less-than-full-potential growth, as the April unemployment
rate showed a second consecutive monthly increase. We expect the economy to
continue to grow at this more subdued pace. We do not anticipate that the
slowdown will deteriorate into a recession and, conversely, we remain mindful of
the potential for a reliquified consumer sector to reassert itself as the year
progresses.
Interest Rates
As evidence of a slowdown has continued to mount, the fixed-income markets have
become increasingly convinced that the Federal Reserve has concluded its
monetary-tightening initiatives. Furthermore, as the economy has diminished in
its ability to create jobs and in its usage of available productive capacity,
apprehension concerning a cyclical upturn in inflation has receded. As a result,
long-term U.S. Treasury bond yields have declined to near 7.00% as of April 30,
1995, down from 7.87% at the beginning of the year and from their cyclical peak
of 8.15% in November 1994. Despite higher costs at the crude and intermediate
stages of production, prices have not increased appreciably at the consumer
level. For the 12 months ended in April of this year, the Consumer Price Index,
a popular measure of change in prices, increased by a still moderate 3.1%.
Continued benign growth in labor costs and the inability of many businesses to
effectively raise prices have combined to extend the favorable price
environment. Nevertheless, we do anticipate a minor cyclical pickup in
inflationary pressure this year to the 3% - 3 1/2% range.
The decline in interest rates has been particularly precipitous during the past month, leaving the market potentially vulnerable to a near-term correction. However, we believe continuing moderate growth will result in interest rates trending near to, and possibly somewhat lower than, present levels during the balance of this year.
Portfolio Performance and Strategy
The Fund's favorable performance was due to its overweighted position in
the lower-quality end of the investment-grade corporate bond market. Corporate
restructurings undertaken to compete in the global economy have resulted in
higher levels of profitability and improved financial conditions for many
American corporations. The Fund has focused on these types of corporations,
anticipating that the prices of their debt should appreciate in relation to U.S.
Treasury securities (although principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity). Some
examples of these holdings include USX Corp. in the steel and oil sector and
General Motors and Ford in the auto sector. The Fund also maintained an
overweighting in the financial services sector, which has benefited from lower
interest rates and improved profit margins resulting from the improved credit
quality of loan portfolios and from downsizing. In addition to major names like
Citicorp and Chase Manhattan Bank, the Fund has invested in credit-card banks
such as Advanta Corp. and Capital One Bank. Despite the volatility of interest
rates, the high margins on the credit-card business have enabled these firms to
prosper.
Looking forward, the prospects for a slowing economy have caused us to reduce the Fund's exposure to the investment-grade corporate sector. After allocating as much as 75% of the Fund's total net assets into this sector during the past year, we recently have reduced our exposure to approximately 60%. As a result, the cash position of the Fund has increased from about 5% to 15% of total net assets, and the portion invested in U.S. Treasury securities has increased from 5% to 15%. Currently, the average quality level of the portfolio is "A". This is consistent with our efforts to maintain a high-quality portfolio, since A-rated securities carry the third highest rating awarded by the rating agencies.
We are maintaining a neutral posture on the near-term direction of interest rates and, thus, the interest rate sensitivity of the portfolio is comparable to a 2 1/2-year Treasury. If it becomes apparent that the economy is headed toward a recessionary period, we will consider moving to a more aggressive 3 1/2- to 4-year level in the portfolio.
We appreciate your support and welcome any questions or comments you may have.
Respectfully, - ------------------ ------------------ A 1 1/2" by 1 5/8" A 1 1/2" by 1 5/8" photo of A. Keith photo of Geoffrey L. Brodkin, Chairman Kurinsky, Portfolio and President. Manager. - ------------------ ------------------ /s/A. Keith Brodkin /s/Geoffrey L. Kurinsky A. Keith Brodkin Geoffrey L. Kurinsky Chairman and President Portfolio Manager |
May 17, 1995
PORTFOLIO MANAGER PROFILE
Geoffrey Kurinsky began his career at MFS in 1987 in the Fixed Income Department. A graduate of the University of Massachusetts and Boston University's Graduate School of Business Administration, he was named Assistant Vice President in 1988, Vice President in 1989 and Senior Vice President in 1993. In 1992, he was named Portfolio Manager for MFS Limited Maturity Fund. Mr. Kurinsky is a Certified Public Accountant.
OBJECTIVE AND POLICIES
The Fund's primary investment objective is to provide as high a level of current income as is believed to be consistent with prudent investment risk. The Fund's secondary objective is to protect shareholders' capital.
The Fund invests under normal market conditions substantially all of its assets in debt securities rated within the four highest grades as determined by Standard and Poor's Corporation or Moody's Investors Services, Inc. and comparable unrated securities, securities which are issued or guaranteed by the U.S. government or its agencies or instrumentalities, commercial paper, repurchase agreements, and cash or cash equivalents. Under normal market conditions, substantially all of the securities in the Fund's portfolio will have remaining maturities of five years or less.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the federal tax status of all distributions paid during the calendar year 1995.
PERFORMANCE
The information on the following page illustrates the historical performance of MFS Limited Maturity Fund Class A shares in comparison to various market indicators. Fund results reflect the deduction of the 2.50% maximum sales charge; benchmark comparisons are unmanaged and do not reflect any fees or expenses. You cannot invest in an index. All results reflect the reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B share performance appears on the following page.
Class C shares were offered effective July 1, 1994. Information on Class C share performance appears on the following page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from March 1, 1992 to April 30, 1995)
Line graph representing the growth of a $10,000 investment for the life-of-class
period ended April 30, 1995. The graph is scaled from $9,000 to $14,000 in
$1,000 segments. The years are marked from 1992 to 1995. There are three lines
drawn to scale. One is a solid line representing MFS Limited Maturity Fund
(Class A), a second line of short dashes represents the Merrill Lynch 1-5 Year
Government/Corporate Bond Index, and a third line of long dashes represents
the Consumer Price Index.
MFS Limited Maturity Fund (Class A) $11,568 Merrill Lynch 1-5 Year Government/ Corporate Bond Index $12,001 Consumer Price Index $10,905 |
Life of Class
AVERAGE ANNUAL TOTAL RETURNS through
1 Year 3 Years 4/30/95
- ------------------------------------------------------------------------------
MFS Limited Maturity Fund (Class A)
including 2.50% sales charge +3.48% +4.68% +4.70%<F1>
- ------------------------------------------------------------------------------
MFS Limited Maturity Fund (Class A) at net
asset value +6.09% +5.58% +5.54%<F1>
- ------------------------------------------------------------------------------
MFS Limited Maturity Fund (Class B) with
CDSC+ +1.22% -- -0.22%<F2>
- ------------------------------------------------------------------------------
MFS Limited Maturity Fund (Class B) without
CDSC +5.20% -- +2.07%<F2>
- ------------------------------------------------------------------------------
MFS Limited Maturity Fund (Class C) -- -- +5.25%<F4>
- ------------------------------------------------------------------------------
Average short-term investment-grade debt
fund +4.78% +4.88% +4.87%<F5>
- ------------------------------------------------------------------------------
Merrill Lynch One- to Five-Year Government/
Corporate Bond Index +6.40% +5.99% +5.93%<F5>
- ------------------------------------------------------------------------------
Consumer Price Index +3.05% +2.88% +2.94%<F5>
- ------------------------------------------------------------------------------
In the above table, we have included the average annual total returns of all
average short-term investment-grade debt funds (including the Fund) tracked by
Lipper Analytical Services, Inc. (an independent firm which reports mutual fund
performance) for the applicable time periods (124, 51 and 48 funds for the 1-
and 3-year periods ended April 30, 1995 and for the period from March 1, 1992 to
April 30, 1995, respectively). Because these returns do not reflect any
applicable sales charges, we have also included the Fund's results at net asset
value (no sales charge) for comparison. All results are historical and,
therefore, are not an indication of future results. The principal value and
income return of an investment in a mutual fund will vary with changes in market
conditions, and shares, when redeemed, may be worth more or less than their
original cost.
<F1>For the period from the commencement of offering of Class A shares, February
26, 1992 to April 30, 1995.
<F2>For the period from the commencement of offering of Class B shares,
September 7, 1993 to April 30, 1995.
<F3>These returns reflect the maximum contingent deferred sales charge (CDSC)
of 4%.
<F4>For the period from the commencement of offering of Class C shares, July 1,
1994 to April 30, 1995. Class C shares have no initial sales charge or CDSC
but, along with Class B shares, have higher annual fees and expenses than
Class A shares.
<F5>Benchmark comparisons begin on March 1, 1992.
|
PORTFOLIO OF INVESTMENTS - April 30, 1995
Bonds - 85.4%
- ---------------------------------------------------------------------------------------------------------
S&P
Bond Rating Principal Amount
(Unaudited) Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------------
Aerospace and Defense - 4.8%
BBB McDonnell Douglas Corp., 8.5s, 2000 $ 5,000 $ 5,146,100
- ---------------------------------------------------------------------------------------------------------
Automotive - 0.7%
A+ Ford Motor Credit Co., 5.6s, 1995 $ 750 $ 748,958
- ---------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 19.4%
BBB Advanta Corp., 7.07s, 1997 $ 5,000 $ 4,963,500
BBB- Capital One Bank, 8.125s, 2000 4,390 4,450,363
A- Chase Manhattan Corp., 8.8s, 2000 5,000 5,153,100
A Citicorp, 8.8s, 2000 5,000 5,241,650
A First Chicago Corp., 8.23s, 1996 1,000 1,020,610
------------
$ 20,829,223
- ---------------------------------------------------------------------------------------------------------
Corporate Asset-Backed - 9.6%
NR Merrill Lynch Home Equity Loan, "B", 9.3s, 2016<F1> $ 1,900 $ 1,918,601
NR Merrill Lynch Mortgage Investors, Inc., 9.7s, 2010 1,963 1,994,018
NR Merrill Lynch Mortgage Investors, Inc., 9.75s, 2010 629 642,654
NR Merrill Lynch Mortgage Investors, Inc., 8.3s, 2011 58 57,899
NR Merrill Lynch Mortgage Investors, Inc., 10s, 2011 55 57,220
NR Merrill Lynch Mortgage Investors, Inc., 8.18561s, 2022 5,576 5,624,487
------------
$ 10,294,879
- ---------------------------------------------------------------------------------------------------------
Entertainment - 9.2%
BBB- News America Holdings, Inc., 7.5s, 2000 $ 5,000 $ 4,952,350
BBB- Time Warner, Inc., 7.95s, 2000 5,000 4,999,600
------------
$ 9,951,950
- ---------------------------------------------------------------------------------------------------------
Financial Institutions - 6.4%
A Bear Stearns Cos., Inc., 7.625s, 2000 $ 4,500 $ 4,494,195
A Countrywide Funding Corp., 6.57s, 1997 500 493,570
BBB+ General Motors Acceptance Corp., 5.95s, 1998 2,000 1,905,380
------------
$ 6,893,145
- ---------------------------------------------------------------------------------------------------------
Foreign - U.S. Dollars - 4.0%
BBB- Republic of Colombia, 8.75s, 1999 $ 3,000 $ 2,955,000
NR Republic of Greece, 9.75s, 1999 1,300 1,347,450
------------
$ 4,302,450
- ---------------------------------------------------------------------------------------------------------
Forest and Paper Products - 4.4%
BB+ Boise Cascade Corp., 10.125s, 1997 $ 4,450 $ 4,728,125
- ---------------------------------------------------------------------------------------------------------
Iron and Steel - 4.1%
BB+ USX Corp., 7.19s, 1999 $ 4,500 $ 4,418,010
- ---------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations - 14.9%
GOV Federal National Mortgage Assn., 8.5s, 2007 $ 125 $ 128,849
GOV Government National Mortgage Assn.,
12.5s, 2011 672 758,979
GOV U.S. Treasury Notes, 7.875s, 1996 5,000 5,080,469
GOV U.S. Treasury Notes, 7.125s, 1998 10,000 10,113,281
------------
$ 16,081,578
- ---------------------------------------------------------------------------------------------------------
Utilities - Electric - 7.9%
BBB- Commonwealth Edison Co., 5.5s, 1995 $ 1,000 $ 996,200
BBB- Long Island Lighting Co., 7.625s, 1998 7,500 7,483,725
------------
$ 8,479,925
- ---------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $91,006,415) $ 91,874,343
- ---------------------------------------------------------------------------------------------------------
Repurchase Agreement - 15.4%
- ---------------------------------------------------------------------------------------------------------
Lehman Brothers, dated 4/28/95, due 5/01/95, total to be
received $16,569,142 (secured by U.S. Treasury Bond, 9.125s,
due 5/15/09, market value $16,892,272), at Cost and Value $16,561 $ 16,561,000
- ---------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $107,567,415) $108,435,343
Other Assets, Less Liabilities - (0.8)% (878,236)
- ---------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $107,557,107
- ---------------------------------------------------------------------------------------------------------
<F1>Restricted security.
See notes to financial statements
|
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
April 30, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $91,006,415) $ 91,874,343
Repurchase agreement, at value (identified cost, $16,561,000) 16,561,000
------------
Total investments, at value (identified cost, $107,567,415) $108,435,343
Cash 912
Receivable for daily variation margin on open futures contracts 28,125
Receivable for investments sold 13,462,110
Receivable for Fund shares sold 41,158
Interest receivable 1,287,885
Deferred organization expenses 8,339
Other assets 5,175
------------
Total assets $123,269,047
------------
Liabilities:
Distributions payable $ 145,893
Payable for investments purchased 15,340,195
Payable for Fund shares reacquired 196,680
Payable to affiliates -
Management fee 3,534
Distribution fee 16,039
Accrued expenses and other liabilities 9,599
------------
Total liabilities $ 15,711,940
------------
Net assets $107,557,107
------------
Net assets consist of:
Paid-in capital $112,678,055
Unrealized appreciation on investments 916,162
Accumulated net realized loss on investments (5,797,667)
Accumulated distributions in excess of net investment income (239,443)
------------
Total $107,557,107
------------
Shares of beneficial interest outstanding 15,146,092
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $85,772,722 / 12,076,923 shares of beneficial
interest outstanding) $7.10
-----
Offering price per share (100/97.5) $7.28
<F9>Class B shares:
Net asset value and offering price per share
(net assets of $17,333,887 / 2,442,980 shares of beneficial
interest outstanding) $7.10
-----
Class C shares:
Net asset value, offering price, and redemption price per share
(net assets of $4,450,498 / 626,189 shares of beneficial
interest outstanding) $7.11
-----
|
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales charge may be imposed on redemptions of Class A and Class B shares. See notes to financial statements
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
Year Ended April 30, 1995
- -------------------------------------------------------------------------------
Net investment income:
Interest income $ 8,483,678
------------
Expenses -
Management fee $ 453,367
Trustees' compensation 21,614
Shareholder servicing agent fee (Class A) 141,224
Shareholder servicing agent fee (Class B) 33,865
Shareholder servicing agent fee (Class C) 5,261
Distribution and service fee (Class A) 141,693
Distribution and service fee (Class B) 154,703
Distribution and service fee (Class C) 35,437
Custodian fee 43,975
Printing 38,249
Auditing fees 34,250
Postage 17,443
Amortization of organization expenses 4,573
Miscellaneous 130,381
------------
Total expenses $ 1,256,035
Reduction of expenses by investment adviser (20,827)
------------
Net expenses $ 1,235,208
------------
Net investment income $ 7,248,470
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (2,222,098)
Futures contracts (1,176,723)
------------
Net realized loss on investments $ (3,398,821)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 2,476,218
Futures contracts 48,234
------------
Net unrealized gain on investments $ 2,524,452
------------
Net realized and unrealized loss on investments $ (874,369)
------------
Increase in net assets from operations $ 6,374,101
------------
|
See notes to financial statements
FINANCIAL STATEMENTS - continued Statement of Changes in Net Assets - ------------------------------------------------------------------------------ |
Increase (decrease) in net assets:
From operations -
Net investment income $ 7,248,470 $ 5,591,257
Net realized loss on investments (3,398,821) (2,581,304)
Net unrealized gain (loss) on investments 2,524,452 (1,943,588)
------------ ------------
Increase in net assets from operations $ 6,374,101 $ 1,066,365
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (6,069,321) $ (5,029,684)
From net investment income (Class B) (875,473) (202,316)
From net investment income (Class C) (212,068) --
In excess of net investment income (Class A) -- (302,722)
In excess of net investment income (Class B) -- (12,507)
------------ ------------
Total distributions declared to shareholders $ (7,156,862) $ (5,547,229)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 56,036,281 $136,000,527
Net asset value of shares issued to
shareholders in reinvestment of
distributions 5,481,250 4,091,855
Cost of shares reacquired (65,546,283) (90,712,878)
------------ ------------
Increase (decrease) in net assets from Fund
share transactions $ (4,028,752) $ 49,379,504
------------ ------------
Total increase (decrease) in net assets $ (4,811,513) $ 44,898,640
Net assets:
At beginning of period 112,368,620 67,469,980
------------ ------------
At end of period (including accumulated
distributions in excess of net investment
income of $223,621 and $315,229,
respectively) $107,557,107 $112,368,620
------------ ------------
|
See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------
Year Ended April 30, 1995 1994 1993 1992<F1> 1995 1994<F2> 1995<F3>
- -------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 7.14 $ 7.46 $ 7.29 $ 7.31 $ 7.14 $ 7.50 $ 7.08
------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F6> -
Net investment
income<F10> $ 0.46 $ 0.44 $ 0.48 $ 0.08 $ 0.41 $ 0.21 $ 0.37
Net realized and
unrealized gain
(loss) on
investments (0.04) (0.32) 0.17<F7> (0.02)<F7> (0.05) (0.33) (0.01)
------ ------ ------ ------ ------ ------ ------
Total from
investment
operations $ 0.42 $ 0.12 $ 0.65 $ 0.06 $ 0.36 $(0.12) $ 0.36
------ ------ ------ ------ ------ ------ ------
Less distributions
declared to
shareholders<F8> -
From net investment
income $(0.46) $(0.42) $(0.48) $(0.08) $(0.40) $(0.23) $(0.33)
In excess of net
investment income -- (0.02) -- -- -- (0.01) --
------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.46) $(0.44) $(0.48) $(0.08) $(0.40) $(0.24) $(0.33)
------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $ 7.10 $ 7.14 $ 7.46 $ 7.29 $ 7.10 $ 7.14 $ 7.11
------ ------ ------ ------ ------ ------ ------
Total return<F9> 6.09% 1.61% 9.17% 4.98%<F4> 5.20% (1.69)%<F5> 5.25%<F5>
Ratios (to average
net assets)/
Supplemental data<F10>:
Expenses 0.95% 0.85% 0.60% 0.55%<F4> 1.81% 1.74%<F4> 1.85%<F4>
Net investment
income 6.54% 5.99% 6.40% 6.22%<F4> 5.73% 4.90%<F4> 6.01%<F4>
Portfolio turnover 498% 861% 472% 72% 498% 861% 498%
Net assets at
end of period
(000 omitted) $85,773 $100,297 $67,470 $4,924 $17,334 $12,072 $4,450
<F1>For the period from the commencement of investment operations, February 26, 1992 to April 30, 1992.
<F2>For the period from the commencement of offering of Class B shares, September 7, 1993 to April 30, 1994.
<F3>For the period from the commencement of offering of Class C shares, July 1, 1994 to April 30, 1995.
<F4>Annualized.
<F5>Not annualized.
<F6>Per share data for the periods subsequent to April 30, 1994 are based on average shares outstanding.
<F7>The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F8>For the year ended April 30, 1993, the per share distribution from net realized gain on investments was $0.0021.
<F9>Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
<F10>The investment adviser did not impose a portion of its management fee and assumed some of the operating expenses of the Fund
for the periods indicated. If these fees and expenses had been incurred by the Fund, the net investment income per share and
the ratios would have been:
Net investment
income $ 0.46 $ 0.42 $ 0.43 $ 0.07 $ 0.41 $ 0.20 $ 0.37
Ratios (to average
net assets):
Expenses 0.97% 1.07% 1.29% 1.44%<F4> 1.82% 1.96%<F4> 1.88%<F4>
Net investment
income 6.52% 5.77% 5.70% 5.33%<F4> 5.72% 4.68%<F4> 5.98%<F4>
|
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization MFS Limited Maturity Fund (the Fund) is a diversified series of MFS Fixed Income Trust (the Trust). The Trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
(2) Significant Accounting Policies Investment Valuations - Debt securities (other than short-term obligations which mature in 60 days or less), including listed issues, are valued on the basis of valuations furnished by dealers or by a pricing service with consideration to factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon exchange or over-the-counter prices. Short-term obligations, which mature in 60 days or less, are valued at amortized cost, which approximates value. Futures contracts, options and options on futures contracts listed on commodities exchanges are valued at closing settlement prices. Over-the- counter options are valued by brokers through the use of a pricing model which takes into account closing bond valuations, implied volatility and short-term repurchase rates. Securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with institutions that the Fund's investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. The Fund requires that the securities purchased in a repurchase transaction be transferred to the custodian in a manner sufficient to enable the Fund to obtain those securities in the event of a default under the repurchase agreement. The Fund monitors, on a daily basis, the value of the securities transferred to ensure that the value, including accrued interest, of the securities under each repurchase agreement is greater than amounts owed to the Fund under each such repurchase agreement.
Deferred Organization Expenses - Costs incurred by the Fund in connection with its organization have been deferred and are being amortized on a straight-line basis over a five-year period beginning on the date of commencement of operations of the Fund.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying security may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as a part of an income producing strategy reflecting the view of
the Fund's management on the direction of interest rates.
Futures Contracts - The Fund may enter into futures contracts for the delayed delivery of securities or contracts based on financial indices at a fixed price on a future date. In entering such contracts, the Fund is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Fund. The Fund's investment in futures contracts is designed to hedge against anticipated future changes in interest rates or securities prices. The Fund may also invest in futures contracts for non- hedging purposes. For example, interest rate futures may be used in modifying the duration of the portfolio without incurring the additional transaction costs involved in buying and selling the underlying securities. Should interest rates or securities prices move unexpectedly, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal Reserve System and to member firms of the New York Stock Exchange or subsidiaries thereof. The loans are collateralized at all times by cash or securities with a market value at least equal to the market value of securities loaned. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities in the form of fees or from all or a portion of the income from investment of the collateral. The Fund would also continue to earn income on the securities loaned. At April 30, 1995, the Fund had no securities on loan.
Investment Transactions and Income - Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and original issue discount are amortized or accreted for both financial statement and tax reporting purposes as required by federal income tax regulations. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the fair value of the security on such date.
Tax Matters and Distributions - The Fund's policy is to comply with the provisions of the Internal Revenue Code (the Code) applicable to regulated investment companies and to distribute to shareholders all of its net taxable income, including any net realized gain on investments. Accordingly, no provision for federal income or excise tax is provided. The Fund files a tax return annually using tax accounting methods required under provisions of the Code which may differ from generally accepted accounting principles, the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported on these financial statements may differ from that reported on the Fund's tax return and, consequently, the character of distributions to shareholders reported in the financial highlights may differ from that reported to shareholders on Form 1099-DIV. Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial reporting basis and requires that only distributions in excess of tax basis earnings and profits are reported in the financial statements as return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains. During the year ended April 30, 1995, $15,822 was reclassified from accumulated net realized loss on investments to accumulated distributions in excess of net investment income, due to differences between book and tax accounting for mortgage-backed securities. This change had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A, Class B and Class C shares. The three classes of shares differ in their respective shareholder servicing agent, distribution and service fees. Shareholders of each class also bear certain expenses that pertain only to that particular class. All shareholders bear the common expenses of the Fund pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses, including distribution and shareholder service fees.
(3) Transactions with Affiliates Investment Adviser - The Fund has an investment advisory agreement with Massachusetts Financial Services Company (MFS) to provide overall investment advisory and administrative services, and general office facilities. The management fee, computed daily and paid monthly at an annual rate of 0.40% of average daily net assets, amounted to $453,367.
Under an expense reimbursement agreement with MFS, MFS has voluntarily agreed to pay temporarily all of the Fund's operating expenses, exclusive of management and distribution fees. The Fund will in turn pay MFS an expense reimbursement fee not greater than 0.40% of average daily net assets. To the extent that the expense reimbursement fee exceeds the Fund's actual expenses, the excess will be applied to amounts paid by MFS in prior years. At April 30, 1995, the aggregate unreimbursed expenses owed to MFS by the Fund amounted to $148,508, including $20,827 incurred in the current year.
The Fund pays no compensation directly to its Trustees who are officers of the investment adviser, or to officers of the Fund, all of whom receive remuneration for their services to the Fund from MFS. Certain of the officers and Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan for all its independent Trustees. Included in Trustees' compensation is a net periodic pension expense of $5,401 for the year ended April 30, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received $32,223 as its portion of the sales charge on sales of Class A shares of the Fund.
The Trustees have adopted separate distribution plans for Class A, Class B and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A Distribution Plan provides that the Fund will pay MFD up to 0.35% of its average daily net assets attributable to Class A shares annually in order that MFD may pay expenses on behalf of the Fund related to the distribution and servicing of its shares. These expenses include a service fee to each securities dealer that enters into a sales agreement with MFD of up to 0.25% per annum of the Fund's average daily net assets attributable to Class A shares which are attributable to that securities dealer, a distribution fee to MFD of up to 0.10% per annum of the Fund's average daily net assets attributable to Class A shares, commissions to dealers and payments to MFD wholesalers for sales at or above a certain dollar level, and other such distribution-related expenses that are approved by the Fund. MFD is not imposing the 0.10% distribution fee for an indefinite period. Fees incurred under the distribution plan during the year ended April 30, 1995 were 0.15% of average daily net assets attributable to Class A shares on an annualized basis and amounted to $141,693 (of which MFD retained $20,104).
The Class B and Class C Distribution Plans provide that the Fund will pay MFD a monthly distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to 0.25% per annum, of the Fund's average daily net assets attributable to Class B and Class C shares. MFD retains the service fee for accounts not attributable to a securities dealer. For Class B and Class C shares, the service fees retained amounted to $1,495 and $582, respectively. MFD will pay to securities dealers that enter into a sales agreement with MFD, all or a portion of the service fee attributable to Class B and Class C shares, and will pay to such securities dealers all of the distribution fee attributable to Class C shares. The service fee is intended to be additional consideration for services rendered by the dealer with respect to Class B and Class C shares. Fees incurred under the distribution plans during the year ended April 30, 1995 were 1.00% of average daily net assets attributable to Class B and Class C shares on an annualized basis and amounted to $154,703 and $35,437, respectively.
A contingent deferred sales charge is imposed on shareholder redemptions of Class A shares, on purchases of $1 million or more, in the event of a shareholder redemption within twelve months following the share purchase. A contingent deferred sales charge is imposed on shareholder redemptions of Class B shares in the event of a shareholder redemption within six years of purchase. MFD receives all contingent deferred sales charges. Contingent deferred sales charges imposed during the year ended April 30, 1995 amounted to $54,304 for Class B shares.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned $141,224, $33,865 and $5,261 for Class A, Class B and Class C shares, respectively, for its services as shareholder servicing agent. The fee is calculated as a percentage of the average daily net assets of each class of shares at an effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities Purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $299,842,635 $317,542,762
------------- -------------
Investments (non-U.S. government securities) $193,180,575 $173,468,437
------------- -------------
|
The cost and unrealized appreciation or depreciation in value of the investments owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $107,567,415
-------------
Gross unrealized appreciation $ 1,290,946
Gross unrealized depreciation (423,018)
-------------
Net unrealized appreciation $ 867,928
-------------
|
At April 30, 1995, the Fund, for federal income tax purposes, had a capital loss carryforward of $4,246,490 which may be applied against any net taxable realized gains of each succeeding year until the earlier of its utilization or expiration on April 30, 2002 ($141,540) and April 30, 2003 ($4,104,950).
(5) Shares of Beneficial Interest The Fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Class A Shares
Year Ended April 30, 1995 1994
--------------------------------- ----------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
Shares sold 3,921,821 $ 27,684,487 16,033,440 $118,182,057
Shares issued to shareholders in
reinvestment of distributions 655,143 4,624,574 531,402 3,912,804
Shares reacquired (6,542,877) (46,091,355) 11,571,972) (85,173,901)
---------- ----------- ---------- ------------
Net increase (decrease) (1,965,913) $(13,782,294) 4,992,870 $ 36,920,960
---------- ------------ --------- ------------
Class B Shares
Year Ended April 30,
1995 1994<F1>
--------------------------------- ----------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------
Shares sold 2,497,691 $ 17,640,259 2,423,342 $ 17,818,470
Shares issued to shareholders in
reinvestment of
distributions 99,556 701,588 24,554 179,051
Shares reacquired (1,845,637) (13,014,943) (756,526) (5,538,977)
---------- ------------ --------- ------------
Net increase 751,610 $ 5,326,904 1,691,370 $ 12,458,544
---------- ------------ --------- ------------
<F1>For the period from the commencement of offering of Class B shares,
September 7, 1993 to April 30, 1994.
|
Class C Shares
Year Ended April 30,
1995**
---------------------------------
Shares Amount
- -----------------------------------------------------------------
Shares sold 1,524,637 $ 10,711,535
Shares issued to shareholders in
reinvestment of
distributions 22,123 155,088
Shares reacquired (920,571) (6,439,985)
-------- -----------
Net increase 626,189 $ 4,426,638
-------- -----------
|
**For the period from the commencement of offering of Class C shares, July 1, 1994 to April 30, 1995.
(6) Line of Credit The Fund entered into an agreement which enables it to participate with other funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit with a bank which permits borrowings up to $350 million, collectively. Borrowings may be made to temporarily finance the repurchase of Fund shares. Interest is charged to each fund, based on its borrowings, at a rate equal to the bank's base rate. In addition, a commitment fee, based on the average daily unused portion of the line of credit, is allocated among the participating funds at the end of each quarter. The commitment fee allocated to the Fund for the year ended April 30, 1995 was $1,738.
(7) Financial Instruments The Fund trades financial instruments with off-balance sheet risk in the normal course of its investing activities in order to manage exposure to market risks such as interest rates. These financial instruments include futures contracts. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and does not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of obligations under these financial instruments at April 30, 1995, is as follows:
At April 30, 1995, the Fund had sufficient cash and/or securities to cover margin requirements on open futures contracts.
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Fixed Income Trust and Shareholders of MFS Limited
Maturity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Limited Maturity Fund (one of the series
constituting MFS Fixed Income Trust) as of April 30, 1995, the related statement
of operations for the year then ended, the statement of changes in net assets
for the years ended April 30, 1995 and 1994, and the financial highlights for
each of the years in the four-year period ended April 30, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned at April 30, 1995 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Limited Maturity
Fund at April 30, 1995, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 2, 1995
MFS(R) Limited
Maturity Fund [Seal] BULK RATE
1 U.S. POSTAGE
500 Boylston Street TOP-RATED SERVICES P A I D
Boston, MA 02116 PERMIT #55638
BOSTON, MA
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[Logo] MFS
THE FIRST NAME IN MUTUAL FUNDS
MLM-2 6/95 9.5M 36/236/336
PROSPECTUS
September 1, 1995
MFS(R) MUNICIPAL Class A Shares of Beneficial Interest
LIMITED MATURITY FUND Class B Shares of Beneficial Interest
(A Member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
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Page
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1. Expense Summary ........................................................ 2
2. The Fund ............................................................... 3
3. Condensed Financial Information ........................................ 4
4. Investment Objective and Policies ...................................... 5
5. Management of the Fund ................................................. 8
6. Information Concerning Shares of the Fund .............................. 9
Purchases ........................................................... 9
Exchanges ........................................................... 13
Redemptions and Repurchases ......................................... 14
Distribution Plans .................................................. 16
Distributions ....................................................... 18
Tax Status .......................................................... 18
Net Asset Value ..................................................... 19
Description of Shares, Voting Rights and Liabilities ................ 19
Performance Information ............................................. 20
Expenses ............................................................ 20
7. Shareholder Services ................................................... 21
Annex A ................................................................ 23
Appendix A ............................................................. 26
Appendix B ............................................................. 26
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.
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MFS MUNICIPAL LIMITED MATURITY FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
MFS Municipal Limited Maturity Fund (the "Fund") is a diversified series of
MFS(R) Series Trust IX (the "Trust"), an open-end investment company presently
consisting of three series. The investment objective of the Fund is to provide
as high a level of current income exempt from federal income taxes as is
considered consistent with prudent investing while seeking protection of
shareholders' capital. See "Investment Objective and Policies". The minimum
initial investment generally is $1,000 per account (see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street,
Boston, Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY
FINANCIAL INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE
IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR
SHARES.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The
Trust, on behalf of the Fund, has filed with the Securities and Exchange
Commission (the "SEC") a Statement of Additional Information, dated September
1, 1995, which contains more detailed information about the Trust and the Fund
and is incorporated into this Prospectus by reference. See page 23 for a
further description of the information set forth in the Statement of
Additional Information. A copy of the Statement of Additional Information may
be obtained without charge by contacting the Shareholder Servicing Agent (see
back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
1. EXPENSE SUMMARY
CLASS A CLASS B CLASS C
------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Shares
(as a percentage of offering price) ...................... 2.50% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable) .............................................. See Below<F1> 4.00% 0.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ............................................ 0.40% 0.40% 0.40%
Rule 12b-1 Fees ............................................ 0.15%<F2> 0.93%<F3> 1.00%<F3>
Other Expenses ............................................. 0.40% 0.40% 0.40%
----- ----- -----
Total Operating Expenses ................................... 0.95% 1.73% 1.80%
- ----------
<F1> Purchases of $1 million or more are not subject to an initial sales charge;
however, a contingent deferred sales charge ("CDSC") of 1% will be imposed
on such purchases made in the event of certain redemption transactions
within 12 months following such purchases (see "Purchases").
<F2> The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per annum
of the average daily net assets attributable to Class A shares (see
"Distribution Plans"). Currently, the service fee has been set at 0.15% per
annum, and the distribution fee, equal to 0.10% per annum of the Fund's
average daily net assets attributable to Class A shares, is not being
imposed. After a substantial period of time, distribution expenses paid
under this Plan, together with the initial sales charge, may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
<F3> The Fund has adopted separate Distribution Plans for its Class B and its
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which
provide that it will pay distribution/service fees aggregating up to (but
not necessarily all of) 1.00% per annum of the average daily net assets
attributable to the Class B shares under the Class B Distribution Plan and
the Class C shares under the Class C Distribution Plan (see "Distribution
Plans"). Except in the case of the first year Class B service fee, this fee
has been set at 0.15% of the Fund's average daily net assets attributable
to Class B shares. After a substantial period of time, distribution
expenses paid under these Plans, together with the CDSC payable upon
redemption of Class B shares, may total more than the maximum sales charge
that would have been permissible if imposed entirely as an initial sales
charge.
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An investor would pay the following dollar amounts of expenses on a $1,000 investment in the Fund, assuming (a) 5% annual return and (b) redemption at the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
------ ------- ---------------- -------
(1)
1 year ................. $ 34 $ 58 $ 18 $ 18
3 years ................ 55 84 54 57
5 years ................ 76 114 94 97
10 years ................ 139 183(2) 183(2) 212
- ----------
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(1) Assumes no redemption
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear
directly or indirectly. More complete descriptions of the following expenses
are set forth in the following sections of the Prospectus: (i) varying sales
charges on share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases";
(iii) management fees -- "Management of the Fund", and (iv) Rule 12b-1 (i.e.,
distribution plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2. THE FUND The Fund is a diversified series of the Trust, an open-end management investment company which was organized as a business trust under the laws of The Commonwealth of Massachusetts in 1985. The Trust presently consists of three series, each of which represents a portfolio with separate investment policies. Shares of the Fund are continuously sold to the public and the Fund uses the proceeds to buy securities for its portfolio. Three classes of shares of the Fund currently are offered to the general public. Class A shares are offered at net asset value plus an initial sales charge (or a CDSC in the case of certain purchases of $1 million or more) and subject to a Distribution Plan providing for an annual distribution and service fee. Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC and a Distribution Plan providing for an annual distribution and service fee which are greater than the Class A annual distribution and service fee. Class B shares will convert to Class A shares approximately eight years after purchase. Class C shares are offered at net asset value without an initial sales charge or a CDSC but subject to a Distribution Plan providing for an annual distribution and service fee which are equal to the Class B annual distribution and service fee. Class C shares do not convert to any other class of shares of the Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of the Trust and the Fund. A majority of the Trustees of the Trust are not affiliated with the Adviser. The Adviser is responsible for the management of the Fund's assets and the officers of the Trust are responsible for the Fund's operations. The Adviser manages the portfolio from day to day in accordance with the Fund's investment objective and policies. The selection of investments and the way they are managed depend on the conditions and trends in the economy and the financial marketplaces. The Fund also offers to buy back (redeem) its shares from its shareholders at any time at net asset value, less any applicable CDSC.
3. CONDENSED FINANCIAL INFORMATION The following information should be read in conjunction with the financial statements included in the Fund's Annual Report to Shareholders, which are incorporated by reference into the Statement of Additional Information in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing.
FINANCIAL HIGHLIGHTS
EIGHT EIGHT TEN
YEAR MONTHS YEAR MONTHS MONTHS
ENDED ENDED YEAR ENDED AUGUST 31, ENDED ENDED ENDED
APRIL 30, APRIL 30, ------------------------ APRIL 30, APRIL 30, APRIL 30,
1995 1994 1993 1992<F1> 1995 1994<F2> 1995<F3>
---- -------- ---- -- -- --------- --------- ---------
CLASS A CLASS B CLASS C
------- ------- -------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -
beginning of period $ 7.47 $ 7.72 $ 7.43 $ 7.31 $ 7.46 $ 7.75 $ 7.45
------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F5> -
Net investment income<F10> $ 0.28 $ 0.19 $ 0.31 $ 0.15 $ 0.21 $ 0.14 $ 0.21
Net realized and
unrealized gain (loss)
on investments (0.02) (0.22) 0.30 0.12 (0.02) (0.26) (0.02)
------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.26 $(0.03) $ 0.61 $ 0.27 $ 0.19 $(0.12) $ 0.19
------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment
income $(0.28) $(0.19)<F8> $(0.31) $(0.15)<F7> $(0.21) $(0.13) $(0.19)
In excess of net
investment income -- <F9> -- -- -- -- <F9> (0.01) -- <F9>
From net realized gain
on investments -- -- (0.01) -- -- -- --
In excess of net
realized gain on
investments -- (0.03) -- -- -- (0.03) --
------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.28) $(0.22) $(0.32) $(0.15) $(0.21) $(0.17) $(0.19)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of
period $ 7.45 $ 7.47 $ 7.72 $ 7.43 $ 7.44 $ 7.46 $ 7.45
------ ------ ------ ------ ------ ------ ------
Total return<F6> 3.55% (0.59)%<F4> 8.47% 8.26%<F4> 2.67% (2.37)%<F4> 2.53%
RATIOS (TO AVERAGE NET ASSETS)
/SUPPLEMENTAL DATA<F10>:
Expenses 0.96% 0.89%<F4> 0.68% 0.55%<F4> 1.81% 1.74%<F4> 1.79%<F4>
Net investment income 3.74% 3.72%<F4> 4.04% 4.25%<F4> 2.88% 2.79%<F4> 2.77%<F4>
PORTFOLIO TURNOVER 50% 48% 69% 8% 50% 48% 50%
NET ASSETS AT END OF
PERIOD (000 OMITTED) $64,329 $83,367 $87,192 $21,312 $7,792 $7,415 $1,934
- -------------
<F1> For the period from the commencement of investment operations, March 17, 1992 to August 31, 1992.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to April 30, 1994.
<F3> For the period from the commencement of offering of Class C shares, July 1, 1994 to April 30, 1995.
<F4> Annualized.
<F5> Per share data for the periods subsequent to April 30, 1994 are based on average shares outstanding.
<F6> Total returns for Class A shares do not include the applicable sales charge. If the charge had been
included, the results would have been lower.
<F7> Includes a per share distribution from paid-in capital of $0.0007.
<F8> Includes a per share distribution in excess of net investment income of $0.002.
<F4> Includes a per share distribution in excess of net investment income of $0.002 (Class A) and $0.001
(Class B and Class C).
<F4> The investment adviser did not impose all or a portion of its advisory, distribution or expense
reimbursement fees for the periods indicated. If these fees had been incurred by the Fund, the net
investment income per share and the ratios would have been:
Net investment income $ 0.28 $ 0.18 $ 0.28 $ 0.13 $ 0.21 $ 0.12 $ 0.21
RATIOS (TO AVERAGE
NET ASSETS):
Expenses 0.95% 1.12%<F4> 1.16% 1.16%<F4> 1.80% 2.05% 1.79%<F4>
Net investment
income 3.74% 3.49%<F4> 3.57% 3.64%<F4> 2.88% 2.48%<F4> 2.77%<F4>
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4. INVESTMENT OBJECTIVE AND POLICIES INVESTMENT OBJECTIVE -- The Fund's investment objective is to provide as high a level of current income exempt from federal income taxes as is considered consistent with prudent investing and protection of shareholders' capital. Any investment involves risk and there can be no assurance that the Fund will achieve its investment objective. The Fund's investment objective and policies are not fundamental and may be changed without shareholder approval. A change in the Fund's investment objective may result in the Fund having an investment objective different from the objective which the shareholder considered appropriate at the time of investment in the Fund.
INVESTMENT POLICIES -- The Fund's policy under normal conditions is to invest substantially all (i.e., at least 80%) of its assets in debt securities issued by or on behalf of states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies or instrumentalities, the interest on which is exempt from federal income tax ("Municipal Bonds" or "tax-exempt securities"). As a defensive measure during times of adverse market conditions, up to 50% of the Fund's assets may be temporarily invested in short-term investments described in paragraphs 3 and 4 below.
Substantially all of the Fund's total assets will be invested in:
(1) Tax-exempt securities which are rated AAA, AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or by Fitch Investors Service, Inc. ("Fitch") or are rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") (and comparable unrated securities);
(2) Notes of issuers having an issue of outstanding Municipal Bonds rated AAA, AA, A or BBB by S&P or Aaa, Aa, A or Baa by Moody's (or issues of comparable quality) or which are guaranteed by the U.S. Government;
(3) Obligations issued or guaranteed by the U.S. Government or its agencies, authorities or instrumentalities; and
(4) Commercial paper, obligations of banks (including certificates of deposit and bankers' acceptances) with $1 billion or more of assets, and cash.
Under normal market conditions, the dollar weighted average maturity of the Fund's portfolio will not exceed 5 years and substantially all of the securities held by the Fund will have remaining maturities of 10 years or less.
Interest income from the short-term investments described in paragraphs 3 and 4 above will be taxable to shareholders as ordinary income. The Fund may purchase Municipal Bonds, the interest on which may be subject to an alternative minimum tax (see "Tax Status"), but for purposes of this Prospectus, such interest is nonetheless considered to be tax-exempt. For a comparison of yields on Municipal Bonds and taxable securities, see the Taxable Equivalent Yield Table in Appendix A to this Prospectus. For a general discussion of Municipal Bonds and descriptions of short-term investments permitted as investments and the ratings of S&P, Fitch and Moody's for Municipal Bonds, see Appendix B to this Prospectus and Appendix A to the Statement of Additional Information, respectively.
The net asset value of the shares of an open-end investment company such as the Fund, which invests primarily in fixed income tax-exempt securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the market value of the portfolio can be expected to rise. Conversely, when interest rates rise, the market value of the portfolio can be expected to decline.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Bonds. For the effect of current federal tax law on this exemption, see the "Tax Status" section of this Prospectus.
SECURITIES RATED BBB/BAA: As noted above, the Fund may invest in tax-exempt securities rated Baa by Moody's or BBB by S&P or Fitch (and comparable unrated securities). These securities, while normally exhibiting adequate protection parameters, have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than in the case of higher grade tax-exempt securities. If a security purchased by the Fund is subsequently downgraded to below BBB by S&P or Fitch or Baa by Moody's or comparable standards for unrated securities, the security will be sold only if the Adviser believes it is advantageous to do so.
"WHEN-ISSUED" OR "FORWARD DELIVERY" SECURITIES: Some tax-exempt securities may be purchased on a "when-issued" or on a "forward delivery" basis, which means that the securities will be delivered to the Fund at a future date, often beyond customary settlement time. The commitment to purchase a security for which payment will be made on a future date may be deemed a separate security. The Fund does not pay for the securities until received and does not start earning interest on them until the contractual settlement date. In order to invest its assets immediately, while awaiting delivery of securities purchased on such bases, the Fund will normally invest in cash, short-term money market instruments or high quality liquid debt securities. Although the Fund does not intend to make such purchases for speculative purposes, purchases of securities on such bases may involve more risk than other types of purchases. For additional information concerning the use, risks and costs of "when- issued" and "forward delivery" securities, see the Statement of Additional Information.
ZERO COUPON BONDS: Municipal Bonds in which the Fund may invest also include zero coupon bonds. Zero coupon bonds are debt obligations which are issued at a significant discount from face value and do not require the periodic payment of interest. The discount approximates the total amount of interest the bonds will accrue and compound over the period until maturity or the first interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon bonds benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of such cash. Such investments may experience greater volatility in market value than debt obligations which make regular payments of interest. The Fund will accrue income on such investments for tax and accounting purposes, as required, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Fund's distribution obligations.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not registered under the Securities Act of 1933 ("1933 Act") ("restricted securities"), including those that can be offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A securities"). The Trust's Board of Trustees determines, based upon a continuing review of the trading markets for a specific Rule 144A security, whether such security is liquid and thus not subject to the Fund's limitation on investing not more than 15% of its net assets in illiquid investments. The Board of Trustees has adopted guidelines and delegated to MFS the daily function of determining and monitoring the liquidity of Rule 144A securities. The Board, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Board will carefully monitor the Fund's investments in Rule 144A securities, focusing on such important factors, among others, as valuation, liquidity and availability of information. Investing in restricted securities could have the effect of decreasing the level of liquidity in the Fund to the extent that qualified institutional buyers become for a time uninterested in purchasing Rule 144A securities held in the Fund's portfolio. Subject to the Fund's 15% limitation on investments in illiquid investments, the Fund may also invest in restricted securities that may not be sold under Rule 144A, which presents certain risks. As a result, the Fund might not be able to sell these securities when the Adviser wishes to do so, or might have to sell them at less than fair value. In addition, market quotations are less readily available. Therefore, judgment may at times play a greater role in valuing these securities than in the case of unrestricted securities.
OPTIONS: The Fund may write (sell) "covered" put and call options on fixed income securities. Call options written by the Fund give the holder the right to buy the underlying securities from the Fund at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Put options written by the Fund give the holder the right to sell the underlying securities to the Fund during the term of the option at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Call options are "covered" by the Fund, for example, when it owns the underlying securities, and put options are "covered" by the Fund, for example, when it has established a segregated account of cash, short-term money market instruments or high quality debt securities which can be liquidated promptly to satisfy any obligation of the Fund to purchase the underlying securities. The Fund may also write straddles (combinations of puts and calls on the same underlying security). The writing of straddles generates additional premium income but may present greater risk.
The Fund will receive a premium from writing a put or call option, which increases the Fund's gross income in the event the option expires unexercised or is closed out at a profit. The amount of the premium will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the remaining term of the option, supply and demand and interest rates. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. It is possible, however, that illiquidity in the options markets may make it difficult from time to time for the Fund to close out its written option positions.
The Fund may also purchase put or call options in anticipation of changes in interest rates which may adversely affect the value of its portfolio or the prices of securities that the Fund wants to purchase at a later date. The premium paid for a put or call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security changes sufficiently to result in exercise, the option may expire without value to the Fund.
In addition, the Fund may purchase warrants on fixed income securities. A warrant on a fixed income security is a long-dated (i.e., long term) call option conveying to the holder of the warrant the right, but not the obligation, to purchase a fixed income security of a specific description (from the issuer) on a certain date or dates (the exercise date) at a fixed exercise price.
The Fund intends to write and purchase options on securities primarily for hedging purposes and also in an effort to increase current income. Options on securities, including warrants, that are written or purchased by the Fund will be traded on U.S. securities exchanges and in the over-the-counter market.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value is linked to foreign currencies, interest rates, commodities, indices or other financial indicators. Most indexed securities are short to intermediate term fixed-income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be positively or negatively indexed (i.e., their value may increase or decrease if the underlying instrument appreciates), and may have return characteristics similar to direct investments in the underlying instrument or to one or more options on the underlying instrument. Indexed securities may be more volatile than the underlying instrument itself.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and sell futures contracts on fixed income securities or indices of such securities, including Municipal Bond indices and any other indices of fixed income securities which may become available for trading ("Futures Contracts"). The Fund may also purchase and write options on such Futures Contracts ("Options on Futures Contracts"). These instruments will be used to hedge against anticipated future changes in interest rates which otherwise might either adversely affect the value of the Fund's portfolio securities or adversely affect the prices of securities which the Fund intends to purchase at a later date. Should interest rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of the hedging transactions and may realize a loss. Such investments may also be used for non-hedging purposes, to the extent permitted by applicable law.
ADDITIONAL POLICIES ON THE USE OF OPTIONS AND FUTURES: In order to assure that
the Fund will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the Fund enter
into transactions in Futures Contracts and Options on Futures Contracts only
(i) for bona fide hedging purposes (as defined in CFTC regulations), or (ii)
for non-hedging purposes, provided that the aggregate initial margin and
premiums on such non-hedging positions does not exceed 5% of the liquidation
value of the Fund's assets. In addition, the Fund must comply with the
requirements of various state securities laws in connection with such
transactions.
The Fund has adopted the additional restriction that it will not enter into a Futures Contract if, immediately thereafter, the value of securities and other obligations underlying all such Futures Contracts would exceed 50% of the value of the Fund's total assets. Moreover, the Fund will not purchase put and call options on securities or on Futures Contracts, if as a result, more than 5% of its total assets would be invested in such options.
Futures Contracts and Options on Futures Contracts that are entered into by the Fund will be traded on U.S. commodities exchanges.
RISK FACTORS: Although the Fund will enter into certain transactions in Futures Contracts and Options on Futures Contracts for hedging purposes, such transactions nevertheless involve risks. For example, a lack of correlation between the instrument underlying an option or Futures Contract and the assets being hedged, or unexpected adverse price movements, could render the Fund's hedging strategy unsuccessful and could result in losses. The Fund also may enter into transactions in such investments for other than hedging purposes, which involves greater risk. In particular, such transactions may result in losses for the Fund which are not offset by gains on other portfolio positions, thereby reducing gross income. In addition, there can be no assurance that a liquid secondary market will exist for any contract purchased or sold, and the Fund may be required to maintain a position until exercise or expiration, which could result in losses. The Statement of Additional Information contains a further description of options, Futures Contracts and Options on Futures Contracts, and a discussion of the risks related to transactions therein.
Transactions in options may be entered into on U.S. exchanges regulated by the SEC and in the over-the-counter market, while Futures Contracts and Options on Futures Contracts may be entered into on U.S. commodities exchanges regulated by the CFTC. Over-the-counter transactions involve certain risks which may not be present in exchange-traded transactions.
Gains recognized from options and futures transactions engaged in by the Fund are taxable income to shareholders upon distributions.
PORTFOLIO TRADING: The Fund intends to engage in buying and selling securities, as well as holding securities to maturity. In buying and selling portfolio securities, the Fund seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. For a description of the strategies which may be used by the Fund in buying and selling portfolio securities, see the Statement of Additional Information.
The primary consideration in placing portfolio security transactions with broker-dealers is to obtain, and maintain the availability of, execution at the most favorable prices. Consistent with the foregoing primary consideration, the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (the "NASD") and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund and of the other investment company clients of MFD as a factor in the selection of broker-dealers to execute the portfolio transactions. From time to time, the Adviser may direct certain portfolio transactions to broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's operating expenses (e.g., fees charged by the custodian of the Fund's assets). For a further discussion of portfolio trading, see the Statement of Additional Information.
The Statement of Additional Information includes a discussion of other investment policies and a listing of specific investment restrictions which govern the Fund's investment policies. The specific investment restrictions listed in the Statement of Additional Information may be changed without shareholder approval unless otherwise indicated (see "Investment Restrictions" in the Statement of Additional Information). The Fund's investment limitations, policies and rating standards are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
5. MANAGEMENT OF THE FUND INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment Advisory Agreement dated September 1, 1993 (the "Advisory Agreement"). The Adviser provides the Fund with overall investment advisory and administrative services, as well as general office facilities. Robert A. Dennis has been the Fund's portfolio manager since 1992. Mr. Dennis has been employed by the Adviser since 1980 and has been a Senior Vice President since 1986. Subject to such policies as the Trustees may determine, the Adviser makes investment decisions for the Fund. For these services and facilities, the Adviser receives a management fee computed and paid monthly at the rate of 0.40% per annum of the Fund's average daily net assets. For the fiscal year ended April 30, 1995, MFS received management fees under the Advisory Agreement of $343,251.
MFS also serves as investment adviser to each of the other funds in the MFS Family of Funds (the "MFS Funds"), to MFS Municipal Income Trust, MFS Government Markets Income Trust, MFS Multimarket Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust, Sun Growth Variable Annuity Fund, Inc., MFS/Sun Life Series Trust and seven variable accounts, each of which is a registered investment company established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the sale of various fixed/variable annuity contracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor organizations have a history of money management dating from 1924 and the founding of the first mutual fund in the United States, Massachusetts Investors Trust. Net assets under the management of the MFS organization were approximately $38.4 billion on behalf of approximately 1.7 million accounts as of July 31, 1995. As of such date, the MFS organization managed approximately $14.8 billion of assets in equity portfolios and approximately $19.2 billion of assets invested in fixed income portfolios. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.) which in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D. McNeil and John R. Gardner. Mr. Brodkin is the Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and a Senior Executive Vice President of MFS. Messrs. McNeil and Gardner are the Chairman and the President, respectively, of Sun Life. Sun Life, a mutual life insurance company, is one of the largest international life insurance companies and has been operating in the 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 also the Chairman, President and a Trustee of the Trust. Robert A. Dennis, Geoffrey L. Kurinsky, Stephen E. Cavan, W. Thomas London, James R. Bordewick, Jr. and James O. Yost, all of whom are officers of MFS, are officers of the Trust.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of shares of the Fund and also serves as distributor for each of the other MFS Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency and certain other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND PURCHASES Shares of the Fund may be purchased at the public offering price through any dealer or other financial institution ("dealers") having a selling agreement with MFD. Dealers may also charge their customers fees relating to investments in the Fund.
The Fund offers three classes of shares (Class A, B and C shares) which bear sales charges and distribution fees in different forms and amounts, as described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus an initial sales charge, but in certain cases are offered at net asset value without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at net asset value plus an initial sales charge as follows:
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
Less than $50,000 ............... 2.50% 2.56% 2.25%
$50,000 but less than $100,000 2.25 2.30 2.00
$100,000 but less than $250,000 . 2.00 2.04 1.75
$250,000 but less than $500,000 . 1.75 1.78 1.50
$500,000 but less than $1,000,000 1.50 1.52 1.25
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$1,000,000 or more .............. None** None** See Below**
MFD allows discounts to dealers (which are alike for all dealers) from the applicable public offering price, as shown in the above table. In the case of the maximum sales charge, the dealer retains 2.25% and MFD retains approximately 1/4 of 1% of the public offering price. The sales charge may vary depending on the number of shares of the Fund as well as certain other MFS Funds owned or being purchased, the existence of an agreement to purchase additional shares during a 13-month period (or 36-month period for purchases of $1 million or more) or other special purchase programs. A description of the Right of Accumulation, Letter of Intent and Group Purchase privileges by which the sales charge may be reduced is set forth in the Statement of Additional Information.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge). In the following two circumstances, Class A shares are also offered at net asset value without an initial sales charge but subject to a CDSC, equal to 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividend and capital gain distributions) or the total cost of such shares, in the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that either
(a) the employer has at least 25 employees or (b) the aggregate purchases by
the retirement plan of Class A shares of the MFS Funds will be in an amount
of at least $250,000 within a reasonable period of time, as determined by
MFD in its sole discretion.
In the case of such purchases, MFD will pay a commission to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
1% on sales up to $5 million, plus 0.25% on the amount in excess of $5
million. Purchases of $1 million or more for each shareholder account will be
aggregated over a 12-month period (commencing from the date of the first such
purchase) for purposes of determining the level of commissions to be paid
during the period with respect to such account. In addition, with respect to
sales to retirement plans under the second circumstance described above, MFD
may pay a commission, on sales in excess of $5 million to certain retirement
plans, of 1% to certain dealers which, at MFD's invitation, enter into an
agreement with MFD in which the dealer agrees to return any commission paid to
it on the sale (or on a pro rata portion thereof) if the shareholder redeems
his or her shares within a period of time after purchase as specified by MFD.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the initial sales charge imposed upon purchases of Class A shares and the CDSC imposed upon redemptions of Class A shares is waived. These circumstances are described in Annex A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ............................................... 4%
Second .............................................. 4%
Third ............................................... 3%
Fourth .............................................. 3%
Fifth ............................................... 2%
Sixth ............................................... 1%
Seventh and following ............................... 0%
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For Class B shares purchased prior to January 1, 1993, the CDSC imposed upon redemption is as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ............................................... 6%
Second .............................................. 5%
Third ............................................... 4%
Fourth .............................................. 3%
Fifth ............................................... 2%
Sixth ............................................... 1%
Seventh and following ............................... 0%
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The CDSC imposed is assessed against the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. No CDSC is assessed against shares acquired through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B shares purchased through dealers. MFD will also advance to dealers the first year service fee payable under the Fund's Class B Distribution Plan (see "Distribution Plans" below) at a rate equal to 0.25% of the purchase price of such shares. Therefore, the total amount paid to a dealer upon the sale of Class B shares is 4% of the purchase price of the shares (commission rate of 3.75% plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption of Class B shares is waived. These circumstances are described in Annex A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain outstanding for approximately eight years will convert to Class A shares of the Fund. Shares purchased through the reinvestment of distributions paid in respect of Class B shares will be treated as Class B shares for purposes of the payment of the distribution and service fees under the Distribution Plan applicable to Class B shares. See "Distribution Plans" below. However, for purposes of conversion to Class A shares, all shares in a shareholder's account that were purchased through the reinvestment of dividends and distributions paid in respect of Class B shares (and which have not converted to Class A shares as provided in the following sentence) will be held in a separate sub-account. Each time any Class B shares in the shareholder's account (other than those in the sub-account) convert to Class A shares, a portion of the Class B shares then in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares not acquired through reinvestment of dividends and distributions that are converting to Class A shares bear to the shareholder's total Class B shares not acquired through reinvestment. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that such conversion will not constitute a taxable event for federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class B shares would continue to be subject to higher expenses than Class A shares for an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an initial sales charge or a CDSC. Class C shares do not convert to any other class of shares of the Fund. The maximum investment in Class C shares that may be made is $5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of 1986, as amended (the "Code") if the retirement plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan or another similar recordkeeping program made available by the Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial investment is $1,000 per account and the minimum additional investment is $50 per account. Accounts being established for monthly automatic investments and under payroll savings programs and tax-deferred retirement programs (other than IRAs) involving the submission of investments by means of group remittal statements are subject to a $50 minimum on initial and additional investments per account. The minimum initial investment for IRAs is $250 per account and the minimum additional investment is $50 per account. Accounts being established for participation in the Automatic Exchange Plan are subject to a $50 minimum on initial and additional investments per account. There are also other limited exceptions to these minimums for certain tax-deferred retirement programs. Any minimums may be changed at any time at the discretion of MFD. The Fund reserves the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges should be made for investment purposes only. The Fund and MFD each reserve the right to reject any specific purchase order or to restrict purchases by a particular purchaser (or group of related purchasers). The Fund or MFD may reject or restrict any purchases by a particular purchaser or group, for example, when such purchase is contrary to the best interests of the Fund's other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges among certain classes of shares of certain MFS Funds (as determined by MFD) which follow a timing pattern, and with individuals or entities acting on such shareholders' behalf (collectively, "market timers"), setting forth the terms, procedures and restrictions with respect to such exchanges. In the absence of such an agreement, it is the policy of the Fund and MFD to reject or restrict purchases by market timers if (i) more than two exchange purchases are effected in a timed account in the same calendar quarter or (ii) a purchase would result in shares being held in timed accounts by market timers representing more than (x) one percent of the Fund's net assets or (y) specified dollar amounts in the case of certain MFS Funds which may include the Fund and which may change from time to time. The Fund and MFD each reserve the right to request market timers to redeem their shares at net asset value, less any applicable CDSC, if either of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with respect to sales of Class A, Class B and Class C shares. In addition, from time to time, MFD may pay dealers 100% of the applicable sales charge on sales of Class A shares of certain specified MFS Funds sold by such dealer during a specified sales period. In addition, MFD or its affiliates may, from time to time, pay dealers an additional commission equal to 0.50% of the net asset value of all of the Class B shares of certain specified MFS Funds sold by such dealer during a specified sales period. In addition, from time to time, MFD, at its expense, may provide additional commissions, compensation or promotional incentives ("concessions") to dealers which sell shares of the Fund. Such concessions provided by MFD may include financial assistance to dealers in connection with preapproved conferences or seminars, sales or training programs for invited registered representatives, payment for travel expenses, including lodging, incurred by registered representatives for such seminars or training programs, seminars for the public, advertising and sales campaigns regarding one or more MFS Funds, and/or other dealer-sponsored events. From time to time, MFD may make expense reimbursements for special training of a dealer's registered representatives in group meetings or to help pay the expenses of sales contests. Other concessions may be offered to the extent not prohibited by state laws or any self-regulatory agency, such as the NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in certain investment programs (e.g., the Automatic Investment Plan) or other shareholder services, MFD or its affiliates may either (i) give a gift of nominal value, such as a hand-held calculator, or (ii) make a nominal charitable contribution on their behalf.
A shareholder whose shares are held in the name of, or controlled by, a dealer might not receive many of the privileges and services from the Fund (such as Right of Accumulation, Letter of Intent and certain recordkeeping services) that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds in the MFS Family of Funds (the "MFS Funds") at net
asset value (if available for sale). In addition, Class C shares may be
exchanged for shares of the MFS money market fund at net asset value. Shares
of one class may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales charges or CDSC will be imposed in connection with an exchange from shares of an MFS Fund to shares of any other MFS Fund, except with respect to exchanges from an MFS money market fund to another MFS Fund which is not an MFS money market fund (discussed below). With respect to an exchange involving shares subject to a CDSC, the CDSC will be unaffected by the exchange and the holding period for purposes of calculating the CDSC will carry over to the acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the imposition of an initial sales charge or a CDSC for exchanges from an MFS money market fund to another MFS Fund which is not an MFS money market fund. These rules are described under the caption "Exchanges" in the Prospectuses of those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by certain qualified retirement plans may be exchanged for units of participation of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and Units may be exchanged for Class A shares of any MFS Fund. With respect to exchanges between Class A shares subject to a CDSC and Units, the CDSC will carry over to the acquired shares or Units and will be deducted from the redemption proceeds when such shares or Units are subsequently redeemed, assuming the CDSC is then payable (the period during which the Class A shares and the Units were held will be aggregated for purposes of calculating the applicable CDSC). In the event that a shareholder initially purchases Units and then exchanges into Class A shares subject to an initial sales charge of an MFS Fund, the initial sales charge shall be due upon such exchange, but will not be imposed with respect to any subsequent exchanges between such Class A shares and Units with respect to shares on which the initial sales charge has already been paid. In the event that a shareholder initially purchases Units and then exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period will commence upon such exchange, and the applicability of the CDSC with respect to subsequent exchanges shall be governed by the rules set forth in this paragraph above.
GENERAL: Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed
by the record owner(s) exactly as the shares are registered; if by telephone
- -- proper account identification is given by the dealer or shareholder of
record) and each exchange must involve either shares having an aggregate value
of at least $1,000 ($50 in the case of retirement plan participants whose
sponsoring organizations subscribe to the MFS FUNDamental 401(k) Plan or
another similar 401(k) recordkeeping system made available by the Shareholder
Servicing Agent) or all the shares in the account. If an Exchange Request is
received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the New York Stock Exchange (generally, 4:00 p.m.,
Eastern time) (the "Exchange"), the exchange usually will occur on that day if
all the requirements set forth above have been complied with at that time. No
more than five exchanges may be made in any one Exchange Request by telephone.
Additional information concerning this exchange privilege and prospectuses for
any of the other MFS Funds may be obtained from dealers or the Shareholder
Servicing Agent. A shareholder should read the prospectus of the other MFS
Fund and consider the differences in objectives, policies and restrictions
before making any exchange. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder
making the exchange. Exchanges by telephone are automatically available to
most non-retirement plan accounts and certain retirement plan accounts. For
further information regarding exchanges by telephone, see "Redemptions by
Telephone." The exchange privilege (or any aspect of it) may be changed or
discontinued and is subject to certain limitations, including certain
restrictions on purchases by market timers. Special procedures, privileges and
restrictions with respect to exchanges may apply to market timers who enter
into an agreement with MFD, as set forth in such agreement. See "Purchases --
General -- Right to Reject Purchase Orders/Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the shares in his account by mailing or delivering to the Shareholder Servicing Agent (see back cover for address) a stock power with a written request for redemption or letter of instruction, together with his share certificates (if any were issued), all in "good order" for transfer. "Good order" generally means that the stock power, written request for redemption, letter of instruction or certificate must be endorsed by the record owner(s) exactly as the shares are registered and the signature(s) must be guaranteed in the manner set forth below under the caption "Signature Guarantee." In addition, in some cases "good order" will require the furnishing of additional documents. The Shareholder Servicing Agent may make certain de minimis exceptions to the above requirements for redemption. Within seven days after receipt of a redemption request in "good order" by the Shareholder Servicing Agent, the Fund will make payment in cash of the net asset value of the shares next determined after such redemption request was received, reduced by the amount of any applicable CDSC described above and the amount of any income tax required to be withheld, except during any period in which the right of redemption is suspended or date of payment is postponed because the Exchange is closed or trading on such Exchange is restricted or to the extent otherwise permitted by the 1940 Act if an emergency exists. See "Tax Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account by telephoning the Shareholder Servicing Agent toll-free at (800) 225- 2606. Shareholders wishing to avail themselves of this telephone redemption privilege must so elect on their Account Application, designate thereon a bank and account number to receive the proceeds of such redemption, and sign the Account Application Form with the signature(s) guaranteed in the manner set forth below under the caption "Signature Guarantee." The proceeds of such a redemption, reduced by the amount of any applicable CDSC and the amount of any income tax required to be withheld, are mailed by check to the designated account, without charge, if the redemption proceeds do not exceed $1,000, and are wired in federal funds to the designated account if the redemption proceeds exceed $1,000. If a telephone redemption request is received by the Shareholder Servicing Agent by the close of regular trading on the Exchange on any business day, shares will be redeemed at the closing net asset value of the Fund on that day. Subject to the conditions described in this section, proceeds of a redemption are normally mailed or wired on the next business day following the date of receipt of the order for redemption. The Shareholder Servicing Agent will not be responsible for any losses resulting from unauthorized telephone transactions if it follows reasonable procedures designed to verify the identity of the caller. The Shareholder Servicing Agent will request personal or other information from the caller, and will normally also record calls. Shareholders should verify the accuracy of confirmation statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through his dealer (a repurchase), the shareholder can place a repurchase order with his dealer, who may charge the shareholder a fee. IF THE DEALER RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY, REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD.
REDEMPTION BY CHECK: Only Class A and Class C shares may be redeemed by check. A shareholder owning Class A shares of the Fund may elect to have a special account with State Street Bank and Trust Company (the "Bank") for the purpose of redeeming Class A or Class C shares from his or her account by check. The Bank will provide each Class A or Class C shareholder, upon request, with forms of checks drawn on the Bank. Only shareholders having accounts in which no share certificates have been issued will be permitted to redeem shares by check. Checks may be made payable in any amount not less than $500. Shareholders wishing to avail themselves of this redemption by check privilege should so request on their Account Application, must execute signature cards (for additional information, see the Account Application) with signature guaranteed in the manner set forth under the caption "Signature Guarantee" below, and must return any Class A or Class C share certificates issued to them. Additional documentation will be required from corporations, partnerships, fiduciaries or other such institutional investors. All checks must be signed by the shareholder(s) of record exactly as the account is registered before the Bank will honor them. The shareholders of joint accounts may authorize each shareholder to redeem by check. The check may not draw on monthly dividends which have been declared but not distributed. SHAREHOLDERS WHO PURCHASE CLASS A AND CLASS C SHARES BY CHECK (INCLUDING CERTIFIED CHECKS OR CASHIER'S CHECKS) MAY WRITE CHECKS AGAINST THOSE SHARES ONLY AFTER THEY HAVE BEEN ON THE FUND'S BOOKS FOR 15 DAYS. WHEN SUCH A CHECK IS PRESENTED TO THE BANK FOR PAYMENT, A SUFFICIENT NUMBER OF FULL AND FRACTIONAL SHARES WILL BE REDEEMED TO COVER THE AMOUNT OF THE CHECK, ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD. IF THE AMOUNT OF THE CHECK, PLUS ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD IS GREATER THAN THE VALUE OF CLASS A OR CLASS C SHARES HELD IN THE SHAREHOLDER'S ACCOUNT, THE CHECK WILL BE RETURNED UNPAID, AND THE SHAREHOLDER MAY BE SUBJECT TO EXTRA CHARGES. TO AVOID DISHONOR OF CHECKS DUE TO FLUCTUATIONS IN ACCOUNT VALUE, SHAREHOLDERS ARE ADVISED AGAINST REDEEMING ALL OR MOST OF THEIR ACCOUNT BY CHECK. CHECKS SHOULD NOT BE USED TO CLOSE A FUND ACCOUNT BECAUSE WHEN THE CHECK IS WRITTEN, THE SHAREHOLDER WILL NOT KNOW THE EXACT TOTAL VALUE OF THE ACCOUNT ON THE DAY THE CHECK CLEARS. There is presently no charge to the shareholder for the maintenance of this special account or for the clearance of any checks, but the Fund and the Bank reserve the right to impose such charges or to modify or terminate the redemption by check privilege at any time.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in
the case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month.
Class B shares purchased on or after January 1, 1993 will be aggregated on a
calendar month basis -- all transactions made during a calendar month,
regardless of when during the month they have occurred, will age one year at
the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior
to January 1, 1993, transactions will be aggregated on a calendar year basis
- -- all transactions made during a calendar year, regardless of when during the
year they have occurred, will age one year at the close of business on
December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's account for a particular class of shares represented by Direct Purchases exceeds the sum of the six calendar year aggregations (12 months in the case of purchases of $1 million or more of Class A shares or purchases by certain retirement plans of Class A shares) of Direct Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is ever assessed on additional shares acquired through the automatic reinvestment of dividends or capital gain distributions ("Reinvested Shares"). Therefore, at the time of redemption of a particular class, (i) any Free Amount is not subject to the CDSC and (ii) the amount of the redemption equal to the then-current value of Reinvested Shares is not subject to the CDSC, but (iii) any amount of the redemption in excess of the aggregate of the then-current value of Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will first be applied against the amount of Direct Purchases which will result in any such charge being imposed at the lowest possible rate. The CDSC to be imposed upon redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of registration, except as described in Annex A hereto.
GENERAL: The following information applies to redemptions and repurchases of all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the Fund requires, in certain instances as indicated above, that the shareholder's signature be guaranteed. In these cases the shareholder's signature must be guaranteed by an eligible bank, broker, dealer, credit union, national securities exchange, registered securities association, clearing agency or savings association. Signature guarantees shall be accepted in accordance with policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their shares have a one-time right to reinvest the redemption proceeds in the same class of shares of any of the MFS Funds (if shares of such Fund are available for sale) at net asset value (with a credit for any CDSC paid) within 90 days of the redemption pursuant to the Reinstatement Privilege. If the shares credited for any CDSC paid are then redeemed within six years of the initial purchase in the case of Class B shares or within 12 months of the initial purchase for certain Class A share purchases, a CDSC will be imposed upon redemption. Such purchases under the Reinstatement Privilege are subject to all limitations in the Statement of Additional Information regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations, the Fund has reserved the right to pay the redemption or repurchase price of shares of the Fund, either totally or partially, by a distribution in-kind of securities (instead of cash) from the Fund's portfolio. The securities distributed in such a distribution would be valued at the same amount as that assigned to them in calculating the net asset value for the shares being sold. If a shareholder received a distribution in-kind, the shareholder could incur brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of maintaining small accounts, the Fund reserves the right to redeem shares in any account for their then-current value if at any time the total investment in such account drops below $500 because of redemptions, except in the case of accounts being established for monthly automatic investments and certain payroll savings programs, Automatic Exchange Plan accounts and tax-deferred retirement plans, for which there is a lower minimum investment requirement. See "Purchases -- General -- Minimum Investment." Shareholders will be notified that the value of their account is less than the minimum investment requirement and allowed 60 days to make an additional investment before the redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and
its shareholders.
In certain circumstances, the fees described below have not yet been imposed or are being waived. These circumstances are described below under the heading "Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a service fee of up to 0.25% of the average daily net assets attributable to the class of shares to which the Distribution Plan relates (i.e., Class A, Class B or Class C shares, as appropriate) (the "Designated Class") annually in order that MFD may pay expenses on behalf of the Fund relating to the servicing of shares of the Designated Class. The service fee is used by MFD to compensate dealers which enter into a sales agreement with MFD in consideration for all personal services and/or account maintenance services rendered by the dealer with respect to shares of the Designated Class owned by investors for whom such dealer is the dealer or holder of record. MFD may from time to time reduce the amount of the service fees paid for shares sold prior to a certain date. Service fees may be reduced for a dealer that is the holder or dealer of record for an investor who owns shares of the Fund having an aggregate net asset value at or above a certain dollar level. Dealers may from time to time be required to meet certain criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under each Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay MFD a distribution fee based on the average daily net assets attributable to the Designated Class as partial consideration for distribution services performed and expenses incurred in the performance of MFD's obligations under its distribution agreement with the Fund. See "Management of the Fund -- Distributor" in the Statement of Additional Information. The amount of the distribution fee paid by the Fund with respect to each class differs under the Distribution Plans, as does the use by MFD of such distribution fees. Such amounts and uses are described below in the discussion of the separate Distribution Plans.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are charged to, and therefore reduce, income allocated to shares of the Designated Class. The Distribution Plans have substantially identical provisions with respect to their operating policies and their initial approval, renewal, amendment and termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered pursuant to an initial sales charge, a substantial portion of which is paid to or retained by the dealer making the sale (the remainder of which is paid to MFD). See "Purchases -- Class A Shares" above. In addition to the initial sales charge, the dealer also generally receives the ongoing 0.25% per annum service fee, as discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal, on an annual basis, to 0.10% of the Fund's average daily net assets attributable to Class A shares. As noted above, MFD may use the distribution fee to cover distribution-related expenses incurred by it under its distribution agreement with the Fund, including commissions to dealers and payments to wholesalers employed by MFD (e.g., MFD pays commission to dealers with respect to purchases of $1 million or more of Class A shares which are sold at net asset value but which are subject to a 1% CDSC for one year after purchase). See "Purchases -- Class A Shares" above. In addition, to the extent that the aggregate service and distribution fees paid under the Class A Distribution Plan do not exceed 0.35% per annum of the average daily net assets of the Fund attributable to Class A shares, the Fund is permitted to pay such distribution-related expenses or other distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value without an initial sales charge but subject to a CDSC. See "Purchases -- Class B Shares" above. MFD will advance to dealers the first year service fee described above at a rate equal to 0.25% of the purchase price of such shares and, as compensation therefore, MFD may retain the service fee paid by the Fund with respect to such shares for the first year after purchase. Dealers will become eligible to receive the ongoing 0.25% per annum service fee with respect to such shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee equal, on an annual basis, to 0.75% of the Fund's average daily net assets attributable to Class B shares. As noted above, this distribution fee may be used by MFD to cover its distribution-related expenses under its distribution agreement with the Fund (including the 3.75% commission it pays to dealers upon purchase of Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value without a sales charge or a CDSC. See "Purchases -- Class C Shares" above. Unlike the case with respect to the sale of Class A and Class B shares, where the dealer retains a portion of the initial sales charge (Class A shares) or receives an up-front payment from MFD (Class B shares), a dealer who sells Class C shares does not receive any initial payment, but instead receives distribution and service fees equal, on an annual basis, to 1% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom the dealer is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to MFD under the Class C Distribution Plan (which MFD in turn pays to dealers), as discussed above, and a distribution fee paid to MFD (which MFD also in turn pays to dealers) under the Class C Distribution Plan equal, on an annual basis, to 0.75% of the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B and Class C distribution and service fees for its current fiscal year are 0.15%, 0.90% and 1.00% per annum, respectively. Currently, the service fee paid by the Fund to MFD attributable to Class A shares has been set at 0.15% per annum of the average daily net assets attributable to Class A shares, and the Class A distribution fee, equal to 0.10% per annum of the average daily net assets attributable to Class A shares, is not being imposed. The service fee attributable to Class B shares has been set at 0.15% per annum of the Fund's average daily net assets attributable to Class B shares, except in the case of the first year service fee which equals 0.25% per annum of the Fund's average daily net assets attributable to Class B shares.
DISTRIBUTIONS
The Fund intends to declare dividends daily and pay to its shareholders
substantially all of its net investment income as dividends on a monthly basis
(dividends will only accrue on shares for which payment has been received.)
Dividends generally are distributed on the first business day of the following
month. The Fund will make one or more distributions during the calendar year
to its shareholders from any long-term capital gains, and may also make one or
more distributions during the calendar year to its shareholders from short-
term capital gains. Shareholders may elect to receive dividends and capital
gain distributions in either cash or additional shares of the same class with
respect to which a distribution is made. See "Tax Status" and "Shareholder
Services -- Distribution Options" below. Distributions paid by the Fund with
respect to Class A shares will generally be greater than those paid with
respect to Class B and Class C shares because expenses attributable to Class B
and Class C shares will generally be higher.
TAX STATUS
FEDERAL INCOME TAXES -- The Fund is treated under the Code as an entity
separate from the other series of the Trust. In order to minimize the taxes
the Fund would otherwise be required to pay, the Fund intends to qualify each
year as a "regulated investment company" under Subchapter M of the Code and to
make distributions to its shareholders in accordance with the timing
requirements imposed by the Code. It is expected that the Fund will not be
required to pay entity level federal income or excise taxes. The Fund also
expects the dividends it pays to shareholders from interest on Municipal Bonds
to be exempt from federal income tax (but generally not from state or local
taxes) because the Fund intends to satisfy certain requirements of the Code.
One such requirement is that at the close of each quarter of its taxable year,
at least 50% of the value of the Fund's total assets consists of obligations
whose interest is exempt from federal income tax. Distributions of income from
capital gains, from investments in taxable securities and from certain other
transactions, including transactions in Municipal Bonds purchased at a market
discount, will be taxable to shareholders whether the distribution is paid in
cash or in additional shares.
Fund distributions will reduce the Fund's net asset value per share. Shareholders who buy shares shortly before the Fund makes a distribution of net capital gains or net short-term capital gains may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution.
Shortly after the end of each calendar year, each shareholder will be sent a statement setting forth the federal income tax status of all dividends and distributions for such calendar year, including the portion exempt from federal income taxes as "exempt-interest dividends," the portion, if any, that is a tax preference item under the federal alternative minimum tax, the portion, if any, taxable as ordinary income, the portion, if any, taxable as long term capital gain, the portion, if any representing a return of capital (which is free of current taxes but results in a basis reduction), and the amount, if any, of federal income tax withheld.
Interest on indebtedness incurred by shareholders to purchase or carry shares of the Fund will not be deductible for federal income tax purposes. Exempt- interest dividends are taken into account in calculating the amount of social security and railroad retirement benefits that may be subject to federal income tax. Certain distributions of exempt-interest dividends may also be a tax preference item for purposes of the federal individual and corporate alternative minimum tax, and all exempt-interest dividends may affect a corporate shareholder's alternative minimum tax liability. Persons who are "substantial users" (or persons related to "substantial users") of facilities financed by certain private activity bonds should consult their tax advisers before purchasing shares of the Fund. "Substantial user" is defined generally as including a "non-exempt person" who regularly uses in a trade or business a part of a facility financed from the proceeds of certain private activity bonds.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on taxable dividends and certain other payments that are subject to such withholding and that are made to persons who are neither citizens nor residents of the U.S., regardless of whether a lower rate may be permitted under an applicable treaty. The Fund is also required in certain circumstances to apply backup withholding at a rate of 31% on taxable dividends and redemption proceeds paid to any shareholder (including a shareholder who is neither a citizen nor a resident of the U.S.) who does not furnish to the Fund certain information and certifications or who is otherwise subject to backup withholding. However, backup withholding will not be applied on payments which have been subject to 30% withholding. Prospective investors should read the Fund's Account Application for additional information regarding backup withholding of federal income tax and should consult their own tax advisors as to the tax consequences of an investment in the Fund.
STATE AND LOCAL TAXES -- The exemption of interest income from Municipal Bonds for federal income tax purposes does not necessarily result in exemption under the income or other tax laws of any state or local taxing authority. Therefore, shareholders of the Fund may be subject to state and local taxes on distributions from the Fund. Shareholders should consult their own tax advisors with respect to the tax status of distributions from the Fund in their own states and localities. The Fund is not liable for any income or excise taxes in The Commonwealth of Massachusetts as long as it meets the requirements of Subchapter M of the Code.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is
determined each day during which the Exchange is open for trading. This
determination is made once during each such day as of the close of regular
trading on the Exchange by deducting the amount of the liabilities
attributable to the class from the value of the assets attributable to the
class and dividing the difference by the number of the shares of the class
outstanding. Assets in the Fund's portfolio are valued on the basis of
valuations furnished by a pricing service or at their fair value as determined
by the Board of Trustees, as described in the Statement of Additional
Information. The net asset value per share of each class of shares is
effective for orders received by the dealer prior to its calculation and
received by MFD prior to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of three series of the Trust, has three classes of shares,
entitled Class A, Class B and Class C Shares of Beneficial interest (without
par value). The Trust has reserved the right to create and issue additional
series and classes of shares in which case the shares of each class of each
series participate equally in the earnings, dividends and assets attributable
to that class of the particular series. Shareholders are entitled to one vote
for each share held. Shares of each series are entitled to vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shares of all series vote together in the election of Trustees and
ratification of selection of accountants. Additionally, each class of shares
of a series will vote separately on any material increases in the fees under
its Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of
the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in the Fund with each other class, subject to the liabilities of the particular class. Shares of the Fund have no pre-emptive or conversion rights (except as set forth in "Purchase -- Conversion of Class B Shares" above). Shares of the Fund are fully paid and nonassessable. Should the Fund be liquidated, shareholders of each class of the Fund would be entitled to share pro rata in the net assets of the Fund attributable to that class available for distribution to shareholders. Shares will remain on deposit with the Shareholder Servicing Agent and certificates will not be issued except in connection with pledges and assignments and in certain other limited circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance (e.g. fidelity bonding and errors and omissions insurance) existed and the Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, tax-equivalent yield, current
distribution rate and total rate of return quotations for each class and may
also quote fund rankings in the relevant fund category from various sources,
such as the Lipper Analytical Services, Inc. and Wiesenberger Investment
Companies Service. Yield and tax-equivalent yield quotations are based on the
annualized net investment income per share of each class over a 30-day period
stated as a percent of the maximum public offering price of that class on the
last day of that period. Yield calculations for Class B shares assume no CDSC
is paid. The current distribution rate for each class is generally based upon
the total amount of dividends per share paid by the Fund to shareholders of
that class during the past 12 months and is computed by dividing the amount of
such dividends by the maximum public offering price of that class at the end
of such period. Current distribution rate calculations for Class B shares
assume no CDSC is paid. The current distribution rate differs from the yield
and tax-equivalent yield calculations because it may include distributions to
shareholders from sources other than dividends and interest, such as premium
income from option writing, short-term capital gains, and return of invested
capital, and is calculated over a different period of time. Total rate of
return quotations reflect the average annual percentage change over stated
periods in the value of an investment in each class of shares of the Fund made
at the maximum public offering price of the shares of that class with all
distributions reinvested and which, if quoted for periods of six years or
less, will give effect to the imposition of the CDSC assessed upon redemptions
of the Fund's Class B shares. Such total rate of return quotations may be
accompanied by quotations which do not reflect the reduction in value of the
initial investment due to the sales charge or the deduction of the CDSC, and
which will thus be higher. All performance quotations are based on historical
performance and are not intended to indicate future performance. Yield and
tax-equivalent yield reflect only net portfolio income as of a stated period
of time, and current distribution rate reflects only the rate of distributions
paid by the Fund over a stated period of time, while total rate of return
reflects all components of investment return over a stated period of time. All
performance quotations may from time to time be used in advertisements,
shareholder reports or other communications to shareholders. For a discussion
of the manner in which the Fund will calculate its yield, tax-equivalent
yield, current distribution rate and total rate of return, see the Statement
of Additional Information. For further information about the Fund's
performance for the fiscal year ended April 30, 1995, please see the Fund's
Annual Report. A copy of the Annual Report may be obtained without charge by
contacting the Shareholder Servicing Agent (see back cover for address and
phone number). In addition to information provided in shareholder reports, the
Fund may, in its discretion, from time to time, make a list of all or a
portion of its holdings available to investors upon request.
EXPENSES
The Adviser has agreed to pay the expenses of the Fund (except for the fees
paid under the Advisory Agreement and any Distribution Plan) until February
28, 2002 and to pay the expenses relating to the organization of the Fund, all
subject to reimbursement by the Fund. To accomplish such reimbursement, the
Adviser receives an expense reimbursement fee from the Fund in addition to the
investment advisory and distribution fees, computed and paid monthly at a rate
of 0.40% of the average daily net assets of the Fund on an annualized basis
for its then-current fiscal year. The expense reimbursement agreement
terminates for the Fund on the earlier of either (i) the date on which the
payments made thereunder by the Fund equal the prior payment of such
reimbursable expenses by the Adviser or (ii) February 28, 2002. The Adviser
may also terminate the expense reimbursement agreement at any time by written
notice to the Trust. See "Investment Adviser" in the Statement of Additional
Information for further information.
7. SHAREHOLDER SERVICES Shareholders with questions concerning the shareholder services described below or concerning other aspects of the Fund should contact the Shareholder Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive confirmation statements showing the activity in the account. Cancelled checks, if any, will be sent to shareholders monthly.
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional shares.
This option will be assigned if no other option is specified.
-- Dividends in cash; capital gain distributions reinvested in additional
shares.
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and fractional shares of the same class of shares at the net asset value in effect at the close of business on the last business day of the month. Dividends and capital gain distributions in amounts less than $10 will automatically be reinvested in additional shares of the Fund. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. Any request to change a distribution option must be received by the Shareholder Servicing Agent a reasonable time prior to the next business day of the month for a dividend or distribution in order to be effective for that dividend or distribution. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the Fund makes available the following programs designed to enable shareholders to add to their investment in an account with the Fund or withdraw from it with a minimum of paper work. The programs involve no extra charge to shareholders (other than a sales charge in the case of certain Class A share purchases) and may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as described in the Statement of Additional Information) anticipates purchasing $50,000 or more of Class A shares of the Fund alone or in combination with Class B or Class C shares of the Fund or any of the classes of other MFS Funds or MFS Fixed Fund within a 13-month period (or 36-month period for purchases of $1 million or more), the shareholder may obtain such shares of the Fund at the same reduced sales charge as though the total quantity were invested in one lump sum, subject to escrow agreements and the appointment of an attorney for redemptions from the escrow amount if the intended purchases are not completed, by completing the Letter of Intent section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts on the purchase of Class A shares when his new investment, together with the current offering price value of all holdings of all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund may be sold at net asset value (and without any applicable CDSC) through the automatic reinvestment of distributions of dividends and capital gain distributions from the same class of any other MFS Fund. Furthermore, distributions made by the Fund may be automatically invested at net asset value (and without any applicable CDSC) in the same class of shares of another MFS Fund, if shares of the fund are available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing Agent to send to him (or any one he designates) regular periodic payments based upon the value of his account. Each payment under a Systematic Withdrawal Plan (a "SWP") must be at least $100, except in certain limited circumstances. The aggregate withdrawals of Class B shares in any year pursuant to a SWP will not be subject to a CDSC and generally are limited to 10% of the value of the account at the time of the establishment of the SWP. The CDSC will not be waived in the case of SWP redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAM --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made through a shareholder's checking account twice monthly, monthly or quarterly. Required forms are available from the Shareholder Servicing Agent or investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000 in any MFS Fund may exchange their shares for the same class of shares of other MFS Funds (and, in the case of Class C shares, for shares of MFS Money Market Fund) under the Automatic Exchange Plan. The Automatic Exchange Plan provides for automatic monthly or quarterly exchanges of funds from the shareholder's account in an MFS Fund for investment in the same class of shares of other MFS Funds selected by the shareholder if such fund is available for sale. Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to four different funds. A shareholder should consider the differences in objectives and policies of a fund and review its prospectus before electing to exchange money into the fund through the Automatic Exchange Plan. No transaction fee is imposed in connection with exchange transactions under the Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund will be subject to any applicable sales charge. For federal and (generally) state income tax purposes, an exchange is treated as a sale of the shares exchanged and, therefore, could result in a capital gain or loss to the shareholder making the exchange. See the Statement of Additional Information for further information concerning the Automatic Exchange Plan. Investors should consult their tax adviser for information regarding the potential capital gain and loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares regardless of fluctuating share offering prices, a shareholder should consider his financial ability to continue his purchases through periods of low price levels. Maintaining a dollar cost averaging program concurrently with a withdrawal program could be disadvantageous because of the sales charges included in share purchases in the case of Class A shares, and because of the assessment of the CDSC for certain share redemptions in the case of Class A shares.
The Fund's Statement of Additional Information, dated September 1, 1995, contains more detailed information about the Fund, including, but not limited to, information related to (i) the Fund's investment objective, policies and restrictions, (ii) its Trustees, officers and investment adviser, (iii) portfolio transactions and brokerage commissions, (iv) the method used to calculate performance quotations of the Fund, (v) the Fund's Class A, Class B and Class C Distribution Plans and (vi) various services and privileges provided by the Fund for the benefit of its shareholders, including additional information with respect to the exchange privilege.
ANNEX A
WAIVERS OF SALES CHARGES
This Annex sets forth the various circumstances in which all applicable sales charges are waived (Section I), the initial sales charge and the contingent deferred sales charge ("CDSC") for Class A shares is waived (Section II), and the CDSC for Class B shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES In the following circumstances, the initial sales charge imposed on purchases of Class A shares and the CDSC imposed on certain redemptions of Class A shares and on redemptions of Class B shares, as applicable, is waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of dividends and capital gains of any MFS Fund pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of assets of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees) and agents of MFS, Sun Life or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which MFD serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-adviser to any MFS Fund;
* Employees or registered representatives of dealers and other financial institution ("dealers") which have a sales agreement with MFD;
* Certain family members of any such individual and their spouses identified above and certain trusts, pension, profit-sharing or other retirement plans for the sole benefit of such persons, provided the shares are not resold except to an MFS Fund; and
* Institutional Clients of MFS or AMI.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a shareholder's account. See "Redemptions and Repurchases -- General -- Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new sales for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401(k)-1
(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS FUNDamental
401(k) Plan or another similar recordkeeping system made available by
the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or more of the MFS Funds for more than 10 years from the later to occur of: (i) January 1, 1993 or (ii) the date such Plan first invests its assets in one or more of the MFS Funds. The sales charges will be waived in the case of a redemption of all of the Plan's shares in all MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds are withdrawn), unless immediately prior to the redemption, the aggregate amount invested by the Plan in shares of the MFS Funds (excluding the reinvestment of distributions) during the prior four years equals 50% or more of the total value of the Plan's assets in the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares transferred:
* To an IRA rollover account where any sales charges with respect to the shares being reregistered would have been waived had they been redeemed; and
* From a single account maintained for a 401(a) Plan to multiple accounts maintained by the Shareholder Servicing Agent on behalf of individual participants of such Plan, provided that the Plan sponsor subscribes to the MFS FUNDamental 401(k) Plan or another similar recordkeeping system made available by the Shareholder Servicing Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following circumstances the initial sales charge imposed on purchases of Class A shares and the contingent deferred sales charge imposed on certain redemption of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from another open-end management investment company not distributed or managed by MFD or its affiliates if: (i) the investment is made through a dealer and appropriate documentation is submitted to MFD; (ii) the redeemed shares were subject to an initial sales charge or deferred sales charge (whether or not actually imposed); (iii) the redemption occurred no more than 90 days prior to the purchase of Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not agreed with such company or its affiliates, formally or informally, to waive sales charges on Class A shares or provide any other incentive with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have entered into an agreement with MFD which includes a requirement that such shares be sold for the sole benefit of clients participating in a "wrap" account or a similar program under which such clients pay a fee to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators or dealers have entered into an administrative services agreement with MFD or one of its affiliates to perform certain administrative services, subject to certain operational and minimum size requirements specified from time to time by MFD or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS.
* Shares acquired through the automatic reinvestment in Class A shares of Class A or Class B distributions which constitute required withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of 59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES In addition to the waivers set forth in Section I above, in the following circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the shares are held solely in the deceased individual's name or in a living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if shares are held either solely or jointly in the disabled individual's name or in a living trust for the benefit of the disabled individual (in which case a disability certification form is required to be submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made under the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant, as applicable, has attained the age of 70 1/2 years old, but only with respect to the minimum distribution under applicable Internal Revenue Code ("Code") rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participant has attained the age of 70 1/2 years old, but only with respect to the minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
APPENDIX A
TAXABLE EQUIVALENT YIELD TABLE*
(UNDER FEDERAL INCOME TAX LAW AND RATES FOR 1995)
The table below shows the approximate taxable bond yields which are equivalent to tax-exempt bond yields from 3.0% to 8.0% under federal income tax laws that apply to 1995. (Such yields may differ under the laws applicable to subsequent years.) Separate calculations, showing the applicable taxable income brackets, are provided for investors who file joint returns and for those investors who file individual returns.
INCOME
TAX ---------------------------------------------
SINGLE JOINT BRACKET 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
- ----------------------------------- ------- ---------------------------------------------
1995 1995
$ 0-$ 23,350 $ 0-$ 39,000 15.0% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
$23,350-$56,550 $39,000-$94,250 28.0% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
$56,550-$117,950 $94,250-$143,600 31.0% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
$117,950-$256,500 $143,600-$256,500 36.0% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
$256,500 & Over $256,500 & Over 39.6% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
- --------------
*Net amount subject to Federal income tax after deductions and exemptions.
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APPENDIX B
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which Municipal Bonds may be issued include refunding outstanding obligations, obtaining funds for general operating expenses, and obtaining funds to loan to other public institutions and facilities. In addition, certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds to provide privately-operated housing facilities, sports facilities, convention or trade show facilities, airport, mass transit, port or parking facilities, air or water pollution control facilities for water supply, gas, electricity or sewage or solid waste disposal. Such obligations are included in the term Municipal Bonds if the interest paid thereon qualifies as exempt from federal income tax. Other types of industrial development bonds, the proceeds of which are used for the construction, equipment, repair or improvement of privately operated industrial or commercial facilities, may constitute Municipal Bonds, although the current federal tax laws place substantial limitations on the size of such issues. Municipal Bonds also include debt obligations secured by student loan obligations.
The two principal classifications of Municipal Bonds are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its good faith, credit and taxing power for the payment of principal and interest. The payment of such bonds may be dependent upon an appropriation by the issuer's legislative body. The characteristics and enforcement of general obligation bonds vary according to the law applicable to the particular issuer. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities, or, in some cases, from the proceeds of a special excise or other specific revenue source. Industrial development bonds which are Municipal Bonds are in most cases revenue bonds and do not generally constitute the pledge of the credit of the issuer of such bonds. Municipal Bonds also include participations in municipal leases. These are undivided interests in a portion of an obligation in the form of a lease or installment purchase which is issued by state and local governments to acquire equipment and facilities. Municipal leases frequently have special risks not normally associated with general obligation or revenue bonds. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of debt. The debt-issuance limitations are deemed to be inapplicable because of the inclusion in many leases or contracts of "non- appropriation" clauses that provide that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis. Although the obligations will be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might, in some cases, prove difficult. In light of these concerns, the Trust has adopted and follows procedures for determining whether municipal lease securities purchased by the Fund are liquid and for monitoring the liquidity of municipal lease securities held in the Fund's portfolio. The procedures require that a number of factors be used in evaluating the liquidity of a municipal lease security, including, the frequency of trades and quotes for the security, the number of dealers willing to purchase or sell the security and the number of other potential purchasers, the willingness of dealers to undertake to make a market in the security, the nature of the marketplace in which the security trades, the credit quality of the security, and other factors in which the Adviser may deem relevant. There are, of course, variations in the security of Municipal Bonds, both within a particular classification and between classifications, depending on numerous factors.
The yields on Municipal Bonds are dependent on a variety of factors, including general money market conditions, supply and demand and general conditions of the Municipal Bond market, size of a particular offering, the maturity of the obligation and rating of the issue.
DESCRIPTION OF OTHER INVESTMENTS
U.S. GOVERNMENT OBLIGATIONS -- are issued by the Treasury and include bills, certificates of indebtedness, notes, and bonds. Agencies and instrumentalities of the U.S. Government are established under the authority of an act of Congress and include, but are not limited to, the Government National Mortgage Association, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks, and the Federal National Mortgage Association.
CERTIFICATES OF DEPOSIT -- are certificates issued against funds deposited in a commercial bank, are for a definite period of time, earn a specified rate of return, and are normally negotiable.
BANKERS' ACCEPTANCES -- are short-term credit instruments used to finance the import, export, transfer or storage of goods. They are termed "accepted" when a bank guarantees their payment at maturity.
COMMERCIAL PAPER -- refers to promissory notes issued by corporations in order to finance their short-term credit needs.
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA02107-9906
Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA02110
[LOGO] M F S(SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) MUNICIPAL LIMITED
MATURITY FUND
500 Boylston Street
Boston, MA 02116
MML-1 9/95/36M 37/237/337
[LOGO] M F S(SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) MUNICIPAL LIMITED MATURITY FUND
Prospectus
September 1, 1995
[GRAPHIC OMITTED: art work:
Silhouette of two men talking in front of a large window.]
MFS MUNICIPAL LIMITED MATURITY FUND
(a series of MFS SERIES TRUST IX)
Supplement to be affixed to the
Prospectus for distribution in Missouri
The Fund intends to engage in buying and selling securities, as well as holding securities to maturity. In buying and selling securities, the Fund seeks to take advantage of market developments, yield disparities, and variations in the creditworthiness of issuers. A high portfolio turnover rate necessarily involves some expenses to the Fund. Distributions from net short-term capital gains and from taxable investments are taxable to shareholders as ordinary income. Distributions of net gains are taxable to shareholders as long-term capital gains for federal income tax purposes without regard to the length of time the shares have been held. These distributions will be treated in the same manner for income tax purposes whether paid in cash or additional shares.
The date of this Supplement is September 1, 1995.
MFS(R) MUNICIPAL STATEMENT OF LIMITED MATURITY FUND ADDITIONAL INFORMATION (A Member of the MFS Family of Funds(R)) September 1, 1995 - ------------------------------------------------------------------------------- |
Page
----
1. Definitions ................................................ 2
2. Investment Objective, Policies and Restrictions ............ 2
3. Management of the Fund ..................................... 7
Trustees ................................................. 7
Officers ................................................. 7
Investment Adviser ....................................... 8
Custodian ................................................ 9
Shareholder Servicing Agent .............................. 9
Distributor .............................................. 9
4. Portfolio Transactions and Brokerage Commissions ........... 10
5. Shareholder Services ....................................... 10
Investment and Withdrawal Programs ....................... 10
Exchange Privilege ....................................... 12
6. Tax Status ................................................. 13
7. Determination of Net Asset Value and Performance ........... 14
8. Distribution Plans ......................................... 16
9. Description of Shares, Voting Rights and Liabilities ....... 18
10. Independent Accountants and Financial Statements ........... 19
Appendix A ................................................. 20
Appendix B ................................................. 21
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MFS MUNICIPAL LIMITED MATURITY FUND
A Series of MFS Series Trust IX
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of interest to investors but which is not necessarily included in the Fund's Prospectus, dated September 1, 1995. This Statement of Additional Information should be read in conjunction with the Prospectus, a copy of which may be obtained without charge by contacting the Shareholder Servicing Agent (see last page for address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
1. DEFINITIONS
"Fund" -- MFS Municipal Limited Maturity
Fund, a diversified series of the
MFS Series Trust IX (the "Trust"),
a Massachusetts business trust. The
Trust was previously known as MFS
Fixed Income Trust prior to January
18, 1995, and as Massachusetts
Financial Bond Fund until its name
was changed on January 7, 1992.The
Fund is the successor to MFS
Municipal Limited Maturity Fund
(formerly known as MFS Tax-Free
Limited Maturity Fund until its
name was changed on August 3, 1992)
which was reorganized as a series
of the Trust on September 7, 1993.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus, dated September 1,
1995, of the Fund.
|
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS INVESTMENT OBJECTIVE. The Fund's investment objective is to provide as high a level of current income exempt from federal income taxes as is considered consistent with prudent investing and protection of shareholders' capital. Any investment involves risk and there can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The investment policies of the Fund are described in the Prospectus. In addition, certain of the Fund's investment policies are described in greater detail below.
"WHEN-ISSUED" OR "FORWARD DELIVERY" SECURITIES: The Fund may purchase securities on a "when-issued" or on a "forward delivery" basis. When the Fund commits to purchase a security on a "when-issued" or on a "forward delivery" basis, it will set up procedures consistent with the General Statement of Policy of the Securities and Exchange Commission (the "SEC") concerning such purchases. Since that policy currently recommends that an amount of the Fund's assets equal to the amount of the purchase be held aside or segregated to be used to pay for the commitment, the Fund will always have cash, short-term money market instruments or high quality liquid debt securities sufficient to cover any commitments or to limit any potential risk. However, although the Fund does not intend to make such purchases for speculative purposes and intends to adhere to the provisions of the SEC policy, purchases of securities on such bases may involve more risk than other types of purchases. For example, the Fund may have to sell assets which have been set aside in order to meet redemptions. Also, if the Fund determines it is necessary to sell the "when-issued" or "forward delivery" securities before delivery, the Fund may incur a loss because of market fluctuations since the time the commitment to purchase such securities was made and any gain or loss would not be tax-exempt.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed to the prices of other securities, securities indices, currencies, precious metals or other commodities, or other financial indicators. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or statistic. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the performance of the security, currency, or other instrument to which they are indexed, and may also be influenced by interest rate changes in the U.S. and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security, and their values may decline substantially if the issuer's creditworthiness deteriorates. Recent issuers of indexed securities have included banks, corporations, and certain U.S. government agencies.
OPTIONS: The Fund intends to write covered put and call options and purchase put and call options on fixed income securities that are traded on U.S. securities exchanges and over-the-counter. Call options written by the Fund give the holder the right to buy the underlying securities from the Fund at a fixed exercise price; put options written by the Fund give the holder the right to sell the underlying securities to the Fund at a fixed exercise price. A call option written by the Fund is "covered" if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. A put option written by the Fund is "covered" if the Fund maintains cash, short-term money market instruments or high quality debt securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is (a) equal to or greater than the exercise price of the put written or (b) is less than the exercise price of the put written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. Put and call options written by the Fund may also be covered in such other manner as may be in accordance with the requirements of the exchange on which, or the counter party with which, the option is traded, and applicable laws and regulations. The writer of an option may have no control over when the underlying securities must be sold, in the case of a call option, or purchased, in the case of a put option, since with regard to certain options, the writer may be assigned an exercise notice at any time prior to the termination of the obligation.
Effecting a closing transaction in the case of a written call option will permit the Fund to write another call option on the underlying security with either a different exercise price or expiration date or both, or in the case of a written put option will permit the Fund to write another put option to the extent that the exercise price thereof is secured by deposited cash, short-term money market instruments or high quality debt securities. Such transactions permit the Fund to generate additional premium income, which will partially offset declines in the value of portfolio securities or increases in the cost of securities to be acquired. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any securities subject to the option to be used for other Fund investments. If the Fund desires to sell a particular security from its portfolio on which it has written a call option, it will effect a closing transaction prior to or concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the closing out of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary market for an option of the same series. If a secondary market does not exist, it might not be possible to effect closing transactions in particular options with the result that the Fund would have to exercise the options in order to realize any profit. If the Fund is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Reasons for the absence of a liquid secondary market include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by a national securities exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation (the "OCC") may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the OCC as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-write transactions; that is, the Fund may purchase a security and then write a call option against that security. The exercise price of the call the Fund determines to write will depend upon the expected price movement of the underlying security. The exercise price of a call option may be below ("in-the-money"), equal to ("at- the-money") or above ("out-of-the-money") the current value of the underlying security at the time the option is written. If the call options are exercised in such transactions, the Fund's maximum gain will be the premium received by it for writing the option, adjusted upwards or downwards by the difference between the Fund's purchase price of the security and the exercise price. If the options are not exercised and the price of the underlying security declines, the amount of such decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return characteristics to buy-and-write transactions. Put options may be used by the Fund in the same market environments that call options are used in equivalent buy-and-write transactions.
The Fund may write combinations of put and call options on the same security, a practice known as a "straddle." By writing a straddle, the Fund undertakes a simultaneous obligation to sell and purchase the same security in the event that one of the options is exercised. If the price of the security subsequently rises sufficiently above the exercise price to cover the amount of the premium and transaction costs, the call will likely be exercised and the Fund will be required to sell the underlying security at a below market price. This loss may be offset, however, in whole or in part, by the premiums received on the writing of the two options. Conversely, if the price of the security declines by a sufficient amount, the put will likely be exercised. The writing of straddles will likely be effective, therefore, only where the price of a security remains stable and neither the call nor the put is exercised. In an instance where one of the options is exercised, the loss on the purchase or sale of the underlying security may exceed the amount of the premiums received.
The Fund may purchase put options to hedge against a decline in the value of its portfolio. By using put options in this way, the Fund will reduce any profit it might otherwise have realized in the underlying security by the amount of the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. The premium paid for the call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security rises sufficiently, the option may expire worthless to the Fund.
The Fund may also purchase warrants on fixed income securities. A warrant on a fixed income security is a long-dated call option that provides the holder with the right, but not the obligation, to purchase from an issuer a fixed income security with a specified par value, coupon, and maturity at a fixed exercise price on a specified date or between specified dates. Typically, the fixed income securities that are deliverable pursuant to the warrant will be noncallable securities. Warrants may be issued as entirely separate securities or they may be attached to, but subsequently detachable from, a fixed income security of the same issuer.
The staff of the SEC has taken the position that purchased over-the-counter options and assets used to cover written over-the-counter options are illiquid and, therefore, together with other illiquid securities, cannot exceed a certain percentage of the Fund's assets (the "SEC illiquidity ceiling"). Although the Adviser disagrees with this position, the Adviser intends to limit the Fund's writing of over-the-counter options in accordance with the following procedure. Except as provided below, the Fund intends to write over-the-counter options only with primary U.S. Government securities dealers recognized by the Federal Reserve Bank of New York. Also, the contracts which the Fund has in place with such primary dealers will provide that the Fund has the absolute right to repurchase an option it writes at any time at a price which represents the fair market value, as determined in good faith through negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula in the contract. Although the specific formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by the Fund for writing the option, plus the amount, if any, of the option's intrinsic value (i.e., the amount that the option is in-the-money). The formula may also include a factor to account for the difference between the price of the security and the strike price of the option if the option is written out-of- the-money. The Fund will treat all or a portion of the formula price as illiquid for purposes of the SEC illiquidity ceiling imposed by the SEC staff. The Fund may also write over-the-counter options with non-primary dealers and will treat the assets used to cover these options as illiquid for purposes of such SEC illiquidity ceiling.
FUTURES CONTRACTS: The Fund may enter into contracts for the future delivery of fixed income securities or contracts based on Municipal Bond or other financial indices, including any index of fixed income securities, as such contracts become available for trading ("Futures Contracts"). A "sale" of a Futures Contract means a contractual obligation to deliver the securities called for by the contract at a specified price in a fixed delivery month or, in the case of a Futures Contract on an index of securities, to make or receive a cash settlement. A "purchase" of a Futures Contract means a contractual obligation to acquire the securities called for by the contract at a specified price in a fixed delivery month or, in the case of a Futures Contract on an index of securities, to make or receive a cash settlement. Futures Contracts have been designed by exchanges which have been designated as "contract markets" by the Commodity Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant, or brokerage firm, which is a member of the relevant contract market. Existing contract markets include the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange. Futures Contracts are traded on these markets, and, through their clearing corporations, the exchanges guarantee performance of the contracts as between the clearing members of the exchange.
At the same time a Futures Contract is purchased or sold, the Fund must allocate cash or securities as a deposit payment ("initial deposit"). The initial deposit varies but may be as low as 5% or less of the value of the contract. Daily thereafter, the Futures Contract is valued and the payment of "variation margin" may be required since each day the Fund would provide or receive cash that reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to a Futures Contract based on fixed income securities, adjustments are made to recognize differences in value arising from the delivery of securities with a different interest rate from that specified in the contract. In some (but not many) cases, securities called for by a Futures Contract may not have been issued when the contract was written.
A Futures Contract based on an index of securities, such as a Municipal Bond index Futures Contract, provides for a cash payment, equal to the amount, if any, by which the value of the index at maturity is above or below the value of the index at the time the contract was entered into, times a fixed index "multiplier". The index underlying such a Futures Contract is generally a broad based index of securities designed to reflect movements in the relevant market as a whole. The index assigns weighted values to the securities included in the index, and its composition is changed periodically.
Although Futures Contracts call for the actual delivery or acquisition of securities or, in the case of Futures Contracts based on an index, the making or acceptance of a cash settlement at a specified future time, the contractual obligation is usually fulfilled before such date by buying or selling, as the case may be, on a commodities exchange, an identical Futures Contract calling for settlement in the same month, subject to the availability of a liquid secondary market. The Fund incurs brokerage fees when it purchases and sells Futures Contracts.
The purpose of the acquisition or sale of a Futures Contract for hedging purposes, in the case of a portfolio such as that of the Fund, which holds or intends to acquire long-term fixed income securities, is to attempt to protect the Fund from fluctuations in interest rates without actually buying or selling long-term fixed income securities. For example, if the Fund owns long-term bonds, and interest rates were expected to increase, the Fund might enter into Futures Contracts for the sale of debt securities. Such a sale would have much the same effect as selling an equivalent value of the long-term bonds owned by the Fund. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the Futures Contracts would increase at approximately the same rate, thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. The Fund could accomplish similar results by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase. However, the use of Futures Contracts as an investment technique allows the Fund to maintain a hedging position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, Futures Contracts may be purchased to attempt to hedge against anticipated purchases of long-term bonds at higher prices. Since the fluctuations in the value of Futures Contracts should be similar to that of long-term bonds, the Fund could take advantage of the anticipated rise in the value of long-term bonds without actually buying them until the market had stabilized. At that time, the Futures Contracts could be liquidated and the Fund could then buy long-term bonds on the cash market. To the extent the Fund enters into Futures Contracts for this purpose, the assets in the segregated asset account maintained to cover the Fund's obligations with respect to such Futures Contracts will consist of cash, short-term money market instruments or high quality debt securities from its portfolio in an amount equal to the difference between the fluctuating market value of such Futures Contracts and the aggregate value of the initial and variation margin payments made by the Fund with respect to such Futures Contracts, thereby assuring that the positions are unleveraged. Such transactions may also be entered into for non-hedging purposes, which involve greater risk.
The ordinary spreads between prices in the cash and futures markets, due to differences in the natures of those markets, are subject to distortions. First, all participants in the futures market are subject to initial deposit and variation margin requirements. Rather than meeting additional variation margin requirements, investors may close out Futures Contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest rate trends by the Adviser may still not result in a successful transaction.
RISKS: In addition, Futures Contracts entail risks. Although the Fund believes that use of such contracts will benefit the Fund, if the Adviser's investment judgment about the general direction of interest rates is incorrect, the Fund's overall performance would be poorer than if it had not entered into any such contract. For example, if the Fund has hedged against the possibility of an increase in interest rates which would adversely affect the price of bonds held in its portfolio and interest rates decrease instead, the Fund will lose part or all of the benefit of the increased value of its bonds which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell bonds from its portfolio to meet daily variation margin requirements. Such sales of bonds may be, but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time when it may be disadvantageous to do so. Transactions entered into for non-hedging purposes involve greater risk, and could result in loss which are not offset by gains on other portfolio assets.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on Futures Contracts ("Options on Futures Contracts") for hedging purposes. An Option on a Futures Contract provides the holder with the right to enter into a "long" position in the underlying Futures Contract, in the case of a call option, or a "short" position in the underlying Futures Contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Such Options on Futures Contracts will be traded on contract markets regulated by the CFTC. Depending on the pricing of the option compared to either the price of the Futures Contract upon which it is based or the price of the underlying debt securities, it may or may not be less risky than ownership of the Futures Contract or underlying debt securities. As with the purchase of Futures Contracts, when the Fund is not fully invested it may purchase a call Option on a Futures Contract to hedge against a market advance due to declining interest rates.
The writing of a call Option on a Futures Contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the Futures Contract. If the future price at expiration of the option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings. The writing of a put Option on a Futures Contract constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the Futures Contract. If the futures price at expiration of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, less related transaction costs, which provides a partial hedge against any increase in the price of securities which the Fund intends to purchase. If a put or call option the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it receives, less related transaction costs. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its futures positions, the Fund's losses from existing Options on Futures Contracts may to some extent be reduced or increased by changes in the value of portfolio securities. The writer of an Option on a Futures Contract is subject to the requirement of initial and variation margin payments.
The Fund may cover the writing of call Options on Futures Contracts (a) through purchases of the underlying Futures Contract, (b) through ownership of the security, or securities included in the index, underlying the Futures Contract, or (c) through the holding of a call on the same Futures Contract and in the same principal amount as the call written where the exercise price of the call held (i) is equal to or less than the exercise price of the call written or (ii) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. The Fund may cover the writing of put Options on Futures Contracts (a) through sales of the underlying Futures Contract, (b) through segregation of cash, short-term money market instruments or high quality debt securities in an amount equal to the value of the security or index underlying the Futures Contract, or (c) through the holding of a put on the same Futures Contract and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written, or is less than the exercise price of the put written if the difference is maintained by the Fund in cash, short-term money market instruments or high quality debt securities in a segregated account with its custodian. Put and call Options on Futures Contracts written by the Fund may also be covered in such other manner as may be in accordance with the requirements of the exchange on which they are traded and applicable laws and regulations.
The purchase of a put Option on a Futures Contract is similar in some respects to the purchase of protective put options on portfolio securities. The Fund will purchase a put Option on a Futures Contract to hedge the Fund's portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an Option on a Futures Contract is the premium paid for the option plus related transaction costs, although in order to realize a profit it may be necessary to exercise the option and close out the underlying Futures Contract. In addition to the correlation risks discussed above, the purchase of an option also entails the risk that changes in the value of the underlying Futures Contract will not be fully reflected in the value of the option purchased.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: Various additional risks exist with respect to the trading of options and futures. For example, the Fund's ability effectively to hedge all or a portion of its portfolio through transactions in such instruments will depend on the degree to which price movements in the underlying index or instrument correlate with price movements in the relevant portion of the Fund's portfolio. The trading of futures and options entails the additional risk of imperfect correlation between movements in the futures or option price and the price of the underlying index or obligation, while the trading of options also entails the risk of imperfect correlation between securities used to cover options written and the securities underlying such options. The anticipated spread between the prices may be distorted because of various factors, which are set forth under "Futures Contracts" above.
The Fund's ability to engage in options and futures strategies will also depend on the availability of liquid markets in such instruments. "Options" above sets forth certain reasons why a liquid secondary market may not exist. Transactions in these instruments are also subject to the risk of brokerage firm or clearing house insolvencies.
The liquidity of a secondary market in a Futures Contract or option thereon may be adversely affected by "daily price fluctuation limits", established by exchanges, which limit the amount of fluctuation in the price of a contract during a single trading day and prohibit trading beyond such limit. In addition, the exchanges on which futures and options are traded may impose limitations governing the maximum number of positions on the same side of the market and involving the same underlying instrument which may be held by a single investor, whether acting alone or in concert with others (regardless of whether such contracts are held on the same or different exchanges or held or written in one or more accounts or through one or more brokers).
Options on securities may be traded over-the-counter. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no clearing house performance guarantees and the Fund will be subject to the risk of default by a counter party. In addition, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost.
The investment objective and policies described above and the policies with respect to portfolio trading described below may be changed without shareholder approval.
PORTFOLIO TRADING: The Fund intends to fully manage its portfolio by buying and selling securities, as well as holding securities to maturity. In managing its portfolio the Fund seeks to take advantage of market developments and yield disparities, which may include use of the following strategies:
(1) shortening the average maturity of its portfolio in anticipation of a rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of its portfolio in anticipation of a decline in interest rates so as to maximize tax-exempt yield;
(3) selling one type of debt security (e.g., revenue bonds) and buying another (e.g., general obligation bonds) when disparities arise in the relative values of each; and
(4) changing from one debt security to an essentially similar debt security when their respective yields are distorted due to market factors.
The Fund cannot predict its annual portfolio turnover rate but it is anticipated such rate will not exceed 100%. A high turnover rate necessarily involves some expenses to the Fund. The Fund engages in portfolio trading if it believes a transaction net of costs (including custodian charges) will help in achieving its investment objectives.
INVESTMENT RESTRICTIONS. The Fund has adopted the following investment restrictions which cannot be changed without the approval of the holders of a majority of the Fund shares (which, as used in this Statement of Additional Information, means the lesser of (i) 67% or more of the outstanding shares of the Fund (or the Trust or a class, as applicable) present at a meeting at which holders of more than 50% of the outstanding shares of the Fund (or the Trust or a class, as applicable) are represented in person or by proxy, or (ii) more than 50% of the outstanding shares of the Fund (or the Trust or a class, as applicable)):
The Fund may not:
(1) borrow money in an amount in excess of 33 1/3% of its gross assets, and then only as a temporary measure for extraordinary or emergency purposes, or pledge, mortgage or hypothecate an amount of its assets (taken at market value) in excess of 33 1/3% of its gross assets, in each case taken at the lower of cost or market value and subject to a 300% asset coverage requirement (for the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies and payments of initial and variation margin in connection therewith are not considered a pledge of assets);
(2) underwrite securities issued by other persons except insofar as the Fund may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security;
(3) concentrate its investments in any particular industry, but if it is deemed appropriate for the achievement of its investment objectives, the Fund may invest up to 25% of its assets (taken at market value at the time of each investment) in securities of issuers in any one industry;
(4) purchase or sell real estate (including limited partnership interests but excluding Municipal Bonds secured by real estate or interests therein), or mineral leases, commodities or commodity contracts (except options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies) in the ordinary course of its business. The Fund reserves the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts (including options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies) acquired as a result of the ownership of securities;
(5) make loans to other persons except through the lending of the Fund's portfolio securities in accordance with, and to the extent permitted by, its investment objectives and policies, and except further that the Fund may enter into repurchase agreements. For these purposes the purchase of commercial paper or all or a portion of an issue of debt securities which are part of an issue to the public shall not be considered the making of a loan;
(6) purchase any securities or evidences of interest therein on margin, except to make deposits on margin in connection with options, Futures Contracts, Options on Futures Contracts, foreign currency, forward foreign currency contracts and options on foreign currencies, and except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities; or
(7) sell any security which the Fund does not own unless by virtue of its ownership of other securities the Fund has at the time of sale a right to obtain securities without payment of further consideration equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon the same conditions.
These investment restrictions are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
For the purposes of the Fund's investment restrictions (including those listed below), the issuer of a tax-exempt security is deemed to be the entity (public or private) ultimately responsible for the payment of the principal of and interest on the security.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain federal and state statutes and regulatory policies, as a matter of operating policy of the Fund, the Fund will not: (a) invest more than 5% of its total assets at the time of investment in unsecured obligations of issuers which, including predecessors, controlling persons, sponsoring entities, general partners and guarantors, have a record of less than three years' continuous business operation or relevant business experience; (b) purchase voting securities of any issuer if such purchase, at the time thereof, would cause more than 10% of the outstanding voting securities of such issuer to be held by the Fund; (c) purchase securities issued by any other registered investment company except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that the Fund shall not purchase such securities if such purchase at the time thereof would cause (i) more than 5% of the Fund's total assets (taken at market value) to be invested in the securities of any one such issuer or (ii) more than 10% of the Fund's total assets (taken at market value) to be invested in the securities of such issuers or (iii) more than 3% of the outstanding voting securities of any such issuer to be held by the Fund; and, provided further, that the Fund shall not purchase securities issued by any open-end investment company; (d) purchase or retain in its portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Trustee of the Trust, or is an officer or Director of the Adviser, if after the purchase of the securities of such issuer by the Fund one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both; (e) invest for the purpose of exercising control or management; or (f) purchase or sell any put or call option or any combination thereof, provided, that this shall not prevent the purchase, ownership, holding or sale of warrants where the grantor of the warrants is the issuer of the underlying securities or the writing, purchasing and selling of puts, calls or combinations thereof with respect to securities, commodities, Futures Contracts and foreign currencies.
In addition, the Fund will not invest in illiquid investments, including securities subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended, or, in the case of unlisted securities, where no market exists) if more than 15% of the Fund's assets (taken at market value) would be invested in such securities. Repurchase agreements maturing in more than seven days will be deemed to be illiquid for purposes of the Fund's limitation on investment in illiquid securities. Securities that are not registered under the Securities Act of 1933, as amended, and sold in reliance on Rule 144A thereunder, but are determined to be liquid by the Trust's Board of Trustees (or its delegee), will not be subject to this 15% limitation.
In addition, purchases of warrants will not exceed 5% of the Fund's net assets. Included within that amount, but not exceeding 2% of the Fund's net assets, may be warrants not listed on the New York or American Stock Exchange.
As a "diversified" investment portfolio under the Investment Company Act of 1940, as amended (the "1940 Act"), the Fund will maintain at least 75% of its assets in (i) cash, (ii) cash items, (iii) U.S. Government securities and (iv) other securities, limited per issuer to blocks of less than 5% of the Fund's total assets.
The investment policies described under "State and Federal Restrictions" are not fundamental and may be changed without shareholder approval.
3. MANAGEMENT OF THE FUND
The Trust's Board of Trustees provides broad supervision over the affairs of the Trust and the Fund. The Adviser is responsible for the investment management, and the officers of the Trust are responsible for the operations of the Fund. The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman
Massachusetts Financial Services Company, Chairman and Director
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, former Chairman
and Director (until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co. (investment counsel firm), Financial Vice President,
Treasurer and Director (retired October 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (until December 1991); The Neiman Marcus Group, Inc.,
Vice Chairman and Chief Financial Officer (from August 1987 to December 1991);
United States Filter Corporation, Director
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993). Chairman and Trustee (from June 1990 until November
1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT
Private investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President and Group Executive (until December 1990); OHM
Corporation, Director; The Boston Company, Director; Boston Safe Deposit and
Trust Company, Director.
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
A. KEITH BRODKIN,* President
Massachusetts Financial Services Company, Chairman and Director
ROBERT A. DENNIS,* Vice President
Massachusetts Financial Services Company, Senior Vice President
GEOFFREY L. KURINSKY,* Vice President
Massachusetts Financial Services Company, Senior Vice President
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary Massachusetts Financial Services Company, Vice President and Associate General Counsel
Each Trustee and officer holds comparable positions with certain MFS affiliates or with certain other funds of which MFS or a subsidiary of MFS is the investment adviser or distributor. Messrs. Brodkin, Shames, Scott and Cavan are the Chairman, a Director, a Director and the Secretary, respectively, of MFD and hold similar positions with certain other MFS affiliates. Mr. Bailey is a Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who currently receive a fee of $500.00 per year plus $65.00 per meeting and committee meeting attended, together with such Trustee's out-of-pocket expenses) and has adopted a retirement plan for non-interested Trustees and Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 73 and if the Trustee has completed at least five years of service, he would be entitled to annual payments during his lifetime of up to 50% of such Trustee's average annual compensation based on the three years prior to his retirement depending on his length of service. A Trustee may also retire prior to age 73 and receive reduced payments if he has completed at least five years of service. Under the plan, a Trustee (or his beneficiaries) will also receive benefits for a period of time in the event the Trustee is disabled or dies. These benefits will also be based on the Trustee's average annual compensation and length of service. There is no retirement plan provided by the Trust for the interested Trustees (except Mr. Bailey). The Fund will accrue its allocable share of compensation expenses each year to cover current year's service and amortize past service cost.
Set forth in Appendix B hereto is certain information concerning the cash compensation paid to non-interested Trustees and Mr. Bailey and benefits accrued, and estimated benefits payable, under the retirement plan.
As of July 28, 1995, all Trustees and officers as a group owned less than 1% of the outstanding shares of the Fund. As of July 28, 1995, Merrill Lynch, Pierce, Fenner and Smith Inc., P.O. Box 45286, Jacksonville, FL 32232-5286, was the owner of approximately 8.28% of outstanding Class A shares of the Fund; Painewebber, 10100 Santa Monica Blv., Los Angeles, CA 90067-4104 was the owner of approximately 9.61% of outstanding Class A shares of the Fund. Also as of July 28, 1995, Merrill Lynch, Pierce, Fenner & Smith Inc. were the owners of approximately 18.39%, of outstanding Class B shares of the Fund.
The Declaration of Trust provides that it will not indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, unless, as to liabilities to the Trust or its shareholders, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices or, with respect to any matter, unless it is adjudicated that they have not acted in good faith in the reasonable belief that their actions were in the best interest of the Trust. In the case of settlement, such indemnification will not be provided unless it has been determined pursuant to the Declaration of Trust that such officers and Trustees have not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.) which
in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life").
The Adviser manages the assets of the Fund pursuant to an Investment Advisory Agreement dated September 1, 1993 (the "Advisory Agreement"). The Adviser provides the Fund with overall investment advisory and administrative services, as well as general office facilities. Subject to such policies as the Trustees may determine, the Adviser makes investment decisions for the Fund. Effective February 1, 1994, for these services and facilities, the Adviser receives a management fee computed and paid monthly at the rate of 0.40% per annum of the Fund's average daily net assets. Prior to February 1, 1994, the Adviser was entitled to receive a management fee computed and paid monthly at the rate of 0.55% per annum of the Fund's average daily net assets. From September 1, 1992 to February 1, 1994 the Adviser had voluntarily reduced the management fee to 0.30% per annum of average net assets. Prior to September 1, 1992, the Adviser had voluntarily reduced the management fee to 0.20% per annum of average net assets.
In order to comply with the expense limitations of certain state securities commissions, the Adviser will reduce its management fee or otherwise reimburse the Fund for any expenses, exclusive of interest, taxes and brokerage commissions, incurred by the Fund in any fiscal year to the extent such expenses exceed the most restrictive of such state expense limitations. The Adviser will make appropriate adjustments to such reimbursements in response to any amendment or rescission of the various state requirements.
The Fund pays all of the Fund's expenses (other than those assumed by the Adviser or MFD); including: governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Fund; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Fund; expenses of repurchasing and redeeming shares; expenses of preparing, printing and mailing share certificates, prospectuses, shareholders' reports, notices, proxy statements and reports to governmental officers and commissions; brokerage and other expenses connected with the execution of portfolio security transactions; insurance premiums; fees and expenses of the custodian for all services to the Fund, including safekeeping of funds and securities, keeping of books and accounts and calculation of the net asset value of shares of the Fund; and expenses of shareholders' meetings. Expenses relating to the issuance, registration and qualification of shares of the Fund and the preparation, printing and mailing of prospectuses for such purposes are borne by the Fund except that the Trust's Distribution Agreement with MFD requires MFD to pay for prospectuses that are to be used for sales purposes. Expenses of the Trust which are not attributable to a specific series are allocated among the series in a manner believed by management of the Trust to be fair and equitable. The Adviser has agreed to pay the foregoing expenses of the Fund (except for the fees paid under the Advisory Agreement and the Distribution Plans) until February 28, 2002 and to pay the expenses relating to the organization of the Fund, all subject to reimbursement by the Trust on behalf of the Fund. To accomplish such reimbursement, the Adviser receives an expense reimbursement fee from the Fund in addition to the investment advisory and distribution fees, computed and paid monthly at a rate of 0.40% per annum of the average daily net assets of the Fund. The expense reimbursement agreement terminates for the Fund on the earlier of either (i) the date on which the payments made thereunder by the Fund equal the prior payment of such reimbursement expenses by the Adviser or (ii) February 28, 2002. The Adviser may also terminate the expense reimbursement agreement at any time upon written notice to the Trust. For a list of expenses, including the compensation paid to the Trustees who are not officers of the Adviser, for the fiscal year ended April 30, 1995, see "Financial Statements -- Statement of Operations" in the Fund's Annual Report to shareholders.
For the fiscal year ended August 31, 1993, MFS received management fees in the amount of $275,971 (equivalent on an annualized basis to 0.55% of average net assets) and did not impose management fees of $175,686, (equivalent on an annualized basis to 0.35% of average daily net assets).
For the period September 1, 1993 to the fiscal year end on April 30, 1994, MFS received management fees in the amount of $313,896, equivalent on an annualized basis to 0.50% of average net assets and did not impose management fees of $100,052 (equivalent on an annualized basis to 0.16% of average daily net assets). For the same period, MFS paid expenses of the Fund amounting to $301,086 (equivalent to 0.48% of the Fund's average daily net assets) for which the Fund reimbursed MFS $252,992 (equivalent to 0.40% of the Fund's average daily net assets).
For the fiscal year ended April 30, 1995, MFS received fees under the Advisory Agreement of $343,251, (equivalent on an annualized basis to 0.40% of average net assets).
MFS pays the compensation of the officers of the Trust and of any Trustee who is an officer of MFS. The Adviser also furnishes at its own expense all necessary administrative services, including office space, equipment, clerical personnel, investment advisory facilities, and all executive and supervisory personnel necessary for managing the investments, effecting the portfolio transactions and, in general, administering the affairs of the Fund.
The Advisory Agreement will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of holders of a majority of the Fund's shares (as defined in "Investment Restrictions") and, in either case, by a majority of the Trustees who are not parties to the Advisory Agreement or interested persons of any such party. The Advisory Agreement terminates automatically if it is assigned and may be terminated without penalty by vote of holders of a majority of the Fund's shares or by either party on not more than 60 days' nor less than 30 days' written notice. The Advisory Agreement provides that the Adviser may render services to others. The Advisory Agreement also provides that neither the Adviser nor its personnel shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities issued by the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also acts as the dividend disbursing agent for the
Fund. The Custodian has contracted with the Adviser for the Adviser to perform
certain accounting functions related to options transactions for which the
Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agent Agreement, effective December 2, 1985 (the "Agency
Agreement"). The Shareholder Servicing Agent's responsibilities under the Agency
Agreement include administering and performing transfer agent functions and
keeping records in connection with the issuance, transfer and redemption of each
class of the shares of the Fund. For these services, the Shareholder Servicing
Agent will receive a fee based on the net assets of each class of shares of the
Fund, computed and paid monthly. In addition, the Shareholder Servicing Agent
will be reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. The Custodian has contracted with the
Shareholder Servicing Agent to administer and perform certain dividend and
distribution disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a distribution agreement, dated as of
January 1, 1995 (the "Distribution Agreement"). Prior to January 1, 1995, MFS
Financial Services, Inc. ("FSI"), another wholly owned subsidiary of MFS, was
the Fund's distributor. Where this Statement of Additional Information refers to
MFD in relation to the receipt or payment of money with respect to a period or
periods prior to January 1, 1995, such reference shall be deemed to include FSI,
as the predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in Class A shares of the Fund to dealers. The public offering price of Class A shares of the Fund is their net asset value next computed after the sale plus a sales charge which varies based upon the quantity purchased. The public offering price of Class A shares of the Fund is calculated by dividing the net asset value of a Class A share by the difference (expressed as a decimal) between 100% and the sales charge percentage of offering price applicable to the purchase (see "Purchases" in the Prospectus). The sales charge scale set forth in the Prospectus applies to purchases of Class A shares of the Fund alone or in combination with shares of all classes of certain other funds in the MFS Family of Funds (the "MFS Funds") and other Funds (as noted under Right of Accumulation) by any person, including members of a family unit (e.g., husband, wife and minor children) and bona fide trustees of trusts for the benefit of such persons, and also applies to purchases made under the Right of Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs"). A group might qualify to obtain quantity sales charge discounts (see "Investment and Withdrawal Programs").
Class A shares of the Fund may be sold at their net asset value to certain persons and in certain transactions as described in the Prospectus. Such sales are made without a sales charge to promote good will with employees and others with whom MFS, MFD and/or the Fund have business relationships, and because the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the applicable public offering price of Class A shares. Dealer allowances expressed as a percentage of offering price for all offering prices are set forth in the Prospectus (see "Purchases" in the Prospectus). The difference between the total amount invested and the sum of (a) the net proceeds to the Fund and (b) the dealer commission is the commission paid to the distributor. Because of rounding in the computation of offering price, the portion of the sales charge paid to the distributor may vary and the total sales charge may be more or less than the sales charge calculated using the sales charge expressed as a percentage of offering price or as a percentage of the net amount invested as listed in the Prospectus. In the case of the maximum sales charge, the dealer retains 2.25% and MFD retains approximately 1/4 of 1% of the public offering price. In addition, MFD will pay a commission to dealers who initiate and are responsible for purchases of $1 million or more as described in the Prospectus.
CLASS B AND CLASS C SHARES: MFD acts as agent in selling Class B and Class C shares of the Fund to dealers. The public offering price of Class B and Class C shares is their net asset value next computed after the sale (see "Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to benefit themselves by a price change. On occasion, MFD may obtain brokers loans from various banks, including the custodian bank for the MFS Funds, to facilitate the settlement of sales of shares of the Fund to dealers. MFD may benefit from its temporary holding of funds paid to it by investment dealers for the purchase of shares of the Fund.
During the Fund's fiscal year ended April 30, 1995, MFD received sales charges of $20,393 and dealers received sales charges of $166,648 (as their concession on gross sales charges of $187,041) for selling Class A shares of the Fund; the Fund received $16,439,434 representing the aggregate net asset value of such shares. During the period from September 1, 1993 to the Fund's fiscal year ended April 30, 1994, MFD received sales charges of $32,108 and dealers received sales charges of $225,255 (as their concession on gross sales charges of $257,363) for selling Class A shares of the Fund; the Fund received $28,339,909 representing the aggregate net asset value of such shares. During the Fund's fiscal year ended August 31, 1993, MFD received sales charges of $57,862 and dealers received sales charges of $1,057,244 (as their concession on gross sales charges of $1,115,106) for selling Class A shares of the Funde Fund received $99,284,912 representing the aggregate net asset value of such shares.
For the fiscal year ended April 30, 1995, the contingent deferred sales charge ("CDSC") imposed on redemption of Class A shares was $7,604. For the year ended April 30, 1995 and for the period September 7, 1993 through April 30, 1994, the CDSC imposed on redemption of Class B shares was $40,063 and $9,137, respectively.
The Distribution Agreement will remain in effect until August 1, 1996 and will continue in effect thereafter only if such continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the Fund's shares (as defined in "Investment Restrictions") and, in either case, by a majority of the Trustees who are not parties to the Distribution Agreement or interested persons of any such party. The Distribution Agreement terminates automatically if it is assigned and may be terminated without penalty by either party on not more than 60 days' nor less than 30 days' notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS Specific decisions to purchase or sell securities for the Fund are made by a portfolio committee, consisting of employees of the Adviser who are appointed and supervised by its senior officers. Changes in the Fund's investments are reviewed by the Board of Trustees. Members of the Fund's portfolio committee may serve other clients of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions is execution at the most favorable prices. The Adviser has complete freedom as to the markets in and broker-dealers through which it seeks this result. Municipal Bonds and other debt securities are traded principally in the over-the-counter market on a net basis through dealers acting for their own account and not as brokers. The cost of securities purchased from underwriters includes an underwriter's commission or concession, and the prices at which securities are purchased and sold from and to dealers include a dealer's mark-up or mark-down. The Adviser attempts to negotiate with underwriters to decrease the commission or concession for the benefit of the Fund. The Adviser normally seeks to deal directly with the primary market makers unless, in its opinion, better prices are available elsewhere. Securities firms or futures commission merchants may receive brokerage commissions on transactions involving Futures Contracts and Options on Futures Contracts. Subject to the requirement of seeking execution at the best available price, securities may, as authorized by the Advisory Agreement, be bought from or sold to dealers who have furnished statistical, research and other information or services to the Adviser. At present no arrangements for the recapture of commission payments are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice of the NASD and such other policies as the Trustees may determine, the Adviser may consider sales of shares of the Fund and of the other investment company clients of MFD as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions.
In certain instances there may be securities which are suitable for the Fund's portfolio as well as for that of one or more of the other clients of the Adviser or any subsidiary of the Adviser. Investment decisions for the Fund and for such other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Fund is concerned. In other cases, however, the Trust believes that its ability to participate in volume transactions on behalf of the Fund will produce better executions for the Fund.
5. SHAREHOLDER SERVICES INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available several programs designed to enable shareholders to add to their investment or withdraw from it with a minimum of paper work. The programs involve no extra charge to shareholders (other than a sales charge in the case of certain Class A share purchases) and may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described below) anticipates purchasing $50,000 or more of Class A shares of the Fund alone or in combination with shares of any class of MFS Funds or MFS Fixed Fund (a bank collective investment fund) within a 13-month period (or 36-month period, in the case of purchases of $1 million or more), the shareholder may obtain Class A shares of the Fund at the same reduced sales charge as though the total quantity were invested in one lump sum by completing the Letter of Intent section of the Account Application or filing a separate Letter of Intent application (available from the Shareholder Servicing Agent) within 90 days of the commencement of purchases. Subject to acceptance by MFD and the conditions mentioned below, each purchase will be made at a public offering price applicable to a single transaction of the dollar amount specified on the Letter of Intent application. The shareholder or his dealer must inform MFD that the Letter of Intent is in effect each time shares are purchased. The shareholder makes no commitment to purchase additional shares, but if his purchases within 13 months (or 36 months in the case of purchases of $1 million or more) plus the value of shares credited toward completion of the Letter of Intent do not total the sum specified, he will pay the increased amount of the sales charge as described below. Instructions for issuance of shares in the name of a person other than the person signing the Letter of Intent application must be accompanied by a written statement from the dealer stating that the shares were paid for by the person signing such Letter. Neither income dividends nor capital gain distributions taken in additional shares will apply toward the completion of the Letter of Intent. Dividends and distributions of other MFS Funds automatically reinvested in shares of the Fund pursuant to the Distribution Investment Program will also not apply toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if necessary), 5% of the dollar amount specified in the Letter of Intent application shall be held in escrow by the Shareholder Servicing Agent in the form of shares registered in the shareholder's name. All income dividends and capital gain distributions on escrowed shares will be paid to the shareholder or to his order. When the minimum investment so specified is completed (either prior to or by the end of the 13-month period or 36-month period, as applicable), the shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent will redeem an appropriate number of the escrowed shares in order to realize such difference. Shares remaining after any such redemption will be released by the Shareholder Servicing Agent. By completing and signing the Account Application or separate Letter of Intent application, the shareholder irrevocably appoints the Shareholder Servicing Agent his attorney to surrender for redemption any or all escrowed shares with full power of substitution in the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts on the purchase of Class A shares when his new investment, together with the current offering price value of all the holdings of all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount level. See "Purchases" in the Prospectus for the sales charges on quantity discounts. For example, if a shareholder owns shares valued at $37,500 and purchases an additional $12,500 of shares of the Fund, the sales charge for the $12,500 purchase would be at the rate of 2% (the rate applicable to single transactions of $50,000). A shareholder must provide the Shareholder Servicing Agent (or his investment dealer must provide MFD) with information to verify that the quantity sales charge discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains made by the Fund with respect to a particular class of shares may be automatically invested in the same class of shares of one of the other MFS Funds, if shares of the fund are available for sale. Such investments will be subject to additional purchase minimums. Distributions will be invested at net asset value (exclusive of any sales charge) and will not be subject to a CDSC. Distributions will be invested at the close of business on the payable date for the distribution. A shareholder considering the Distribution Investment Program should obtain and read the prospectus of the other fund and consider the differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing Agent to send him (or anyone he designates) regular periodic payments based upon the value of his account. Each payment under a Systematic Withdrawal Plan ("SWP") must be at least $100, except in certain limited circumstances. The aggregate withdrawals of Class B shares in any year pursuant to a SWP generally are limited to 10% of the value of the account at the time of the establishment of the SWP. SWP payments are drawn from the proceeds of share redemptions held in the shareholder's account (which would be a return of principal and, if reflecting a gain, would be taxable). Redemptions of Class B shares will be made in the following order: (i) any "Free Amount"; (ii) to the extent necessary, any "Reinvested Shares"; (iii) to the extent necessary, the "Direct Purchase" subject to the lowest CDSC (as such terms are defined in "Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived in the case of redemptions of Class B shares pursuant to a SWP, but will not be waived in the case of SWP redemptions of Class A shares. To the extent that redemptions for such periodic withdrawals exceed dividend income reinvested in the account, such redemptions will reduce and may eventually exhaust the number of shares in the shareholder's account. All dividend and capital gain distributions for an account with a SWP will be reinvested in additional full or fractional shares of the Fund at the net asset value in effect at the close of business on the last business day of the month for such distributions. To initiate this service, shares of the Fund having an aggregate value of at least $5,000 either must be held on deposit by, or certificates for such shares must be deposited with, the Shareholder Servicing Agent with respect to Class A shares. Maintaining a withdrawal plan concurrently with an investment program would be disadvantageous because of the sales charges included in share purchases and the imposition of a CDSC on certain redemptions. The shareholder may deposit into the account additional shares of the Fund, change the payee or change the dollar amount of each payment. The Shareholder Servicing Agent may charge the account for services rendered and expenses incurred beyond those normally assumed by the Fund with respect to the liquidation of shares. No charge is currently assessed against the account, but one could be instituted by the Shareholder Servicing Agent on 60 days' notice in writing to the shareholder in the event that the Fund ceases to assume the cost of these services. The Fund may terminate any SWP for an account if the value of the account falls below $5,000 as a result of share redemptions (other than as a result of a SWP) or an exchange of shares of the Fund for shares of another MFS Fund. Any SWP may be terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time by mailing a check payable to the Fund directly to the Shareholder Servicing Agent. The shareholder's account number and the name of his investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a single purchaser and, under the Right of Accumulation (but not a Letter of Intent), obtain quantity sales charge discounts on the purchase of Class A shares if the group (1) gives its endorsement or authorization to the investment program so it may be used by the investment dealer to facilitate solicitation of the membership, thus effecting economies of sales effort; (2) has been in existence for at least six months and has a legitimate purpose other than to purchase mutual fund shares at a discount; (3) is not a group of individuals whose sole organizational nexus is as credit cardholders of a company, policyholders of an insurance company, customers of a bank or broker-dealer, clients of an investment adviser or other similar groups; and (4) agrees to provide certification of membership of those members investing money in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000 in any MFS Fund (and, in the case of Class C shares, in the MFS Money Market Fund) may exchange their shares for the same class of shares of other MFS Funds under the Automatic Exchange Plan, a dollar cost averaging program. The Automatic Exchange Plan provides for automatic exchanges of funds from the shareholder's account in an MFS Fund for investment in the same class of shares of other MFS Funds selected by the shareholder. Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to four different funds effective on the seventh day of each month or of every third month, depending whether monthly or quarterly exchanges are elected by the shareholder. If the seventh day of the month is not a business day, the transaction will be processed on the next business day. Generally, the initial exchange will occur after receipt and processing by the Shareholder Servicing Agent of an application in good order. Exchanges will continue to be made from a shareholder's account in an MFS Fund as long as the balance of the account is sufficient to complete the exchanges. Additional payments made to a shareholder's account in that MFS Fund will extend the period that exchanges will continue to be made under the Automatic Exchange Plan. However, if additional payments are added to an account subject to the Automatic Exchange Plan shortly before an exchange is scheduled, such funds may not be available for exchanges until the following month; therefore, care should be used to avoid inadvertently terminating the Automatic Exchange Plan through exhaustion of the account balance.
No transaction fee for exchanges will be charged in connection with Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund will be subject to any applicable sales charge. Changes in amounts to be exchanged to each fund, the funds to which exchanges are to be made and the timing of exchanges (monthly or quarterly), or termination of a shareholder's participation in Automatic Exchange Plan will be made after instructions in writing or by telephone (an "Exchange Change Request") are received by the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the record owner(s) exactly as shares of the Fund are registered; if by telephone -- proper account identification is given by the dealer or shareholder of record). Each Exchange Change Request (other than termination of participation in the program) must involve at least $50. Generally, if an Exchange Change Request is received by telephone or in writing before the close of business on the last business day of a month, the Exchange Change Request will be effective for the following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to make exhanges of shares from one MFS Fund to another and to withdraw from an MFS Fund, as well as a shareholder's other rights and privileges are not affected by a shareholder's participation in Automatic Transfer Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional information regarding the Automatic Exchange Plan, including the treatment of any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the other MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where such shares are acquired through direct purchase or reinvested dividends) who have redeemed their shares have a one-time right to reinvest the redemption proceeds in the same class of shares of any of the MFS Funds (if shares of the fund are available for sale) at net asset value (without a sales charge) and, if applicable, with credit for any CDSC paid. In the case of proceeds invested in shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund, the shareholder has the right to exchange such shares for shares of another MFS Fund at net asset value pursuant to the exchange privilege described below. Such a reinvestment must be made within 90 days of the redemption and is limited to the amount of the redemption proceeds. If the shares credited for any CDSC paid are then redeemed within six years of their initial purchase in the case of Class B shares or within 12 months of the initial purchase of certain Class A shares, such CDSC will be imposed upon redemption. Although redemptions and repurchases of shares are taxable events, a reinvestment within a certain period of time in the same fund may be considered a "wash sale" and may result in the inability to recognize currently all or a portion of any loss realized on the original redemption for federal income tax purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all of the shares for which payment has been received by the Fund (i.e., an established account) may be exchanged for shares of the same class of other MFS Funds (if available for sale) at their net asset value. In addition, Class C shares may be exchanged for shares of MFS Money Market Fund at net asset value. Exchanges will be made after instructions in writing or by telephone (an "Exchange Request") are received for an established account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of record),
and each exchange must involve either shares having an aggregate value of at
least $1,000 (except that the minimum is $50 for accounts of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by the
Shareholder Sevicing Agent) or all the shares in the account. Each exchange
involves the redemption of the shares of the Fund to be exchanged and the
purchase at net asset value (i.e., without a sales charge) of the same class of
shares of the shares of the other MFS Fund. Any gain or loss on the redemption
of the shares exchanged is reportable on the shareholder's federal income tax
return, unless both the shares received and the shares surrendered in the
exchange are held in a tax-deferred retirement plan or other tax-exempt account.
No more than five exchanges may be made in any one Exchange Request by
telephone. If an Exchange Request is received by the Shareholder Servicing Agent
prior to the close of regular trading on the Exchange, the exchange usually will
occur on that day if all of the requirements set forth above have been complied
with at that time. However, payment of the redemption proceeds by the Fund, and
thus the purchase of shares of the other MFS Fund, may be delayed for up to
seven days if the Fund determines that such a delay would be in the best
interest of all its shareholders. Investment dealers which have satisfied
criteria established by MFD may also communicate a shareholder's Exchange
Request to the Shareholder Servicing Agent by facsimile subject to the
requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the CDSC is carried forward to the exchanged shares. For purposes of calculating the CDSC upon redemption of shares acquired in an exchange, the purchase of shares acquired in one or more exchanges is deemed to have occurred at the time of the original purchase of the exchanged shares. Any gain or loss on the redemption of the shares exchanged is reportable in the shareholders federal income tax return, unless such shares were held in a tax-deferred retirement plan.
Additional information with respect to any of the MFS Funds, including a copy of its current prospectus, may be obtained from investment dealers, MFD or the Shareholder Servicing Agent. A shareholder considering an exchange should obtain and read the prospectus of the other MFS Fund and consider the differences in objectives and policies before making any exchange. Shareholders of the other MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund for shares acquired through direct purchase or dividends reinvested prior to June 1, 1992) have the right to exchange their shares for shares of the Fund, subject to the conditions, if any, set forth in their respective prospectuses. In addition, unitholders of the MFS Fixed Fund have the right to exchange their units (except units acquired through direct purchases) for shares of the Fund, subject to the conditions, if any, imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state- specific series of MFS Municipal Series Trust may only benefit residents of such states. Investors should consult with their own tax advisers to be sure this is an appropriate investment, based on their residency and each state's income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and is subject to certain limitations, including certain restrictions on purchases by market timer accounts (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may be purchased by all types of tax-deferred retirement plans. MFD makes available through investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non- employed spouses who desire to make limited contributions to a tax-deferred retirement program and, if eligible, to receive a federal income tax deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code");
403(b) Plans (deferred compensation arrangements for employees of public school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents and forms provided by MFD designate a trustee or custodian (unless another trustee or custodian is designated by the individual or group establishing the plan) and contain specific information about the plans. Each plan provides that dividends and distributions will be reinvested automatically. For further details with respect to any plan, including fees charged by the trustee, custodian or MFD, tax consequences and redemption information, see the specific documents for that plan. Plan documents other than those provided by MFD may be used to establish any of the plans described above. Third party administrative services, available for some corporate plans, may limit or delay the processing of transactions.
Investors should consult with their tax advisers before establishing any of the tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan qualified under Internal Revenue Code section 401(a) or 403(b) if the retirement plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(a) or 403(b) recordkeeping program made available by the Shareholder Servicing Agent.
6. TAX STATUS FEDERAL TAXES. The Fund has elected to be treated and intends to qualify each year as a "regulated investment company" under Subchapter M of the Code, by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of Fund distributions (as a percentage of both the Fund's overall income and its tax-exempt income), and the composition and holding period of the Fund's portfolio assets. Because the Fund intends to distribute to its shareholders all of its net investment income and net realized capital gains in accordance with the timing requirements imposed by the Code, it is expected that the Fund will not be required to pay federal income or excise taxes. If the Fund should fail to qualify as a "regulated investment company" in any year, the Fund would incur a regular corporate federal income tax upon its taxable income and Fund distributions would generally be taxable as ordinary dividend income to the shareholders.
That part of the net investment income of the Fund that is attributable to interest from tax-exempt securities and that is distributed to shareholders will be designated by the Fund as an "exempt-interest dividend" and will generally be exempt from federal income tax in the hands of the shareholders so long as at least 50% of the total value of the Fund's assets consists of tax-exempt securities at the close of each quarter of the Fund's taxable year. A portion of such income may, however, be treated as a tax preference item for purposes of the alternative minimum tax, and all such income may increase a corporate shareholder's alternative minimum tax. The percentage of income designated as tax-exempt will be applied uniformly to all distributions by the Fund during each fiscal year and may differ from the actual tax exempt income percentage for any particular month. The exempt-interest portion of each dividend will be based on the ratio of the Fund's tax-exempt income to total income for the entire fiscal year. This ratio is determined and reported to shareholders after the close of each fiscal year. Shareholders are required to report tax-exempt interest received from the Fund on their federal income tax returns.
In the course of managing its portfolio, the Fund may realize some capital gains (and/or losses) as a result of market transactions (including options and futures transactions), and also may earn ordinary taxable income from investments in taxable securities and from certain securities (including Municipal Bonds) purchased at a market discount. Distributions from net short-term capital gains and dividends from income from taxable investments are taxable to shareholders as ordinary income. Distributions of net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses) are taxable to shareholders as long-term capital gains for federal income tax purposes without regard to the length of time the shares have been held. These distributions will be treated in the same manner for income tax purposes whether paid in cash or additional shares.
Any distribution of net capital gains or net short-term capital gains will have the effect of reducing the per share net asset value of shares in the Fund by the amount of the distribution. Shareholders purchasing shares shortly before the record date of any such distribution may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution.
Since none of the Fund's income is expected to arise from dividends, no part of the distributions to its shareholders will qualify for the dividends-received deduction for corporations. Fund dividends that are declared in October, November or December, payable to shareholders of record in such a month, and that are paid the following January will be reportable by shareholders as if received on December 31 of the year in which they are declared.
In general, any gain or loss realized upon a taxable disposition of shares of the Fund by a shareholder that holds such shares as a capital asset will be treated as long-term capital gain or loss if the shares have been held for more than twelve months and otherwise as a short-term capital gain or loss. However, any loss realized upon a disposition of shares in the Fund held for six months or less will be disallowed to the extent of any exempt-interest dividends received with respect to those shares and, if not disallowed, any such loss will be treated as a long-term capital loss to the extent of any distributions of net capital gain made with respect to those shares. Any loss realized upon a redemption of shares may also be disallowed under rules relating to wash sales. Gain may be increased (or loss reduced) upon a redemption of Class A shares of the Fund within ninety days after their purchase followed by any purchase (including purchases by exchange or by reinvestment) without payment of an additional sales charge of Class A shares of the Fund or of another MFS Fund (or any other shares of an MFS Fund generally sold subject to a sales charge).
Exempt-interest dividends are taken into account in calculating the amount of social security and railroad retirement benefits that may be subject to federal income tax. Interest on indebtedness incurred by shareholders to purchase or carry shares of the Fund will not be deductible for federal income tax purposes. Persons who are "substantial users" (or persons related to "substantial users") of facilities financed by certain private activity bonds should consult their tax advisors before purchasing shares of the Fund.
The Fund's transactions in options and Futures Contracts will be subject to special tax rules that may affect the amount, timing, and character of Fund income and distributions to shareholders. For example, certain positions held by the Fund on the last business day of each taxable year will be marked to market (i.e., treated as if closed out) on that day, and any gain or loss associated with the positions will be treated as 60% long-term and 40% short-term capital gain or loss. Certain positions held by the Fund that substantially diminish its risk of loss with respect to other positions in its portfolio may constitute "straddles," and may be subject to special tax rules that would cause deferral of Fund losses, adjustments in the holding periods of Fund securities, and conversion of short-term into long-term capital losses. Certain tax elections exist for straddles that may alter the effects of these rules. The Fund will limit its activities in options and Futures Contracts to the extent necessary to meet the requirements of Subchapter M of the Code.
The Fund's current dividend and accounting policies may affect the amount, timing, and character of distributions to shareholders and may, under certain circumstances, make an economic return of capital taxable to shareholders. The Fund's investment in zero coupon securities and certain securities purchased at a market discount will cause it to realize income prior to the receipt of cash payments with respect to these securities. In order to distribute this income and avoid a tax on the Fund, the Fund may be required to liquidate portfolio securities that it might otherwise have continued to hold, potentially resulting in additional taxable gain or loss to the Fund.
Dividends and certain other payments to persons who are not citizens or residents of the United States or U.S. entities ("Non-U.S. Persons") are generally subject to U.S. tax withholding at the rate of 30%. The Fund intends to withhold U.S. federal income tax at a rate of 30% on any payments made to Non-U.S. Persons that are subject to such withholding, regardless of whether a lower treaty rate may be permitted. Any amounts overwithheld may be recovered by such persons by filing a claim for refund with the U.S. Internal Revenue Service within the time period applicable to such claims. Non-U.S. Persons may also be subject to tax under the laws of their own jurisdictions.
The Fund is also required in certain circumstances to apply backup withholding at a rate of 31% on taxable dividends and redemption proceeds paid to any shareholder (including a Non-U.S. Person) who does not furnish to the Fund certain information and certifications or who is otherwise subject to backup withholding. However, backup withholding will not be applied on payments which have been subject to 30% withholding.
A statement setting forth the federal income tax status of all dividends and distributions for each calendar year will be sent to each shareholder promptly after the end of such year.
STATE AND LOCAL TAXES. The exemption of exempt-interest dividends for federal income tax purposes does not necessarily result in exemption under the income or other tax laws of any state or local taxing authority. Shareholders of the Fund may be exempt from state and local taxes on distributions of tax-exempt interest income derived from obligations of the state and/or municipalities of the state in which they are residents, but are generally subject to such taxes on income derived from obligations of other jurisdictions. Therefore, shareholders of the Fund may be subject to state and local taxes on distributions from the Fund. The Fund will report annually to its shareholders the percentage of interest income earned by the Fund during the preceding year from such federally tax-exempt securities and will indicate, on a state-by-state basis only, the source of such income. Residents of certain states may be subject to an intangibles tax or a personal property tax on all or a portion of the value of their shares.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE: The net asset value per share of each class of shares of the Fund is determined each day during which the Exchange is open for trading. (As of the date of this Statement of Additional Information, the Exchange is open for trading every weekday except for the following holidays or the days on which they are observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.) This determination is made once during each such day as of the close of regular trading on the Exchange by deducting the amount of the liabilities attributable to the class from the value of the assets attributable to the class and dividing the difference by the number of the shares of the class outstanding. Debt securities (other than short-term obligations) are valued on the basis of valuations furnished by a pricing service which utilizes both dealer-supplied valuations and electronic data processing techniques which take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Use of the pricing service has been approved by the Board of Trustees. Short-term obligations are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. Short-term obligations with a remaining maturity in excess of 60 days will be valued upon dealer supplied valuations. Other short-term obligations are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. Positions in listed options, Futures Contracts and Options on Futures Contracts will normally be valued at the settlement price on the exchange on which they are primarily traded. Positions in over-the-counter options will be valued using dealer supplied valuations. Portfolio securities for which there are no such valuations are valued at fair value as determined in good faith by or at the direction of the Board of Trustees.
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each class of shares for certain periods by determining the average annual compounded rates of return over those periods that would cause an investment of $1,000 (made with all dividends and distributions reinvested and reflecting the CDSC or the maximum public offering price) to reach the value of that investment at the end of the periods. The Fund may also calculate (i) a total return, which is not reduced by the CDSC (4% maximum for Class B shares purchased on or after September 1, 1993) and therefore may result in a higher rate of return (ii) a total rate of return assuming an initial account value of $1,000, which will result in a higher rate of return since the value of the initial account will not be reduced by the sales charge (maximum currently 2.50%) imposed with respect to Class A shares, and/or (iii) total rates of return which represent aggregate performance over a period or year-by-year performance, and which may or may not reflect the effect of the CDSC or other sales charge. The average annual total rate of return for Class A shares of the Fund reflecting the initial investment at the current maximum public offering price for the one-year ended April 30, 1995 and from March 17, 1992 (commencement of operations) through April 30, 1995 was 0.98% and 4.05%, respectively. The average annual total rate of return for Class A shares of the Fund not giving effect to the sales charge for the same one-year period and for the life of the Fund was 3.55% and 4.91%, respectively. Total rate of return figures would have been lower if fee waivers were not in place. The Fund's average annual total rate of return for Class B shares reflecting the CDSC for the one-year period ended April 30, 1995 and for the period September 7, 1993 through the Fund's fiscal year ended April 30, 1995 was -1.31% and -1.67%, respectively. The Fund's average annual total rate of return for Class B shares, not giving effect to the CDSC, for this period was 2.67% and 0.68%, respectively. The Fund's average annual total rate of return for Class C shares for the period July 1, 1994 through April 30, 1995 was 2.53%.
PERFORMANCE RESULTS: Performance results, including any yield, tax-equivalent yield, current distribution rate or total rate of return quotation provided by the Fund, should not be considered as representative of the performance of the Fund in the future since the net asset value and public offering price of shares of the Fund will vary based not only on the type, quality and maturities of the securities held in the Fund's portfolio, but also on changes in the current value of such securities and on changes in the expenses of the Fund. These factors and possible differences in the methods used to calculate performance quotations should be considered when comparing the performance quotations of the Fund to performance quotations published for other investment companies or other investment vehicles. Total rate of return reflects the performance of both principal and income. Current net asset value as well as account balance information may be obtained by calling 1-800-MFS- TALK (637-8255).
YIELD: Any yield quotation for a class of shares of the Fund is based on the annualized net investment income per share of that class over a 30-day period. The yield for each class of shares of the Fund is calculated by dividing the net investment income per share allocated to that class earned during the period by the maximum offering price per share of that class of the Fund on the last day of that period. The resulting figure is then annualized. Net investment income per share of a class is determined by dividing (i) the dividends and interest allocated to that class during the period, minus accrued expenses of that class for the period, by (ii) the average number of shares of the class entitled to receive dividends during the period multiplied by the maximum offering price per share on the last day of the period. The yield calculation for Class A shares assumes a maximum sales charge of 2.50%. The yield calculations for Class B shares assumes no CDSC is paid. The yield for Class A, Class B and Class C shares of the Fund for the 30-day period ended April 30, 1995 was 4.05%, 3.27%, and 3.30%, respectively.
TAX-EQUIVALENT YIELD: The Fund's tax-equivalent yield for each class is calculated by determining the rate of return that would have to be achieved on a fully taxable investment to produce the after-tax equivalent of the yield for that class. In calculating tax-equivalent yield, the Fund assumes certain tax brackets for shareholders. The tax-equivalent yield for Class A, Class B and Class C shares of the Fund for the 30-day period ended April 30, 1995 was 5.63%, 4.54% and 4.58%, respectively (assuming a tax bracket of 28%), and 5.87%, 4.74% and 4.78%, respectively (assuming a tax bracket of 31%).
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula prescribed by the SEC, is not indicative of the amounts which were or will be paid to the Fund's shareholders. Amounts paid to shareholders of each class are reflected in the quoted "current distribution rate" for that class. The current distribution rate for a class is computed by dividing the total amount of dividends per share paid by the Fund to shareholders of that class during the past 12 months by the maximum public offering price of that class at the end of such period. Under certain circumstances, such as when there has been a change in the amount of dividend payout, or a fundamental change in investment policies, it might be appropriate to annualize the dividends paid over the period such policies were in effect, rather than using the dividends during the past 12 months. The current distribution rate differs from the yield computation because it may include distributions to shareholders from sources other than dividends and interest, such as premium income from option writing, short-term capital gains and return of invested capital, and is calculated over a different period of time. The Fund's current distribution rate calculation for Class A shares assumes a maximum sales charge of 2.50%. The Fund's current distribution rate calculation for Class B shares assumes no CDSC is paid. The current distribution rate for Class A shares of the Fund for the 12-month period ended on April 30, 1995 was 3.75%. The current distribution rate for Class B shares of the Fund for the 12-month period ended on April 30, 1995 was 2.90%. The current distribution rate for Class C shares of the Fund for the 12-month period ended April 30, 1995 was 2.52%.
From time to time, the Fund may discuss or quote its current portfolio manager as well as other investment personnel, including such persons' views on: the economy; securities markets; portfolio securities and their issuers; investment philosophies, strategies, techniques and criteria used in the selection of securities to be purchased or sold for the Fund; the Fund's portfolio holdings; the investment research and analysis process; the formulation and evaluation of investment recommendations; and the assessment and evaluation of credit, interest rate, market and economic risks.
From time to time the Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial
World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager as well as other investment personnel, including such persons' views on: the economy; securities markets; portfolio securities and their issuers; investment philosophies, strategies, techniques and criteria used in the selection of securities to be purchased or sold for the Fund; the Fund's portfolio holdings; the investment research and analysis process; the formulation and evaluation of investment recommendations; and the assessment and evaluation of credit, interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past performance of various indices such as those mentioned above and illustrations using hypothetical rates of return to illustrate the effects of compounding and tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, an investor invests a fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer shares when prices are high and more shares when prices are low. While such a strategy does not assure a profit or guard against a loss in a declining market, the investor's average cost per share can be lower than if fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund
to register under the Securities Act of 1933 ("Truth in
Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first Trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
|
8. DISTRIBUTION PLANS The Trustees have adopted a Distribution Plan for each of Class A, Class B and Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that there is a reasonable likelihood that each Distribution Plan would benefit the Fund and the respective class of shareholders. The Distribution Plans are designed to promote sales, thereby increasing the net assets of the Fund. Such an increase may reduce the expense ratio to the extent the Fund's fixed costs are spread over a larger net asset base. Also, an increase in net assets may lessen the adverse effects that could result were the Fund required to liquidate portfolio securities to meet redemptions. There is, however, no assurance that the net assets of the Fund will increase or that the other benefits referred to above will be realized.
CLASS A DISTRIBUTION PLAN: The Class A Distribution Plan provides that the Fund will pay MFD up to (but not necessarily all of) an aggregate of 0.35% per annum of the average daily net assets attributable to the Class A shares annually in order that MFD may pay expenses on behalf of the Fund related to the distribution and servicing of its Class A shares. The expenses to be paid by MFD on behalf of the Fund include a service fee to securities dealers which enter into a sales agreement with MFD of up to 0.25% per annum of the portion of the Fund's average daily net assets attributable to the Class A shares owned by investors for whom that securities dealer is the holder or dealer of record. Currently, this service fee has been set at 0.15% per annum. The service fee may be increased without notice to shareholders. These payments are partial consideration for personal services and/or account maintenance performed by such dealers with respect to Class A shares. MFD may from time to time reduce the amount of the service fee paid for shares sold prior to a certain date. MFD may also retain a distribution fee of 0.10% per annum of the Fund's average daily net assets attributable to Class A shares as partial consideration for services performed and expenses incurred in the performance of MFD's obligations as to Class A shares under the Distribution Agreement with the Fund. The distribution fee is currently not being imposed. Any remaining funds may be used to pay for other distribution related expenses as described in the Prospectus. Service fees may be reduced for a securities dealer that is the holder or dealer of record for an investor who owns shares of the Fund having a net asset value at or above a certain dollar level. No service fee will be paid to any securities dealer who is the holder or dealer of record for investors who own Class A shares having an aggregate net asset value less than $750,000, or such other amount as may be determined from time to time by MFD (MFD, however, may waive this minimum amount requirement from time to time if the dealer satisfies certain criteria), or (ii) to any insurance company which has entered into and agreement with the Fund and MFD that permits such insurance company to purchase shares from the Fund at their net asset value in connection with annuity agreements issued in connection with the insurance company's separate accounts. Dealers may from time to time be required to meet certain other criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under the Class A Distribution Plan for which there is no dealer of record or for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts. Certain banks and other financial institutions that have agency agreements will MFD will receive agency transaction and service fees that are the same as commissions and service fees to dealers.
During the fiscal year ended April 30, 1995, the Fund incurred expenses of $112,991 (equal to 0.15% of its average daily net assets attributable to Class A shares) relating to the distribution and servicing of its Class A shares, of which MFD received $0 and securities dealers of the Fund and certain banks and other financial institutions received $112,991 of which MFD retained $12,598.
CLASS B DISTRIBUTION PLAN: The Class B Distribution Plan provides that the Fund will pay MFD, as the Fund's distributor for its Class B shares, a daily distribution fee equal on an annual basis to 0.75% of the Fund's average daily net assets attributable to Class B shares and may pay MFD an annual service fee of up to 0.25% per annum of the Fund's average daily net assets attributable to Class B shares (which MFD will in turn pay to securities dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per annum of the Fund's average daily net assets attributable to Class B shares owned by investors for whom that securities dealer is the holders or dealers of record). Except in the case of the first year service fee, the service fee has been set at 0.15% per annum of the Fund's average daily net assets attributable to Class B shares that are owned by investors for whom that securities dealer is the holder or dealer of record. The service fee may be increased without notice to shareholders. The first year service fee will be paid as noted below. This service fee is intended to be additional consideration for all personal services and/or account maintenance services rendered by the dealer with respect to Class B shares. MFD will advance to dealers the first-year service fee at a rate equal to 0.25% per annum of the amount invested. As compensation therefor, MFD may retain the service fee paid by the Fund with respect to such shares for the first year after purchase. Dealers will become eligible for additional service fees with respect to such shares commencing in the thirteenth month following purchase. Except in the case of the first year service fee, no service fee will be paid to any securities dealer who is the holder or dealer of record for investors who own Class B shares having an aggregate net asset value of less than $750,000 or such other amount as may be determined from time to time by MFD. MFD, however, may waive this minimum amount requirement from time to time if the dealer satisfies certain criteria. Dealers may from time to time be required to meet certain other criteria in order to receive service fees. MFD or its affiliates are entitled to retain all service fees payable under the Class B Distribution Plan for which there is no dealer of record or with respect to accounts for which qualification standards have not been met as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts.
The purpose of distribution payments to MFD under the Class B Distribution Plan is to compensate MFD for its distribution services to the Fund. MFD pays commissions to dealers as well as expenses of printing prospectuses and reports used for sales purposes, expenses with respect to the preparation and printing of sales literature and other distribution related expenses, including, without limitation, the cost necessary to provide distribution- related services, or personnel, travel office expenses and equipment. The Class B Distribution Plan also provides that MFD will receive all CDSCs attributable to Class B shares (see "Distribution Plans" and "Purchases" in the Prospectus).
During the fiscal year ended April 30, 1995, the Fund incurred expenses of $81,287 (equal to 1.00% of its average daily net assets attributable to Class B shares) relating to the distribution and servicing of its Class B shares, of which MFD received $60,987 and securities dealers of the Fund and certain banks and other financial institutions received $20,300 (of which MFD retained $756).
CLASS C DISTRIBUTION PLAN: The Class C Distribution Plan provides that the Fund will pay MFD a distribution fee of up to 0.75% per annum of the Fund's average daily net assets attributable to Class C shares and will pay MFD a service fee of up to 0.25% per annum of the Fund's average daily net assets attibutable to Class C shares (which MFD will in turn pay to securities dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per annum of the Fund's daily net assets attributable to Class C shares owned by investors for whom that securities dealer is the holder or dealer of record).
The distribution/service fees attributable to Class C shares are designed to permit an investor to purchase such shares through a broker-dealer without the assessment of an initial sales charge or a CDSC while allowing MFD to compensate broker-dealers in connection with the sale of such shares.
The service fee is intended to be additional consideration for all personal services and/or account maintenance services rendered by the dealer with respect to Class C shares. MFD or its affiliates are entitled to retain all service fees payable under the Class C Distribution Plan with respect to accounts for which there is no dealer of record as partial consideration for personal services and/or account maintenance services performed by MFD or its affiliates for shareholder accounts.
The purpose of the distribution payments to MFD under the Class C Distribution Plan is to compensate MFD for its distribution services to the Fund. Distribution payments under the Plan will be used by MFD to pay securities dealers a distribution fee in an amount equal on an annual basis to 0.75% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom securities dealer is the holder or dealer of record. (Therefore, the total amount of distribution/service fees paid to a dealer on an annual basis is 1.00% of the Fund's average daily net assets attributable to Class C shares owned by investors for whom the securities dealer is the holder or dealer of record.) MFD also pays expenses of printing prospectuses and reports used for sales purposes, expenses with respect to the preparation and printing of sales literature and other distribution-related expenses, including, without limitation, the compensation of personnel and all costs of travel, office expense and equipment. Since MFD's compensation is not directly tied to its expenses, the amount of compensation received by MFD during any year may be more or less than its actual expenses. For this reason, this type of distribution fee arrangement is characterized by the staff of the SEC as being of the "compensation" variety. However, the Fund is not liable for any expenses incurred by MFD in excess of the amount of compensation it receives. Certain banks and other financial institutions that have agency agreements with MFD will receive agency transaction and service fees that are the same as distribution and service fees to dealers. Fees payable under the Class C Distribution Plan are charged to, and therefore reduce, income allocated to Class C shares.
During the period July 1, 1994 through April 30, 1995, the Fund incurred expenses of $19,654 (equal to 1.00% of its average daily net assets attributable to Class C shares) relating to the distribution and servicing of Class C shares, of which MFD received $0 and securities dealers of the Fund and certain banks and other financial institutions received $19,654 of which MFD retained $635.
GENERAL: Each of the Distribution Plans will remain in effect until August 1, 1996, and will continue in effect thereafter only if such continuance is specifically approved at least annually by vote of both the Trustees and a majority of the Trustees who are not "interested persons" or financially interested parties to such Plan ("Distribution Plan Qualified Trustees"). Each of the Distribution Plans also requires that the Fund and MFD each shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefor) under such Plan. Each of the Distribution Plans may be terminated at any time by vote of a majority of the Distribution Plan Qualified Trustees or by vote of the holders of a majority of the respective class of the Fund's shares (as defined in "Investment Restrictions"). All agreements relating to any of the Distribution Plans entered into between the Fund or MFD and other organizations must be approved by the Board of Trustees, including a majority of the Distribution Plan Qualified Trustees. Agreements under any of the Distribution Plans must be in writing, will be terminated automatically if assigned, and may be terminated at any time without payment of any penalty, by vote of a majority of the Distribution Plan Qualified Trustees or by vote of the holders of a majority of the respective class of the Fund's shares. None of the Distribution Plans may be amended to increase materially the amount of permitted distribution expenses without the approval of a majority of the respective class of the Fund's shares (as defined in "Investment Restrictions") or may be materially amended in any case without a vote of the Trustees and a majority of the Distribution Plan Qualified Trustees. The selection and nomination of Distribution Plan Qualified Trustees shall be committed to the discretion of the non-interested Trustees then in office. No Trustee who is not an "interested person" has any financial interest in any of the Distribution Plans or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional Shares of Beneficial Interest (without par value) of one or more separate series and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in that series. The Trustees have currently authorized shares of the Fund and two other series. The Declaration of Trust further authorizes the Trustees to classify or reclassify the shares of the Fund into one or more classes. Pursuant thereto, the Trust has authorized the issuance of three classes of shares of the Fund, Class A, Class B and Class C shares. Each share of a class of a series represents an equal proportionate interest in the assets of that series attributable to that class. Upon liquidation of the Fund, shareholders of each class of the Fund would be entitled to share pro rata in the net assets of the Fund allocable to that class available for distribution to shareholders. The Trust reserves the right to create and issue additional series or classes of shares, in which case the shares of each class of a series would participate equally in the earnings, dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the election of Trustees and on other matters submitted to meetings of shareholders. Although Trustees are not elected annually by the shareholders, shareholders have the right under certain circumstances to remove one or more Trustees. No material amendment may be made to the Declaration of Trust without the affirmative vote of the holders of a majority of the Trust's outstanding shares. Shares have no pre-emptive or conversion rights (except as set forth in "Purchases -- Conversion of Class B Shares" in the Prospectus). Shares when issued are fully paid and non-assessable. The Trust may enter into a merger or consolidation, or sell all or substantially all of its assets (or all or substantially all of the assets belonging to any series of the Trust), if approved by the vote of the holders of two-thirds of the Trust's outstanding shares voting as a single class, or of the affected series of the Trust, as the case may be, except that if the Trustees of the Trust recommend such merger, consolidation or sale, the approval by vote of the holders of a majority of the Trust's or the affected series' outstanding shares (as defined in "Investment Restrictions") will be sufficient. The Trust or any series of the Trust may also be terminated (i) upon liquidation and distribution of its assets, if approved by the vote of the holders of two-thirds of its outstanding shares, or (ii) by the Trustees by written notice to the shareholders of the Trust or the affected series. If not so terminated, the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business trust". Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification and reimbursement of expenses out of the Trust property for any shareholder held personally liable for the obligations of the Trust. The Declaration of Trust also provides that the Trust shall maintain appropriate insurance (for example, fidelity bonding and errors and omissions insurance) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not binding upon the Trustees individually but only upon the property of the Trust and that the Trustees will not be liable for any action or failure to act, but nothing in the Declaration of Trust protects a Trustee against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office.
10. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS Deloitte & Touche LLP are the Trust's independent certified public accountants.
The Portfolio of Investments at April 30, 1995, the Statement of Assets and Liabilities at April 30, 1995, the Statement of Operations for the year ended April 30, 1995, the Statements of Changes in Net Assets for the year ended August 31, 1993, the eight months ended April 30, 1994 and the year ended April 30, 1995, the Notes to Financial Statements and the Independent Auditors' Report, each of which is included in the Annual Report to Shareholders of the Fund, are incorporated by reference into this Statement of Additional Information and have been so incorporated in reliance upon the report of Deloitte & Touche LLP, independent certified public accountants, as experts in accounting and auditing. A copy of the Annual Report accompanies this Statement of Additional Information.
APPENDIX A
The ratings of Moody's and S&P represent their opinions as to the quality of various Municipal Bonds. It should be emphasized, however, that ratings are not absolute standards of quality. Consequently, Municipal Bonds with the same maturity, coupon and rating may have different yields while Bonds of the same maturity and coupon with different ratings may have the same yield.
DESCRIPTION OF MUNICIPAL BOND RATINGS
MOODY'S
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issuers.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
S&P
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree.
A: Debt rated a has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are most likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
A: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions, however, are more likely to have adverse impact on these bonds, and therefor impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
APPENDIX B
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS OF FROM FUND AND
TRUSTEE FROM FUND<F1> FUND'S EXPENSES<F1> SERVICE<F2> FUND COMPLEX<F3>
- ---------------------------- ---------------- ---------------------- --------------------- ----------------------
Richard B. Bailey .......... $1,057 $149 8 $226,221
Peter G. Harwood ........... 1,147 61 5 105,812
J. Atwood Ives ............. 1,082 156 17 106,482
Lawrence T. Perera ......... 992 151 16 96,592
William Poorvu ............. 1,147 157 16 106,482
Charles W. Schmidt ......... 1,057 149 9 98,397
Elaine R. Smith ............ 1,057 149 27 98,397
David B. Stone ............. 1,117 154 9 104,007
- ------------
<F1>For fiscal year ended April 30, 1995.
<F2>Based on normal retirement age of 73.
<F3>For calendar year 1994. All Trustees served as Trustees of 20 funds within the MFS fund complex (having aggregate
net assets at December 31, 1994, of approximately $14 billion) except Mr. Bailey, who served as Trustee of 56
funds within the MFS fund complex (having aggregate net assets at December 31, 1994, of approximately $24
billion).
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT<F4>
YEARS OF SERVICE
-------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- --------------------------------------------------------------------------------------------------------------
$ 890 $134 $223 $312 $445
965 145 241 338 483
1,040 156 260 364 520
1,115 167 279 390 558
1,190 179 298 417 595
1,265 190 316 443 633
<F4>Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
|
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company 225
Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address
P.O. Box 2281, Boston, MA 02107-9906
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
MUNICIPAL LIMITED
MATURITY FUND
500 Boylston Street
Boston, MA 02116
[LOGO] THE FIRST NAME IN MUTUAL FUNDS(SM)
MML-13-9/95/.5M 37/237/337
[LOGO] M F S ANNUAL REPORT FOR
THE FIRST NAME IN MUTUAL FUNDS YEAR ENDED
APRIL 30, 1995
MFS(R) MUNICIPAL LIMITED MATURITY FUND
[GRAPHIC OMITTED: A 6 1/4" by 8 1/4" photo of a highway.]
|
MFS(R) MUNICIPAL LIMITED MATURITY FUND
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Private Investor For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
J. Atwood Ives - Chairman and Chief Executive a touch-tone telephone.
Officer, Eastern Enterprises
For information on MFS mutual funds,
Lawrence T. Perera - Partner, Hemenway & Barnes call your financial adviser or, for an
information kit, call toll free:
William J. Poorvu - Adjunct Professor, Harvard 1-800-637-2929 any business day from
University Graduate School of Business 9 a.m. to 5 p.m. Eastern time (or leave
Administration a message anytime).
Charles W. Schmidt - Private Investor; INVESTOR SERVICE
Former Senior Vice President and Group Executive MFS Service Center, Inc.
(until 1990), Raytheon Company P.O. Box 2281
Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice President
and Secretary, Massachusetts Financial Services Company For current account service, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames* - President, Massachusetts 8 a.m. to 8 p.m. Eastern time.
Financial Services Company
For service to speech- or hearing-impaired,
Elaine R. Smith - Independent Consultant call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To use this
David B. Stone - Chairman, North American service, your phone must be equipped with a
Management Corp. (Investment Advisers) Telecommunications Device for the Deaf.)
INVESTMENT ADVISER For share prices, account balances and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, Massachusetts 02116-3741 telephone.
PORTFOLIO MANAGER ------------------------------------------
Robert A. Dennis* TOP-RATED SERVICE
NUMBER MFS was rated first when
TREASURER 1 securities firms evaluated the
W. Thomas London* DALBAR quality of service they receive
from 40 mutual fund companies.
ASSISTANT TREASURER MFS got high marks for answering
James O. Yost* calls quickly, processing
transactions accurately and
SECRETARY sending statements out on time.
Stephen E. Cavan* (Source: 1994 DALBAR Survey)
-------------------------------------------
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Cover photo: Through their wide range of
investments, MFS mutual funds help you
*Affiliated with the Investment Adviser share in America's growth.
|
LETTER TO SHAREHOLDERS
Dear Shareholders:
During the past 12 months, there have been wide swings in interest rates.
After rising dramatically through most of 1994 as the rate of economic growth
quickened and price increases in the manufacturing sector spurred fears of
higher inflation, interest rates peaked last November. Since then, yields on
most fixed-income securities have fallen substantially as it has become
increasingly apparent that the Federal Reserve Board's credit tightening moves
have succeeded in slowing down economic growth and keeping inflation in check.
Due to favorable supply and demand conditions, interest rate volatility in the
municipal market has been less severe than in other markets. Nevertheless,
yields on five-year AAA-rated municipal bonds, which were 4.90% at the end of
April 1994, rose to 5.60% by mid-November, and have since declined to 4.80% as
of April 30, 1995. For the 12 months ended April 30, 1995, Class A shares of
the Fund experienced a total return of +3.55%, while Class B shares had a
total return of +2.67%. Class C shares, available only since July 1, 1994, had
a total return of +2.53% for the 10 months ended April 30, 1995. These returns
assume the reinvestment of distributions but exclude the effects of any sales
charges.
Economic Outlook
As the economy enters its fifth year of expansion, it is evidencing a
decidedly decelerating trend from its robust pace of 1994, when gross domestic
product expanded by 4.1%. Estimated growth in this year's first quarter
diminished to an annual rate of 2.8%. Consumer spending slowed considerably
during the quarter and was accompanied by a correspondingly large increase in
inventories. As we begin the year's second quarter, the evidence suggests that
the economy has entered a phase of less-than-full-potential growth, as the
April unemployment rate showed a second consecutive monthly increase. We
expect the economy to continue to grow at this more subdued pace. We do not
anticipate that the slowdown will deteriorate into a recession and,
conversely, we remain mindful of the potential for a reliquified consumer
sector to reassert itself as the year progresses.
Interest Rates
As evidence of a slowdown has continued to mount, the fixed-income markets
have become increasingly convinced that the Federal Reserve has concluded its
monetary-tightening initiatives. Furthermore, as the economy has diminished in
its ability to create jobs and in its usage of available productive capacity,
apprehension concerning a cyclical upturn in inflation has receded. As a
result, long-term U.S. Treasury bond yields have declined to near 7.00% as of
April 30, 1995, down from 7.87% at the beginning of the year and from their
cyclical peak of 8.15% in November 1994. Despite higher costs at the crude and
intermediate stages of production, prices have not increased appreciably at
the consumer level. For the 12 months ended in April of this year, the
Consumer Price Index, a popular measure of change in prices, increased by a
still moderate 3.1%. Continued benign growth in labor costs and the inability
of many businesses to effectively raise prices have combined to extend the
favorable price environment. Nevertheless, we do anticipate a minor cyclical
pickup in inflationary pressure this year to the 3% - 3 1/2% range.
The decline in interest rates has been particularly precipitous during the past month, leaving the market potentially vulnerable to a near-term correction. However, we believe continuing moderate growth will result in interest rates trending near to, and possibly somewhat lower than, present levels during the balance of this year.
Portfolio Performance and Strategy
The Fund's average maturity, which had been reduced from five years to less
than three years during 1994 in order to preserve principal during the period
of rising interest rates, has been extended to three-and-a-half years during
this year's market recovery. We do not anticipate further lengthening of the
Fund's average maturity at this time because the yield curve is less steep
than in previous years (that is, the incremental yield achieved from extending
beyond three years is historically low). Another reason for caution is that,
due to sharply reduced new-issue supply (total volume for 1995 is projected to
be only about 40% of 1993's issuance), municipals in the short-maturity range
appear fully priced relative to taxable alternatives.
The Fund's total returns for all classes of shares during the 12 months ended April 30 lagged the +3.78% average return for the 37 short-term municipal bond funds tracked by Lipper Analytical Services, Inc., an independent firm which reports mutual fund performance. The Fund's performance did not compare well to the +4.64% return of the Lehman Brothers Municipal Bond Three-Year Index (an unmanaged index comprised of bonds issued within the past three years rated Baa or better and with maturities between two and four years). The Fund's performance would have been better if we had lengthened the average maturity earlier. Longer maturities provided better returns as evidenced by the fact that the Lehman Brothers Municipal Bond Five-Year Index (an unmanaged index comprised of bonds issued within the last five years rated Baa or better and with maturities between four and six years) had a return of +5.47% over this same 12-month period.
Since the yield differential between high- and low-quality bonds remains very narrow, the Fund continues to maintain a high-quality portfolio. Currently, 72% of total net assets is invested in either AAA- or AA-rated bonds. The Fund's largest sector concentration, which represents about 28% of total net assets, is in tax-backed general obligations, historically the most secure of municipal credits. This sector is benefiting not only from the conservative financial practices generally employed by municipal governments in recent years, but also from the improved revenues flowing into state and local governments as a result of better economic conditions.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
- ---------------------- -----------------------
A 1 1/2" by 1 5/8" A 1 1/2" by 1 5/8"
photo of photo of
A. Keith Brodkin, Robert A. Dennis,
Chairman and President Portfolio Manager
- ---------------------- -----------------------
/s/ A. Keith Brodkin /s/ Robert A. Dennis
A. Keith Brodkin Robert A. Dennis
Chairman and President Portfolio Manager
May 17, 1995
|
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide as high a level of current
income exempt from federal income taxes as is considered consistent with
prudent investing and protection of shareholders' capital.
The Fund, under normal conditions, invests substantially all (at least 80%) of its assets in debt securities issued by or on behalf of states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies or instrumentalities, the interest on which is exempt from federal income tax. As a defensive measure during times of adverse market conditions, up to 50% of the Fund's assets may be temporarily invested in short-term investments. Substantially all of the Fund's total assets will be invested in: tax-exempt securities which are rated AAA, AA, A or BBB by Standard & Poor's Corporation (S&P) or are rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's) (and comparable unrated securities); notes of issuers having an issue of outstanding municipal bonds rated AAA, AA, A or BBB by S&P or Aaa, Aa, A or Baa by Moody's (or issuers of comparable quality) or which are guaranteed by the U.S. government; obligations issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities; and commercial paper, obligations of banks (including certificates of deposit and bankers' acceptances) with $1 billion of assets, and cash. Under normal market conditions, the dollar-weighted average maturity of the Fund's portfolio will not exceed five years and substantially all of the securities held by the Fund will have remaining maturities of 10 years or less.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
For federal income tax purposes, 100% of the total dividends paid by the Fund
from net investment income during the year ended April 30, 1995 was designated
as an exempt-interest dividend.
On December 30, 1994, Class A and Class B shares each paid a distribution from net short-term capital gains of $0.000138 per share to shareholders of record on December 30, 1994.
In January 1996, shareholders will be mailed a Tax Form Summary reporting the federal tax status of all distributions paid during the calendar year 1995.
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS Municipal Limited Maturity Fund Class A shares in comparison to various
market indicators. Fund results reflect the deduction of the 2.50% maximum
sales charge; benchmark comparisons are unmanaged and do not reflect any fees
or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B share performance appears on the next page.
Class C shares were offered effective July 1, 1994. Information on Class C share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from April 1, 1992 to April 30, 1995)
Line graph representing the growth of a $10,000 investment for the life-of-class period ended April 30, 1995. The graph is scaled from $9,000 to $14,000 in $1,000 segments. The years are market from 1992 to 1995. There are four lines drawn to scale. One is a solid line representing MFS Municipal Limited Maturity Fund (Class A), a second line of short dashes represents the Lehman Brothers Municipal Bond 5-Year Index, a third line of medium dashes represents the Lehman Brothers Municipal Bond 3-Year Index, and a fourth line of long dashes represents the Consumer Price Index.
MFS Municipal Limited Maturity Fund (Class A) $11,338
Lehman Brothers Municipal Bond
5-Year Index $12,060
Lehman Brothers Municipal Bond
3-Year Index $11,713
Consumer Price Index $10,905
|
AVERAGE ANNUAL TOTAL RETURNS
Life of Class
through
1 Year 3 Years 4/30/95
- -------------------------------------------------------------------------------------------------------
MFS Municipal Limited Maturity Fund (Class A)
including 2.50% sales charge +0.98% +4.23% +4.05%<F1>
- -------------------------------------------------------------------------------------------------------
MFS Municipal Limited Maturity Fund (Class A) at net
asset value +3.55% +5.13% +4.91%<F1>
- -------------------------------------------------------------------------------------------------------
MFS Municipal Limited Maturity Fund (Class B) with
CDSC<F3> -1.31% -- -1.67<F2>
- -------------------------------------------------------------------------------------------------------
MFS Municipal Limited Maturity Fund (Class B) without
CDSC +2.67% -- +0.68%<F2>
- -------------------------------------------------------------------------------------------------------
MFS Municipal Limited Maturity Fund (Class C) -- -- +2.53%<F4>
- -------------------------------------------------------------------------------------------------------
Average short-term municipal debt fund +3.78% +4.65% +4.73%<F5>
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Three-Year Index +4.64% +5.15% +5.26%<F5>
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Five-Year Index +5.47% +6.14% +6.26%<F5>
- -------------------------------------------------------------------------------------------------------
Consumer Price Index +3.05% +2.88% +2.85%<F5>
- -------------------------------------------------------------------------------------------------------
In the above table, we have included the average annual total returns of all
short-term municipal debt funds (including the Fund) tracked by Lipper
Analytical Services, Inc. for the applicable time periods (37, 18 and 18 funds
for the 1- and 3-year periods ended April 30, 1995 and for the period from
April 1, 1992 to April 30, 1995, respectively). Because these returns do not
reflect any applicable sales charges, we have also included the Fund's results
at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost.
<F1> For the period from the commencement of offering of Class A shares, March
17, 1992 to April 30, 1995.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993 to April 30, 1995.
<F3> Class B share results reflect the maximum contingent deferred sales charge
(CDSC) of 4%.
<F4> Aggregate total return for the period from the commencement of offering of
Class C shares, July 1, 1994 to April 30, 1995. Class C shares have no
initial sales charge or CDSC but, along with Class B shares, have higher
annual fees and expenses than Class A shares.
<F5> Benchmark comparisons begin on April 1, 1992.
|
PORTFOLIO OF INVESTMENTS - April 30, 1995
S&P
Bond Principal
Rating Amount
(Unaudited) Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
General Obligation - 27.7%
AAA Aldine, TX, Independent School District,
PSFG, 7.25s, 1997 $ 600 $ 623,454
AA+ Baltimore County, MD, Consolidated Public
Improvement, 5s, 1997 500 503,565
AA+ Baltimore County, MD, Metropolitan
District, 6.5s, 1997 500 519,035
AAA Clark County, NV, FGIC, 5.5s, 2002 2,000 2,005,360
A+ Commonwealth of Massachusetts, 7.25s, 1996 1,000 1,026,830
A+ Commonwealth of Massachusetts, 7s, 1999 1,000 1,056,730
A+ Commonwealth of Massachusetts, 6.7s, 2002 1,000 1,058,270
AAA Cook County, IL, High School District No.
205 (Thornton Township), FGIC,
5.4s, 1997 450 455,598
B District of Columbia, 4.3s, 1996 900 869,778
AAA District of Columbia, AMBAC, 7.25s, 1998 500 528,295
N/R Indianapolis, IN, Local Public Improvement
Bond Bank, 6.25s, 2001 1,000 1,043,070
AAA Lawrence, MA, AMBAC, 9.7s, 2001 1,000 1,213,900
AA- Milwaukee County, WI, 5.35s, 2001 2,410 2,402,939
AA Milwaukee, WI, Metropolitan Sewage
District, 6.7s, 2001 500 538,350
AA- Pinellas County, FL, Capital Improvement
Rev., 5.3s, 1996 2,325 2,354,364
AA State of Hawaii, 3.6s, 1996 1,000 983,100
AA- State of Illinois, 5.5s, 1998 1,000 1,017,980
AAA State of Louisiana, MBIA, 5.3s, 2001 500 502,180
AA+ State of Minnesota, 6.8s, 1996 750 771,218
AA+ State of South Carolina, 5.5s, 1996 1,000 1,008,960
-----------
$20,482,976
- ------------------------------------------------------------------------------
Student Loan Revenue - 11.1%
N/R Colorado Student Obligation Bond
Authority, 6.125s, 1998 $ 315 $ 322,724
N/R Louisiana Public Facilities Authority,
6.5s, 2002 1,000 1,031,250
N/R Mississippi Higher Education Assistance
Corp., 5.4s, 2002 1,000 982,590
N/R Nebraska Higher Education Loan Program,
Inc. Rev., 5s, 1998 500 494,035
N/R Nebraska Higher Education Loan Program,
Inc. Rev., 5.2s, 1999 500 494,575
N/R Nebraska Higher Education Loan Program,
Inc. Rev., 5.2s, 1999 500 494,125
N/R New Mexico Educational Assistance
Foundation, 5.25s, 1998 1,000 1,000,270
A+ South Dakota Student Loan Finance Corp.,
5.3s, 1997 1,000 1,002,420
N/R South Texas Higher Education Authority,
Inc., 4.45s, 1998 1,000 983,130
N/R Virginia Education Loan Authority,
Guaranteed Student Loan Program Rev.,
5.05s, 2003 1,500 1,438,934
-----------
$ 8,244,053
- ------------------------------------------------------------------------------
State and Local Appropriation - 9.0%
BBB+ California Public Works Board, Energy
Efficiency Rev., 5.5s, 1996 $ 500 $ 501,975
AAA California Public Works Board, Lease Rev.
(Secretary of State), AMBAC,
5.25s, 1998 630 637,327
B- District of Columbia, Certificates of
Participation, 6s, 1997 532 530,872
A+ Massachusetts Bay Transportation
Authority, 5s, 1996 1,000 1,004,410
State and Local Appropriation - continued
AA- Michigan Building Authority Rev.,
6.2s, 2002 1,000 1,055,100
A+ New Jersey Transportation Trust Fund
Authority, 5.6s, 1998 495 506,717
BBB New York Dormitory Authority Rev. (City
University), 5.25s, 1997 500 499,155
BBB+ New York Medical Care Facilities Finance
Agency Rev. (Mental Health Services
Facilities Improvement),
5.9s, 2000 995 1,001,815
BBB New York Urban Development Corp.
(Correctional
Facility), 5.1s, 2002 1,000 946,520
-----------
$ 6,683,891
- ------------------------------------------------------------------------------
Refunded and Special Obligation - 10.0%
AAA De Kalb County, GA, 7.3s, 1997 $ 1,000 $ 1,061,850
AAA Snohomish County, WA, Public Utility
District No. 1, Electric Rev.
(Generation System), 7.875s, 1997 1,000 1,070,090
AA+ State of New Jersey, 7.3s, 1996 3,550 3,702,970
AA State of Texas, 7.125s, 2000 500 553,530
AA State of Washington, 5.85s, 1996 1,000 1,014,910
-----------
$ 7,403,350
- ------------------------------------------------------------------------------
Single Family Housing Revenue - 1.3%
AA New York City Housing Corp. Rev., 4.9s,
2002 $ 1,000 $ 958,100
- ------------------------------------------------------------------------------
Insured Health Care Revenue - 4.9%
AAA Delaware County, IN, Hospital Authority
(Ball Memorial Hospital), AMBAC,
6.625s, 2001 $ 2,520 $ 2,721,146
AAA Medical Center Hospital Authority, GA,
Anticipation Certificates (Columbus Regional
Healthcare System), MBIA, 5.9s, 2001 885 915,506
-----------
$ 3,636,652
- ------------------------------------------------------------------------------
Electric and Gas Utility Revenue - 9.3%
AA Jacksonville, FL, Electric Authority Rev.,
6.4s, 1995 $ 1,000 $ 1,008,220
A- North Carolina Eastern Municipal Power
Agency, Power Systems Rev., 7.3s, 1998 2,000 2,082,020
BBB Philadelphia, PA, Gas Works Rev.,
5.4s, 1998 1,000 998,200
A+ Platte River Power Authority, CO, Power
Rev., 5.4s, 1995 1,015 1,015,873
AAA Sacramento, CA, Municipal Utility District
Electric Rev., FGIC, 6s, 2001 620 647,007
AA Washington Public Power Supply System
(Nuclear Project No. 2), 4.2s, 1996 1,150 1,132,394
-----------
$ 6,883,714
- ------------------------------------------------------------------------------
Water and Sewer Utility Revenue - 6.1%
A Massachusetts Water Resources Authority,
5.25s, 2001 $ 2,500 $ 2,481,700
AA Milwaukee, WI, Metropolitan Sewerage
District, 5.4s, 1996 1,000 1,010,460
AAA San Antonio, TX, Water Rev., FGIC,
5.8s, 1999 1,000 1,028,320
-----------
$ 4,520,480
- ------------------------------------------------------------------------------
Turnpike Revenue - 2.3%
A Kentucky Turnpike Authority, Economic
Development Road Rev., 7.6s, 1999 $ 1,150 $ 1,208,098
A New Jersey Turnpike Authority, 5.6s, 2000 500 509,165
-----------
$ 1,717,263
- ------------------------------------------------------------------------------
Airport and Port Revenue - 10.3%
AAA Hawaii Airports System Rev., MBIA,
4.75s, 1996 $ 6,800 $ 6,804,080
AAA Metropolitan Nashville Airport Authority,
TN, Airport Rev., FGIC, 6.125s, 1999 800 831,112
-----------
$ 7,635,192
- ------------------------------------------------------------------------------
Sales and Excise Tax Revenue - 1.4%
AAA Arizona Transportation Board, Excise Tax
Rev. (Maricopa County Regional Area),
MBIA, 6.8s, 1997 $ 1,000 $ 1,038,740
- ------------------------------------------------------------------------------
Industrial Revenue (Corporate Guarantee) - 0.7%
A+ Monroe County, GA, Development Authority,
Pollution Control Rev. (Oglethorpe
Power Corp.), 5.1s, 1997 $ 500 $ 500,670
- ------------------------------------------------------------------------------
Universities - 0.7%
AAA Union County, PA, Higher Educational
Facilities Financing Authority
(Bucknell University), MBIA,
5.3s, 1998 $ 500 $ 508,440
- ------------------------------------------------------------------------------
Miscellaneous Revenue - 2.7%
BBB+ Detroit, MI, Distributable State Aid,
5.375s, 1996 $ 750 $ 750,022
BBB+ Detroit, MI, Distributable State Aid,
5.625s, 1997 750 750,758
AAA Pennsylvania Intergovernmental Cooperative
Authority (City of Philadelphia
Funding), FGIC, 5.4s, 1997 500 505,325
-----------
$ 2,006,105
- ------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $72,488,840) $72,219,626
- ------------------------------------------------------------------------------
Floating Rate Demand Note - 1.2%
- ------------------------------------------------------------------------------
Uinta County, WY, Pollution Control Rev.
(Chevron), due 8/15/20, at Cost $ 900 $ 900,000
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $73,388,840) $73,119,626
Other Assets, Less Liabilities - 1.3% 934,919
- ------------------------------------------------------------------------------
Net Assets - 100.0% $74,054,545
- ------------------------------------------------------------------------------
|
See notes to financial statements
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
April 30, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $73,388,840) $ 73,119,626
Cash 42,323
Receivable for Fund shares sold 36,229
Interest receivable 1,263,373
Deferred organization expenses 7,785
Other assets 1,289
------------
Total assets $ 74,470,625
------------
Liabilities:
Distributions payable $ 62,500
Payable for Fund shares reacquired 319,889
Payable to affiliates -
Management fee 2,438
Distribution fee 10,638
Accrued expenses and other liabilities 20,615
------------
Total liabilities $ 416,080
------------
Net assets $ 74,054,545
------------
Net assets consist of:
Paid-in capital $ 75,260,454
Unrealized depreciation on investments (269,214)
Accumulated net realized loss on investments (890,065)
Accumulated distributions in excess of net investment income (46,630)
------------
Total $ 74,054,545
------------
Shares of beneficial interest outstanding 9,939,110
------------
Class A shares:
Net asset value and redemption price per share
(net assets of $64,328,662 / 8,632,654 shares of beneficial
interest outstanding) $7.45
-----
Offering price per share (100/97.5) $7.64
-----
Class B shares:
Net asset value, offering price, and redemption price per share
(net assets of $7,791,671 / 1,046,882 shares of beneficial
interest outstanding) $7.44
-----
Class C shares:
Net asset value, offering price, and redemption price per share
(net assets of $1,934,212 / 259,574 shares of beneficial
interest outstanding) $7.45
-----
|
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales charge may be imposed on redemptions of Class A and Class B shares.
See notes to financial statements
FINANCIAL STATEMENTS -continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended April 30, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 3,999,372
-----------
Expenses -
Management fee $ 343,251
Trustees' compensation 12,021
Shareholder servicing agent fee (Class A) 112,881
Shareholder servicing agent fee (Class B) 17,838
Shareholder servicing agent fee (Class C) 2,929
Distribution and service fee (Class A) 112,991
Distribution and service fee (Class B) 81,287
Distribution and service fee (Class C) 19,654
Printing 39,958
Auditing fees 33,841
Custodian fee 33,017
Postage 6,869
Amortization of organization expenses 4,136
Legal fees 2,245
Miscellaneous 86,989
-----------
Total expenses $ 909,907
Reduction of expenses pursuant to reimbursement agreement (8,538)
-----------
Net expenses $ 901,369
-----------
Net investment income $ 3,098,003
-----------
Realized and unrealized gain (loss) on investments:
Realized loss on investment transactions
(identified cost basis) $ (409,013)
Change in unrealized depreciation on investments 136,714
-----------
Net realized and unrealized loss on investments $ (272,299)
-----------
Increase in net assets from operations $ 2,825,704
-----------
|
See notes to financial statements
FINANCIAL STATEMENTS -continued
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
Year Ended Eight Months Ended Year Ended
April 30, 1995 April 30, 1994 August 31, 1993
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 3,098,003 $ 2,337,474 $ 2,026,554
Net realized gain (loss) on
investments (409,013) (398,570) 338,305
Net unrealized gain (loss) on
investments 136,714 (2,390,077) 1,776,497
------------ ------------ ------------
Increase (decrease) in net
assets from operations $ 2,825,704 $ (451,173) $ 4,141,356
------------ ------------ ------------
Distributions declared to
shareholders -
From net investment income
(Class A) $ (2,806,873) $ (2,254,836) $ (2,025,682)
From net investment income
(Class B) (234,092) (83,510) --
From net investment income
(Class C) (57,037) -- --
In excess of net investment
income (Class A) (16,471) (25,083) --
In excess of net investment
income (Class B) (1,374) (3,368) --
In excess of net investment
income (Class C) (335) -- --
From net realized gain on
investments -- -- (64,041)
In excess of net realized gain
on investments -- (372,507) --
------------ ------------ ------------
Total distributions declared to
shareholders $ (3,116,182) $ (2,739,304) $ (2,089,723)
------------ ------------ ------------
Fund share (principal)
transactions -
Net proceeds from sale of
shares $ 34,025,377 $ 61,689,627 $106,302,146
Net asset value of shares
issued to shareholders in
reinvestment of
distributions 2,114,934 1,750,648 1,518,361
Cost of shares reacquired (52,576,887) (56,659,710) (43,992,275)
------------ ------------ ------------
Increase (decrease) in net
assets from Fund share
transactions $(16,436,576) $ 6,780,565 $ 63,828,232
------------ ------------ ------------
Total increase (decrease) in
net assets (16,727,054) 3,590,088 $ 65,879,865
Net assets:
At beginning of period 90,781,599 87,191,511 21,311,646
------------ ------------ ------------
At end of period $ 74,054,545 $ 90,781,599 $ 87,191,511
------------ ------------ ------------
Accumulated undistributed
(distributions in excess
of) net investment income $ (46,630) $ (28,451) $ 872
------------ ------------ ------------
See notes to financial statements
|
FINANCIAL STATEMENTS -continued
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
Eight Eight Ten
Year Months Year Ended Year Months Months
Ended Ended August 31, Ended Ended Ended
April 30, April 30, ----------------------- April 30, April 30, April 30,
1995 1994 1993 1992<F1> 1995 1994<F2> 1995<F3>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 7.47 $ 7.72 $ 7.43 $ 7.31 $ 7.46 $ 7.75 $ 7.45
------ ------ ------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment income<F10> $ 0.28 $ 0.19 $ 0.31 $ 0.15 $ 0.21 $ 0.14 $ 0.21
Net realized and unrealized gain
(loss) on investments (0.02) (0.22) 0.30 0.12 (0.02) (0.26) (0.02)
------ ------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.26 $(0.03) $ 0.61 $ 0.27 $ 0.19 $(0.12) $ 0.19
------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.28)<F6> $(0.19)<F8> $(0.31) $(0.15)<F7> $(0.21) $(0.13) $(0.19)
In excess of net investment income --<F9> -- -- -- --<F9> (0.01) --<F9>
From net realized gain on investments -- -- (0.01) -- -- -- --
In excess of net realized gain on
investments -- (0.03) -- -- -- (0.03) --
------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.28) $(0.22) $(0.32) $(0.15) $(0.21) $(0.17) $(0.19)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $ 7.45 $ 7.47 $ 7.72 $ 7.43 $ 7.44 $ 7.46 $ 7.45
------ ------ ------ ------ ------ ------ ------
Total return<F6> 3.55% (0.59)%<F4> 8.47% 8.26%<F4> 2.67% (2.37)%<F4> 2.53%
Ratios (to average net assets)/
Supplemental data<F10>:
Expenses 0.96% 0.89%<F4> 0.68% 0.55%<F4> 1.81% 1.74%<F4> 1.79%<F4>
Net investment income 3.74% 3.72%<F4> 4.04% 4.25%<F4> 2.88% 2.79%<F4> 2.77%<F4>
Portfolio turnover 50% 48% 69% 8% 50% 48% 50%
Net assets at end of period
(000 omitted) $64,329 $83,367 $87,192 $21,312 $ 7,792 $ 7,415 $ 1,934
<F1> For the period from the commencement of investment operations, March 17, 1992 to August 31, 1992.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to April 30, 1994.
<F3> For the period from the commencement of offering of Class C shares, July 1, 1994 to April 30, 1995.
<F4> Annualized.
<F5> Per share data for the periods subsequent to April 30, 1994 are based on average shares outstanding.
<F6> Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
<F7> Includes a per share distribution from paid-in capital of $0.0007.
<F8> Includes a per share distribution in excess of net investment income of $0.002.
<F9> Includes a per share distribution in excess of net investment income of $0.002 (Class A) and $0.001 (Class B and Class C).
<F10> The investment adviser did not impose all or a portion of its advisory, distribution or expense reimbursement fees for the
periods indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would
have been:
Net investment income $ 0.28 $ 0.18 $ 0.28 $ 0.13 $ 0.21 $ 0.12 $ 0.21
Ratios (to average net
assets):
Expenses 0.95% 1.12%<F4> 1.16% 1.16%<F4> 1.80% 2.05%<F4> 1.79%
Net investment income 3.74% 3.49%<F4> 3.57% 3.64%<F4> 2.88% 2.48%<F4> 2.77%
See notes to financial statements
|
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization MFS Municipal Limited Maturity Fund (the Fund) is a diversified series of MFS Fixed Income Trust (the Trust). The Trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
(2) Significant Accounting Policies Investment Valuations - Debt securities (other than short-term obligations which mature in 60 days or less), including listed issues, are valued on the basis of valuations furnished by dealers or by a pricing service with consideration to factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon exchange or over-the-counter prices. Short-term obligations, which mature in 60 days or less, are valued at amortized cost, which approximates value. Futures contracts, options and options on futures contracts listed on commodities exchanges are valued at closing settlement prices. Over-the- counter options are valued by brokers through the use of a pricing model which takes into account closing bond valuations, implied volatility and short-term repurchase rates. Securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Trustees.
Deferred Organization Expenses - Costs incurred by the Fund in connection with its organization have been deferred and are being amortized on a straight-line basis over a five-year period beginning on the date of commencement of operations of the Fund.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying security may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option.
Futures Contracts - The Fund may enter into financial futures contracts for the delayed delivery of fixed-income securities, or indices of such securities, at a fixed price on a future date. In entering such contracts, the Fund is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the Fund. The Fund's investment in financial futures contracts is designed to hedge against anticipated future changes in interest rates. The Fund may also invest in financial futures contracts for non-hedging purposes. For example, interest rate futures may be used in modifying the duration of the portfolio without incurring the additional transaction costs involved in buying and selling the underlying securities. Should interest rates move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Investment Transactions and Income - Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and original issue discount are amortized or accreted for both financial statement and tax reporting purposes as required by federal income tax regulations.
Tax Matters and Distributions - The Fund's policy is to comply with the provisions of the Internal Revenue Code (the Code) applicable to regulated investment companies and to distribute to shareholders all of its net income, including any net realized gain on investments. Accordingly, no provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required under provisions of the Code which may differ from generally accepted accounting principles, the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported on these financial statements may differ from that reported on the Fund's tax return and, consequently, the character of distributions to shareholders reported in the financial highlights may differ from that reported to shareholders on Form 1099-DIV.
Distributions paid by the Fund from net interest received on tax-exempt municipal bonds are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax preference item to shareholders. Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial reporting basis and requires that only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A, Class B and Class C shares. Class B and Class C shares were first offered to the public on September 7, 1993 and July 1, 1994, respectively. The three classes of shares differ in their respective shareholder servicing agent, distribution and service fees. Shareholders of each class also bear certain expenses that pertain only to that particular class. All shareholders bear the common expenses of the Fund pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses, including distribution and shareholder service fees.
(3) Transactions with Affiliates Investment Adviser - The Fund has an investment advisory agreement with Massachusetts Financial Services Company (MFS) to provide overall investment advisory and administrative services, and general office facilities. The management fee, computed daily and paid monthly at an effective annual rate of 0.40% of average daily net assets, amounted to $343,251 for the year ended April 30, 1995.
Under an expense reimbursement agreement with MFS, MFS has agreed to pay all of the operating expenses of the Fund, exclusive of management and distribution fees, until February 28, 2002 or the date upon which the operating expenses attributable to the Fund are repaid. To accomplish such reimbursement, the Fund pays an expense reimbursement fee to MFS of 0.40% of average daily net assets. The cumulative unreimbursed amount subject to reimbursement by the Fund at April 30, 1995 amounted to $128,409. For the year ended April 30, 1995, MFS paid expenses amounting to $351,338, of which the Fund reimbursed $342,800. The difference ($8,538) is reflected as a reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the investment adviser, or to officers of the Fund, all of whom receive remuneration for their services to the Fund from MFS. Certain of the officers and Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC).
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received $20,393 as its portion of the sales charge on sales of Class A shares of the Fund. The Trustees have adopted separate distribution plans for Class A, Class B and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A Distribution Plan provides that the Fund will pay MFD up to 0.35% per annum of its average daily net assets attributable to Class A shares in order that MFD may pay expenses on behalf of the Fund related to the distribution and servicing of its shares. These expenses include a service fee to each securities dealer that enters into a sales agreement with MFD of up to 0.25% per annum (reduced to a maximum of 0.15% per annum for an indefinite period) of the Fund's average daily net assets attributable to Class A shares which are attributable to that securities dealer, a distribution fee to MFD of up to 0.10% per annum of the Fund's average daily net assets attributable to Class A shares, commissions to dealers and payments to MFD wholesalers for sales at or above a certain dollar level, and other such distribution-related expenses that are approved by the Fund. MFD is not imposing the 0.10% distribution fee for an indefinite period. Fees incurred under the distribution plan during the year ended April 30, 1995 were 0.15% of average daily net assets attributable to Class A shares on an annualized basis and amounted to $112,991 (of which MFD retained $12,598).
The Class B and Class C Distribution Plans provide that the Fund will pay MFD a monthly distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to 0.25% per annum, of the Fund's average daily net assets attributable to Class B and Class C shares. MFD will pay to securities dealers that enter into a sales agreement with MFD, all or a portion of the service fee attributable to Class B and Class C shares, and will pay to such securities dealers all of the distribution fee attributable to Class C shares. The service fee is intended to be additional consideration for services rendered by the dealer with respect to Class B and Class C shares. Fees incurred under the distribution plans during the year ended April 30, 1995 were 1.00% of average daily net assets attributable to Class B and Class C shares on an annualized basis and amounted to $81,287 and $19,654, respectively (of which MFD retained $756 and $635, respectively).
A contingent deferred sales charge is imposed on shareholder redemptions of Class A shares, on purchases of $1 million or more, in the event of a shareholder redemption within twelve months following the share purchase. A contingent deferred sales charge is imposed on shareholder redemptions of Class B shares in the event of a shareholder redemption within six years of purchase. MFD receives all contingent deferred sales charges. Contingent deferred sales charges imposed during the year ended April 30, 1995 were $7,604 and $40,063 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned $112,881, $17,838 and $2,929 for Class A, Class B and Class C shares, respectively, for its services as shareholder servicing agent. The fee is calculated as a percentage of the average daily net assets of each class of shares at an effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities Purchases and sales of investments, other than U.S. government securities, purchased option transactions and short-term obligations, aggregated $40,977,556 and $55,468,467, respectively.
The cost and unrealized appreciation or depreciation in value of the investments owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $73,388,840
-----------
Gross unrealized depreciation $ (488,394)
Gross unrealized appreciation 219,180
-----------
Net unrealized depreciation $ (269,214)
-----------
|
At April 30, 1995, the Fund, for federal income tax purposes, had a capital loss carryforward of $798,921, which may be applied against any net taxable realized gains of each succeeding year until the earlier of its utilization or expiration on April 30, 2003.
(5) Shares of Beneficial Interest The Fund's Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Class A Shares
Year Ended Period Ended Year Ended
April 30, 1995 April 30, 1994<F1> August 31, 1993
--------------------------------- ------------------------------ -----------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold 3,162,482 $ 23,485,000 6,931,273 $ 53,339,832 14,020,174 $106,302,146
Shares issued to shareholders in
reinvestment of distributions 256,666 1,915,510 222,507 1,693,444 199,882 1,518,361
Shares reacquired (5,948,248) (44,193,995) (7,285,561) (55,885,672) (5,793,059) (43,992,275)
---------- ------------- ---------- -------------- --------- ------------
Net increase (decrease) (2,529,100) $ (18,793,485) (131,781) $ (852,396) 8,426,997 $ 63,828,232
---------- ------------- ---------- -------------- --------- ------------
Class B Shares
Year Ended Period Ended
April 30, 1995 April 30, 1994<F2>
--------------------------------- ------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------
Shares sold 502,731 $3,735,135 1,086,892 $8,349,795
Shares issued to shareholders in
reinvestment of distributions 20,109 149,528 7,522 57,204
Shares reacquired (469,653) (3,479,709) (100,719) (774,038)
-------- ---------- --------- ----------
Net increase 53,187 $ 404,954 993,695 $7,632,961
-------- ---------- --------- ----------
Class C Shares
Period Ended
April 30, 1995<F3>
---------------------------------
Shares Amount
- ------------------------------------------------------------------
Shares sold 915,597 $6,805,242
Shares issued to shareholders in
reinvestment of distributions 6,704 49,896
Shares reacquired (662,727) (4,903,183)
-------- ----------
Net increase 259,574 $1,951,955
-------- ----------
<F1> For the eight-month period ended April 30, 1994.
<F2> For the period from the commencement of offering of Class B shares,
September 7, 1993 to April 30, 1994.
<F3> For the period from the commencement of offering of Class C shares, July 1,
1994 to April 30, 1995.
|
(6) Line of Credit The Fund entered into an agreement which enables it to participate with other funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit with a bank which permits borrowings up to $350 million, collectively. Borrowings may be made to temporarily finance the repurchase of Fund shares. Interest is charged to each fund, based on its borrowings, at a rate equal to the bank's base rate. In addition, a commitment fee, based on the average daily unused portion of the line of credit, is allocated among the participating funds at the end of each quarter. The commitment fee allocated to the Fund for the year ended April 30, 1995 was $1,291.
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Fixed Income Trust and
Shareholders of MFS Municipal Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Municipal Limited Maturity Fund
(one of the series constituting MFS Fixed Income Trust) as of April 30, 1995,
the related statement of operations for the year then ended, the statement of
changes in net assets for the year ended April 30, 1995, the eight months
ended April 30, 1994, and the year ended August 31, 1993, and the financial
highlights for the year ended April 30, 1995, the eight months ended April 30,
1994, and the years ended August 31, 1993 and 1992. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of the securities owned at April 30, 1995 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of MFS Municipal Limited Maturity Fund at April 30, 1995, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 2, 1995
THE MFS FAMILY OF FUNDS(R)
AMERICA'S OLDEST MUTUAL FUND GROUP
The members of the MFS Family of Funds are grouped below according to the types of securities in their portfolios. For free prospectuses containing more complete information, including the exchange privilege and all charges and expenses, please contact your financial adviser or call MFS at 1-800-637-2929 any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any time). This material should be read carefully before investing or sending money.
STOCK LIMITED MATURITY BOND
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Emerging Growth Fund WORLD
MFS(R) Gold & Natural Resources Fund MFS(R) World Asset Allocation Fund
MFS(R) Growth Opportunities Fund MFS(R) World Equity Fund
MFS(R) Managed Sectors Fund MFS(R) World Governments Fund
MFS(R) OTC Fund MFS(R) World Growth Fund
MFS(R) Research Fund MFS(R) World Total Return Fund
MFS(R) Value Fund NATIONAL TAX-FREE BOND
STOCK AND BOND MFS(R) Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) Municipal High Income Fund
MFS(R) Utilities Fund (closed to new investors)
BOND MFS(R) Municipal Income Fund
MFS(R) Bond Fund STATE TAX-FREE BOND
MFS(R) Government Mortgage Fund Alabama, Arkansas, California, Florida,
MFS(R) Government Securities Fund Georgia, Louisiana, Maryland, Massachusetts,
MFS(R) High Income Fund Mississippi, New York, North Carolina,
MFS(R) Intermediate Income Fund Pennsylvania, South Carolina, Tennessee, Texas,
MFS(R) Strategic Income Fund Virginia, Washington, West Virginia
(formerly MFS(R) Income & Opportunity Fund) MONEY MARKET
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
|
MFS(R) MUNICIPAL -------------
LIMITED MATURITY [LOGO: NUMBER 1 DALBAR BULK RATE
FUND TOP-RATED SERVICE] U.S. POSTAGE
PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
-------------
|
[LOGO: M F S
THE FIRST NAME IN MUTUAL FUNDS]
MML-2 6/95/7M 37/237/337
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
MFS BOND FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the ten years ended April 30, 1995
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At April 30, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the two years ended April 30, 1995:
Statement of Changes in Net Assets*
For the year ended April 30, 1995:
Statement of Operations*
MFS LIMITED MATURITY FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A: For the
period from the commencement of investment
operations on February 26, 1992 to April 30, 1992
and for the three years ended April 30, 1995:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At April 30, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the two years ended April 30, 1995:
Statement of Changes in Net Assets*
For the year ended April 30, 1995:
Statement of Operations*
|
MFS MUNICIPAL LIMITED MATURITY FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A: For the
period from the commencement of investment
operations on March 17, 1992 to August 31, 1992,
for the year ended August 31, 1993, for the eight
months ended April 30, 1994 and for the year ended
April 30, 1995:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At April 30, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended August 31, 1993, for the eight
months ended April 30, 1994 and for the year ended
April 30, 1995:
Statement of Changes in Net Assets*
For the year ended April 30, 1995:
Statement of Operations*
|
(B) EXHIBITS
1 Amended and Restated Declaration of Trust
dated February 17, 1995; filed herewith.
2 Amended and Restated By-Laws, dated December
21, 1994; filed herewith.
3 Not Applicable.
4 Form of Share Certificate for Class A, B and
C Shares. (3)
5 (a) Investment Advisory Agreement dated
December 2, 1985 by and between MFS Bond Fund
and Massachusetts Financial Services Company;
filed herewith.
(b) Investment Advisory Agreement dated January
8, 1992 by and between MFS Fixed Income Trust
on behalf of MFS Limited Maturity Fund; filed
herewith.
(c) Investment Advisory Agreement dated September
1, 1993 by and between MFS Fixed Income Trust
on behalf of MFS Municipal Limited Maturity
Fund; filed herewith.
6 (a) Amended and Restated Distribution
Agreement for MFS Series Trust IX dated
January 1, 1995; filed herewith.
(b) Dealer Agreement between MFS Fund
Distributors, Inc. ("MFD"), and a dealer
dated December 28, 1994 and the Mutual Fund
Agreement between MFD and a bank or NASD
affiliate, dated December 28, 1994. (1)
7 Retirement Plan for Non-Interested Trustees,
dated January 1, 1991; filed herewith.
8 (a) Custodian Contract between Registrant on
behalf of MFS Municipal Limited Maturity Fund
and State Street Bank and Trust Company dated
April 25, 1988; filed herewith.
(b) Amendment to Custodian Contract between
Registrant on behalf of MFS Municipal Limited
Maturity Fund and State Street Bank and Trust
Company dated April 25, 1988; filed herewith.
(c) Amendment to Custodian Contract between
Registrant on behalf of MFS Municipal Limited
Maturity Fund and State Street Bank and Trust
Company dated September 20, 1989; filed
herewith.
(d) Amendment to Custodian Contract between
Registrant on behalf of MFS Municipal Limited
Maturity Fund and State Street Bank and Trust
Company dated October 1, 1989; filed
herewith.
(e) Custodian Contract between Registrant on
behalf of MFS Bond Fund and MFS Limited
Maturity Fund and Investors Bank & Trust
Company dated August 1, 1991; filed herewith.
(f) Amendment to Custodian Contract between
Registrant on behalf of MFS Bond Fund and MFS
Limited Maturity Fund and Investors Bank &
Trust Company dated April 21, 1992; filed
herewith.
9 (a) Shareholder Servicing Agreement between
Registrant and Massachusetts Financial
Service Center dated December 2, 1985; filed
herewith.
(b) Amendment No. 1 to Shareholder Servicing
Agent Agreement dated December 28, 1993;
filed herewith.
(c) Exchange Privilege Agreement dated September
1, 1993. (3)
(d) Loan Agreement by and among The Banks Named
Therein, The MFS Funds Named Therein, and The
First National Bank of Boston as Agent, dated
February 21, 1995. (2)
(e) Dividend Disbursing Agency Agreement among
MFS Funds and State Street Bank and Trust
Company, dated February 1, 1986. (3)
10 Consent and Opinion of Counsel; filed
herewith.
11 Consent of Deloitte & Touche; filed herewith.
12 Not Applicable.
13 Investment Representation Letters (MFS
Limited Maturity Fund); filed herewith.
14 (a) Forms for Individual Retirement Account
Disclosure Statement as currently in effect;
filed herewith.
(b) Forms for MFS 403(b) Custodial Account
Agreement as currently in effect; filed
herewith.
(c) Forms for MFS Prototype Paired Defined
Contribution Plans as Trust Agreement as
currently in effect; filed herewith.
15 (a) Amended and Restated Distribution Plan
for Class A shares of MFS Bond Fund, dated
December 21, 1994; filed herewith.
(b) Distribution Plan for Class B shares of MFS
Bond Fund, dated December 21, 1994; filed
herewith.
(c) Distribution Plan for Class C shares of MFS
Bond Fund, dated December 21, 1994; filed
herewith.
(d) Amended and Restated Distribution Plan for
Class A shares of MFS Limited Maturity Fund,
dated December 21, 1994; filed herewith.
(e) Distribution Plan for Class B shares of MFS
Limited Maturity Fund, dated December 21,
1994; filed herewith.
(f) Distribution Plan for Class C shares of MFS
Limited Maturity Fund, dated December 21,
1994; filed herewith.
(g) Amended and Restated Distribution Plan for
Class A shares of MFS Municipal Limited
Maturity Fund, dated December 21, 1994; filed
herewith.
(h) Distribution Plan for Class B shares of MFS
Municipal Limited Maturity Fund, dated
December 21, 1994; filed herewith.
(i) Distribution Plan for Class C shares of MFS
Municipal Limited Maturity Fund, dated
December 21, 1994; filed herewith.
16 Schedule for Computation of Performance
Quotations - Yield, Tax Equivalent Yield,
Distribution Rate, Total Rate of Return and
Aggregate Total Rate of Return for the
Registrant. (1)
17 Financial Data Schedules for each class of
each series; filed herewith.
Power of Attorney, dated September 21, 1994;
filed herewith.
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ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
FOR MFS BOND FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest Class A shares - 34,949
(without par value) Class B shares - 6,413
Class C shares - 368
(as of July 31, 1995)
FOR MFS LIMITED MATURITY FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest Class A shares - 3,303
(without par value) Class B shares - 966
Class C shares - 221
(as of July 31, 1995)
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FOR MFS MUNICIPAL LIMITED MATURITY FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of Beneficial Interest Class A shares - 1,663
(without par value) Class B shares - 201
Class C shares - 58
(as of July 31, 1995)
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ITEM 27. INDEMNIFICATION
The Trustees and officers of the Trust and the personnel of the Trust's investment adviser and principal underwriter are insured under an errors and omissions liability insurance policy. The Trust and its officers are also insured under the fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940, as amended.
Reference is hereby made to (a) Article V of the Trust's Declaration of Trust, filed herewith; and (b) Section 4 of the Distribution Agreement between the Trust and MFS Fund Distributors, Inc., filed herewith.
The Trustees and officers of the Registrant and the personnel of the Registrant's investment adviser and principal underwriter are insured under an errors and omissions liability insurance policy. The Registrant and its officers are also insured under the fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MFS serves as investment adviser to the following open-end
Funds comprising the MFS Family of Funds: Massachusetts Investors Trust,
Massachusetts Investors Growth Stock Funds, MFS Growth Opportunities Funds, MFS
Government Securities Funds, MFS Government Mortgage Funds, MFS Government
Limited Maturity Funds, MFS Series Trust I (which has three series: MFS Managed
Sectors Funds, MFS Cash Reserve Funds and MFS World Asset Allocation Funds), MFS
Series Trust II (which has four series: MFS Emerging Growth Funds, MFS Capital
Growth Funds, MFS Intermediate Income Funds and MFS Gold & Natural Resources
Funds), MFS Series Trust III (which has two series: MFS High Income Funds and
MFS Municipal High Income Funds), MFS Series Trust IV (which has four series:
MFS Money Market Funds, MFS Government Money Market Funds, MFS Municipal Bond
Funds and MFS OTC Funds), MFS Series Trust V (which has two series: MFS Total
Return Funds and MFS Research Funds), MFS Series Trust VI (which has three
series: MFS World Total Return Funds, MFS Utilities Funds and MFS World Equity
Funds), MFS Series Trust VII (which has two series: MFS World Governments Funds
and MFS Value Funds), MFS Series Trust VIII (which has two series: MFS Strategic
Income Funds and MFS World Growth Funds), MFS Municipal Series Trust (which has
19 series: MFS Alabama Municipal Bond Funds, MFS Arkansas Municipal Bond Funds,
MFS California Municipal Bond Funds, MFS Florida Municipal Bond Funds, MFS
Georgia Municipal Bond Funds, MFS Louisiana Municipal Bond Funds, MFS Maryland
Municipal Bond Funds, MFS Massachusetts Municipal Bond Funds, MFS Mississippi
Municipal Bond Funds, MFS New York Municipal Bond Funds, MFS North Carolina
Municipal Bond Funds, MFS Pennsylvania Municipal Bond Funds, MFS South Carolina
Municipal Bond Funds, MFS Tennessee Municipal Bond Funds, MFS Texas Municipal
Bond Funds, MFS Virginia Municipal Bond Funds, MFS Washington Municipal Bond
Funds, MFS West Virginia Municipal Bond Funds and MFS Municipal Income Funds)
and MFS Series Trust IX (which has three series: MFS Bond Funds, MFS Limited
Maturity Funds and MFS Municipal Limited Maturity Funds) (the "MFS Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following no-load, open-end Funds: MFS Institutional Trust ("MFSIT") (which has two series), MFS Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union Standard Trust ("UST") (which has two series). The principal business address of each of the aforementioned Funds is 500 Boylston Street, Boston, Massachusetts 02116.
In addition, MFS serves as investment adviser to the following closed-end Funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The principal business address of each of the aforementioned Funds is 500 Boylston Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust ("MFS/SL"), Sun Growth Variable Annuity Funds, Inc. ("SGVAF"), Money Market Variable Account, High Yield Variable Account, Capital Appreciation Variable Account, Government Securities Variable Account, World Governments Variable Account, Total Return Variable Account and Managed Sectors Variable Account. The principal business address of each is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized under the laws of the Republic of Ireland and a subsidiary of MFS, whose principal business address is 41-45 St. Stephen's Green, Dublin 2, Ireland, serves as investment adviser to and distributor for MFS International Funds (which has four portfolios: MFS International Funds-U.S. Equity Funds, MFS International Funds-U.S. Emerging Growth Funds, MFS International Funds-International Governments Funds and MFS International Funds-Charter Income Funds) (the "MIL Funds"). The MIL Funds are organized in Luxembourg and qualify as an undertaking for collective investments in transferable securities (UCITS). The principal business address of the MIL Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for MFS Meridian U.S. Government Bond Funds, MFS Meridian Charter Income Funds, MFS Meridian Global Government Funds, MFS Meridian U.S. Emerging Growth Funds, MFS Meridian Global Equity Funds, MFS Meridian Limited Maturity Funds, MFS Meridian World Growth Funds, MFS Meridian Money Market Funds and MFS Meridian U.S. Equity Funds (collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is organized as an exempt company under the laws of the Cayman Islands. The principal business address of each of the MFS Meridian Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.), Ltd. ("MIL-UK"), a private limited company registered with the Registrar of Companies for England and Wales whose current address is 4 John Carpenter Street, London ED4Y 0NH, is involved primarily in marketing and investment research activities with respect to private clients and the MIL Funds and the MFS Meridian Funds.
MFS Funds Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS, serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary of MFS, serves as distributor for certain life insurance and annuity contracts issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS, serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End Funds, MFS Institutional Trust, MFS Variable Insurance Trust and MFS Union Standard Trust.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary of MFS, provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of MFS, markets MFS products to retirement plans and provides administrative and record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the Chairman, Mr. Shames is the President, Mr. Scott is a Senior Executive Vice President and Secretary, James E. Russell is a Senior Vice President and the Treasurer, Stephen E. Cavan is a Senior Vice President, General Counsel and an Assistant Secretary, and Robert T. Burns is a Vice President and an Assistant Secretary of MFS.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUNDS
MFS GROWTH OPPORTUNITIES FUNDS
MFS GOVERNMENT SECURITIES FUNDS
MFS GOVERNMENT MORTGAGE FUNDS
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS GOVERNMENT LIMITED MATURITY FUNDS
MFS SERIES TRUST VI
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President of MFS, is Assistant Treasurer, James R. Bordewick, Jr., Vice President and Associate General Counsel of MFS, is Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg, Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant Treasurer, and James R. Bordewick, Jr., is Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin, Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson, Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant Treasurer, and James R. Bordewick, Jr., is Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames, Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer, Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and David R. King, Vice Presidents of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS UNION STANDARD TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost and Karen C. Jordan are Assistant Treasurers and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin, Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President of MFS, is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames, Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, and James O. Yost, is Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a Senior Vice President, Anthony F. Clarizio is an Assistant Vice President, Stephen E. Cavan is a Director, Senior Vice President and the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an Assistant Clerk, Robert T. Burns is an Assistant Clerk and James E. Russell is the Treasurer.
MIL-UK
A. Keith Brodkin, Arnold D. Scott, Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan is a Director and the Secretary, Ziad Malek is the President, James E. Russell is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Arnold D. Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary, and Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Arnold D. Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James R. Bordewick, Jr., is the Assistant Secretary and Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T. Burns is the Assistant Secretary, and James E. Russell is the Treasurer.
CIAI
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery, Executive Vice President of MFS, is the Vice President, James E. Russell is the Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L. Shames are Directors, Joseph A. Recomendes, Senior Vice President of MFS, is the President, James E. Russell is the Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames, Leslie J. Nanberg and Arnold D. Scott are Directors, Thomas J. Cashman is the President and a Director, James E. Russell is the Treasurer and Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery
are Directors, Arnold D. Scott is the Chairman, Douglas C. Grip, a Senior Vice
President of MFS, is the President, James E. Russell is the Treasurer, Stephen
E. Cavan is the Secretary, Robert T. Burns is the Assistant Secretary and Henry
A. Shea is an Executive Vice President.
In addition, the following persons, Directors or officers of MFS, have the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of Canada (U.S.),
One Sun Life Executive Park, Wellesley Hills,
Massachusetts
Director, Sun Life Insurance and Annuity Company of New
York, 67 Broad Street, New York, New York
John R. Gardner President and a Director, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. Gardner is also an
officer and/or Director of various subsidiaries and
affiliates of Sun Life)
John D. McNeil Chairman, Sun Life Assurance Company of Canada, Sun Life
Centre, 150 King Street West, Toronto, Ontario, Canada
(Mr. McNeil is also an officer and/or Director of
various subsidiaries and affiliates of Sun Life)
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ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are located, in whole or in part, at the office of the Registrant and the following locations:
NAME ADDRESS
Massachusetts Financial Services 500 Boylston Street
Company (investment adviser) Boston, MA 02116
MFS Fund Distributors, Inc. 500 Boylston Street
(principal underwriter) Boston, MA 02116
State Street Bank and State Street South
Trust Company (custodian) 5 - West
North Quincy, MA 02171
Investors Bank & Trust 89 South Street
Company (custodian) Boston, MA 02110
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Not applicable.
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(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus of a series of the Registrant is delivered with a copy of that series' latest Annual Report to shareholders upon request and without charge.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
1 Amended and Restated Declaration of Trust dated February 17, 1995.
2 Amended and Restated By-Laws of Registrant dated December 21, 1994.
5 (a) Investment Advisory Agreement dated December 2, 1985 by and
between MFS Bond Fund and Massachusetts Financial Services
Company.
(b) Investment Advisory Agreement dated January 8, 1992
by and between MFS Fixed Income Trust on behalf of
MFS Limited Maturity Fund.
(c) Investment Advisory Agreement dated September 1, 1993
by and between MFS Fixed Income Trust on behalf of
MFS Municipal Limited Maturity Fund.
6 (a) Amended and Restated Distribution Agreement for MFS Series
Trust IX dated January 1, 1995.
7 Retirement Plan for Non-Interested Trustees, dated January 1, 1991.
8 (a) Custodian Contract between Registrant on behalf of MFS
Municipal Limited Maturity Fund and State Street Bank and
Trust Company dated April 25, 1988.
(b) Amendment to Custodian Contract between Registrant on
behalf of MFS Municipal Limited Maturity Fund and
State Street Bank and Trust Company dated April 25, 1988.
(c) Amendment to Custodian Contract between Registrant on
behalf of MFS Municipal Limited Maturity Fund and
State Street Bank and Trust Company dated September
20, 1989.
(d) Amendment to Custodian Contract between Registrant on
behalf of MFS Municipal Limited Maturity Fund and
State Street Bank and Trust Company dated October 1, 1989.
(e) Custodian Contract between Registrant on behalf of
MFS Bond Fund and MFS Limited Maturity Fund and
Investors Bank & Trust Company dated August 1, 1991.
(f) Amendment to Custodian Contract between Registrant on
behalf of MFS Bond Fund and MFS Limited Maturity Fund
and Investors Bank & Trust Company dated April 21, 1992.
9 (a) Shareholder Servicing Agreement between Registrant and
Massachusetts Financial Service Center dated December 2, 1985.
(b) Amendment No. 1 to Shareholder Servicing Agent Agreement dated
December 28, 1993.
10 Consent and Opinion of Counsel.
11 Consent of Deloitte & Touche.
13 Investment Representation Letters (MFS Limited Maturity Fund).
14 (a) Forms for Individual Retirement Account Disclosure Statement
as currently in effect.
(b) Forms for MFS 403(b) Custodial Account Agreement as currently
in effect.
(c) Forms for MFS Prototype Paired Defined Contribution Plans as
Trust Agreement as currently in effect.
15 (a) Amended and Restated Distribution Plan for Class A shares of
MFS Bond Fund, dated December 21, 1994.
(b) Distribution Plan for Class B shares of MFS Bond Fund, dated
December 21, 1994.
(c) Distribution Plan for Class C shares of MFS Bond Fund, dated
December 21, 1994.
(d) Amended and Restated Distribution Plan for Class A shares
of MFS Limited Maturity Fund, dated December 21, 1994.
(e) Distribution Plan for Class B shares of MFS Limited
Maturity Fund, dated December 21, 1994.
(f) Distribution Plan for Class C shares of MFS Limited
Maturity Fund, dated December 21, 1994.
(g) Amended and Restated Distribution Plan for Class A
shares of MFS Municipal Limited Maturity Fund, dated
December 21, 1994.
(h) Distribution Plan for Class B shares of MFS Municipal
Limited Maturity Fund, dated December 21, 1994.
(i) Distribution Plan for Class C shares of MFS Municipal
Limited Maturity Fund, dated December 21, 1994.
27 Financial Data Schedules for each class of each series.
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EXHIBIT NO. 99.1
MFS SERIES TRUST IX
AMENDED AND RESTATED
DECLARATION OF TRUST
JANUARY 18, 1995
TABLE OF CONTENTS
PAGE
ARTICLE I -- NAME AND DEFINITIONS
Section 1.1 Name 1
Section 1.2 Definitions 2
ARTICLE II -- TRUSTEES
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 4
Section 2.4 Vacancies 5
Section 2.5 Delegation of Power to Other Trustees 5
ARTICLE III -- POWERS OF TRUSTEES
Section 3.1 General 5
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Issuance and Repurchase of Securities 7
Section 3.5 Borrowing Money; Lending Trust Property 7
Section 3.6 Delegation; Committees 7
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 8
Section 3.9 Manner of Acting; By-Laws 8
Section 3.10 Miscellaneous Powers 8
Section 3.11 Principal Transactions 9
Section 3.12 Trustees and Officers as Shareholders 9
ARTICLE IV -- INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1 Investment Adviser 10
Section 4.2 Distributor 10
Section 4.3 Transfer Agent 11
Section 4.4 Parties to Contract 11
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TABLE OF CONTENTS
PAGE
ARTICLE V -- LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc. 11
Section 5.2 Non-Liability of Trustees, etc. 12
Section 5.3 Mandatory Indemnification 12
Section 5.4 No Bond Required of Trustees 14
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 14
Section 5.6 Reliance on Experts, etc. 15
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST
Section 6.1 Beneficial Interest 15
Section 6.2 Rights of Shareholders 15
Section 6.3 Trust Only 16
Section 6.4 Issuance of Shares 16
Section 6.5 Register of Shares 16
Section 6.6 Transfer of Shares 16
Section 6.7 Notices 17
Section 6.8 Voting Powers 17
Section 6.9 Series Designation 18
Section 6.10 Class Designation 20
ARTICLE VII -- REDEMPTIONS
Section 7.1 Redemption of Shares 21
Section 7.2 Price 21
Section 7.3 Payment 21
Section 7.4 Effect of Suspension of Determination of Net
Asset Value 21
Section 7.5 Redemption of Shares in Order to Qualify as
Regulated Investment Company; Disclosure
of Holding 22
Section 7.6 Suspension of Right to Redemption 22
ARTICLE VIII -- DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS 23
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TABLE OF CONTENTS
PAGE
ARTICLE IX -- DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1 Duration 23
Section 9.2 Termination of Trust 23
Section 9.3 Amendment Procedure 24
Section 9.4 Merger, Consolidation and Sale of Assets 25
Section 9.5 Incorporation, Reorganization 26
Section 9.6 Incorporation or Reorganization of Series 26
ARTICLE X -- REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 27
ARTICLE XI -- MISCELLANEOUS
Section 11.1 Filing 27
Section 11.2 Governing Law 28
Section 11.3 Counterparts 28
Section 11.4 Reliance by Third Parties 28
Section 11.5 Provisions in Conflict with Law or Regulations 28
ANNEX A 30
ANNEX B 31
SIGNATURE PAGE 32
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AMENDED AND RESTATED
DECLARATION OF TRUST
OF
MFS SERIES TRUST IX
500 Boylston Street
Boston, Massachusetts 02116
AMENDED AND RESTATED DECLARATION OF TRUST, made as of this 18th day of January, 1995 by the Trustees hereunder.
WHEREAS, the Trust was established pursuant to a Declaration of Trust dated August 29, 1985 for the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust assets continue to be divided into transferable Shares of Beneficial Interest (without par value) issued in one or more series, as hereinafter provided; and
WHEREAS, the Declaration of Trust has been, from time to time, amended in accordance with the provisions of the Declaration; and
WHEREAS, the Trustees now desire further to amend and to restate the Declaration of Trust and hereby certify, as provided in Section 11.1 of the Declaration, that this Amended and Restated Declaration of Trust has been further amended and restated in accordance with the provisions of the Declaration;
NOW THEREFORE, the Trustees hereby confirm that all money and property contributed to the trust established hereunder shall be held and managed in trust for the benefit of holders, from time to time, of the shares of Beneficial Interest (without par value) issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 - Name. The name of the trust created hereby is the MFS Series Trust IX, the current address of which is 500 Boylston Street, Boston, Massachusetts 02116.
Section 1.2 - Definitions. Wherever they are used herein, the following terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as from time to time amended.
(b) "Commission" means the meaning given that term in the 1940 Act.
(c) "Declaration" means this Declaration of Trust as amended from time to time. Reference in this Declaration of Trust to "Declaration," "hereof," "herein" and "hereunder" shall be deemed to refer to this Declaration rather than the article or section in which such words appear.
(d) "Distributor" means the party, other than the Trust, to the contract described in Section 4.2 hereof.
(e) "Interested Person" has the meaning given that term in the 1940 Act.
(f) "Investment Adviser" means a party furnishing services to the Trust pursuant to any contract described in Section 4.1 hereof.
(g) "Majority Shareholder Vote" has the same meaning as the phrase "vote of a majority of the outstanding voting securities" as defined in the 1940 Act, except that such term may be used herein with respect to the Shares of the Trust as a whole or the Shares of any particular series, as the context may require.
(h) "1940 Act" means the Investment Company Act of 1940 and the Rules and Regulations thereunder, as amended from time to time.
(i) "Person" means and includes individuals, corporations, partnerships, trusts, associations, joint ventures and other entities, whether or not legal entities, and governments and agencies and political subdivisions thereof, whether domestic or foreign.
(j) "Shareholder" means a record owner of outstanding Shares.
(k) "Shares" means the Shares of Beneficial Interest into which the beneficial interest in the Trust shall be divided from time to time or, when used in relation to any particular series of Shares established by the Trustees pursuant to Section 6.9 hereof, equal proportionate transferable units into which such series of Shares shall be divided from time to time. The term "Shares" includes fractions of Shares as well as whole Shares.
(l) "Transfer Agent" means the party, other than the Trust, to a contract described in Section 4.3 hereof.
(m) "Trust" means the trust created hereby.
(n) "Trust Property" means any and all property, real or personal, tangible or intangible, which is owned or held by or for the account of the Trust or the Trustees, including, without limitation, any and all property allocated or belonging to any series of Shares pursuant to Section 6.9 hereof.
(o) "Trustees" means the persons who have signed the Declaration, so long as they shall continue in office in accordance with the terms hereof, and all other persons who may from time to time be duly elected, qualified and serving as Trustees in accordance with the provisions hereof, and reference herein to a Trustee or the Trustees shall refer to such person or persons in their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1 - Number of Trustees. The number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by a majority of the Trustees, provided, however, that the number of Trustees shall in no event be less than three (3) nor more than fifteen (15).
Section 2.2 - Term of Office of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided;
except:
(a) that any Trustee may resign his trust (without need for prior or subsequent accounting) by an instrument in writing signed by him and delivered to the other Trustees, which shall take effect upon such delivery or upon such later date as is specified therein;
(b) that any Trustee may be removed with cause, at any time by written instrument, signed by at least two-thirds of the remaining Trustees, specifying the date when such removal shall become effective;
(c) that any Trustee who requests in writing to be retired or who has become incapacitated by illness or injury may be retired by written instrument signed by a majority of the other Trustees, specifying the date of his retirement; and
(d) a Trustee may be removed at any meeting of Shareholders by a vote of two-thirds of the outstanding Shares of each series. Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver such documents as the remaining Trustees shall require for the purpose of conveying to the Trust or the remaining Trustees any Trust Property held in the name of the resigning or removed Trustee. Upon the incapacity or death of any Trustee, his legal representative shall execute and deliver on his behalf such documents as the remaining Trustees shall require as provided in the preceding sentence.
Section 2.3 - Resignation and Appointment of Trustees. In case of the declination, death, resignation, retirement, removal or inability of any of the Trustees, or in case a vacancy shall, by reason of an increase in number, or for any other reason, exist, the remaining Trustees shall fill such vacancy by appointing such other person as they in their discretion shall see fit. Such appointment shall be evidenced by a written instrument signed by a majority of the Trustees in office. Any such appointment shall not become effective, however, until the person named in the written instrument of appointment shall have accepted in writing such appointment and agreed in writing to be bound by the terms of the Declaration. Within twelve months of such appointment, the Trustees shall cause notice of such appointment to be mailed to each Shareholder at his address as recorded on the books of the Trustees. An appointment of a Trustee may be made by the Trustees then in office and notice thereof mailed to Shareholders as aforesaid in anticipation of a vacancy to occur by reason of retirement, resignation or increase in number of Trustees effective at a later date, provided that said appointment shall become effective only at or after the effective date of said retirement, resignation or increase in number of Trustees. The power of appointment is subject to the provisions of Section 16(a) of the 1940 Act.
Section 2.4 - Vacancies. The death, declination, resignation, retirement, removal or incapacity of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration. Whenever a vacancy in the number of Trustees shall occur, until such vacancy if filled as provided in Section 2.3, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by the Declaration. A written instrument certifying the existence of such vacancy signed by a majority of the Trustees shall be conclusive evidence of the existence of such vacancy.
Section 2.5 - Delegation of Power to Other Trustees. Any Trustee may, by power of attorney, delegate his power for a period not exceeding six months at any one time to any other Trustee or Trustees; provided that in no case shall less than two Trustees personally exercise the powers granted to the Trustees under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1 - General. The Trustees shall have exclusive and absolute control over the Trust Property and over the business of the Trust to the same extent as if the Trustees were the sole owners of the Trust Property and business in their own right, but with such powers of delegation as may be permitted by the Declaration. The Trustees shall have power to conduct the business of the Trust and carry on its operations in any and all of its branches and maintain offices both within and without The Commonwealth of Massachusetts, in any and all states of the United States of America, in the District of Columbia, and in any and all commonwealths, territories, dependencies, colonies, possessions, agencies or instrumentalities of the United States of America and of foreign governments, and to do all such other things and execute all such instruments as the Trustees deem necessary, proper or desirable in order to promote the interests of the Trust although such things are not herein specifically mentioned. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of the Declaration, the presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as limiting the aforesaid power. Such powers of the Trustees may be exercised without order of or resort to any court.
Section 3.2 - Investments. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend or otherwise deal in or dispose of U.S. and foreign currencies, any form of gold and other precious metals, commodity contracts, contracts for the future acquisition or delivery of fixed income or other securities, and securities of every nature and kind, including, without limitation, all types of bonds, debentures, stocks, negotiable or non-negotiable instruments, obligations, evidences of indebtedness, certificates of deposit or indebtedness, commercial paper, repurchase agreements, bankers' acceptances, and other securities of any kind, issued, created, guaranteed or sponsored by any and all Persons, including, without limitation, states, territories and possessions of the United States and the District of Columbia and any political subdivision, agency or instrumentality of any such Person, or by the U.S. Government, any foreign government, any political subdivision or any agency of instrumentality of the U.S. Government, any foreign government or any political subdivision of the U.S. Government or any foreign government, or any international instrumentality, or by any bank or savings institution, or by any corporation or organization organized under the laws of the United States or of any state, territory or possession thereof, or by any corporation or organization organized under any foreign law, or in "when issued" contracts for any such securities, or retain Trust assets in cash and from time to time change the investments of the assets of the Trust; and to exercise any and all rights, powers and privileges of ownership or interest in respect of any and all such investments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more persons, firms, associations or corporations to exercise any of said rights, powers and privileges in respect of any of said instruments and;
(iii) to carry on any other business in connection with or incidental to any of the foregoing powers, to do everything necessary, suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power hereinberfore set forth, and to do every other act or thing incidental or appurtenant to or connected with the aforesaid purposes, objects or powers.
(b) The Trustees shall not be limited to investing in obligations maturing before the possible termination of the Trust, nor shall the Trustees be limited by any law limiting the investments which may be made by fiduciaries.
Section 3.3 - Legal Title. Legal title to all the Trust Property shall be vested in the Trustees as joint tenants except that the Trustees shall have power to cause legal title to any Trust Property to be held by or in the name of one or more of the Trustees, or in the name of the Trust, or in the name of any other Person or nominee, on such terms as the Trustees may determine. The right, title and interest of the Trustees in the Trust Property shall vest automatically in each Person who may hereafter become a Trustee. Upon the resignation, removal or death of a Trustee he shall automatically cease to have any right, title or interest in any of the Trust Property, and the right, title and interest of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.
Section 3.4 - Issuance and Repurchase of Securities. The Trustees shall have the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9 hereof, to apply to any such repurchase, redemption, retirement, cancellation or acquisition of Shares any funds or property of the Trust whether capital or surplus or otherwise, to the full extent now or hereafter permitted by the laws of The Commonwealth of Massachusetts governing business corporations.
Section 3.5 - Borrowing Money; Lending Trust Property. The Trustees shall have power to borrow money or otherwise obtain credit and to secure the same by mortgaging, pledging or otherwise subjecting as security the Trust Property, to endorse, guarantee, or undertake the performance of any obligation, contract or engagement of any other Person and to lend Trust Property.
Section 3.6 - Delegation; Committees. The Trustees shall have power to delegate from time to time to such of their number or to officers, employees or agents of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Trustees or otherwise as the Trustees may deem expedient.
Section 3.7 - Collection and Payment. Subject to Section 6.9 hereof, the Trustees shall have power to collect all property due to the Trust; to pay all claims, including taxes, against the Trust Property; to prosecute, defend, compromise or abandon any claims relating to the Trust Property; to foreclose any security interest securing any obligations, by virtue of which any property is owed to the Trust; and to enter into releases, agreements and other instruments.
Section 3.8 - Expenses. Subject to Section 6.9 hereof, the Trustees shall have the power to incur and pay any expenses which in the opinion of the Trustees are necessary or incidental to carry out any of the purposes of the Declaration, and to pay reasonable compensation from the funds of the Trust to themselves as Trustees. The Trustees shall fix the compensation of all officers, employees and Trustees.
Section 3.9 - Manner of Acting; By-Laws. Except as otherwise provided herein or in the By-Laws, any action to be taken by the Trustees may be taken by a majority of the Trustees present at a meeting of Trustees (a quorum being present), including any meeting held by means of a conference telephone circuit or similar communications equipment by means of which all persons participating in the meeting can hear each other, or by written consents of all the Trustees. The Trustees may adopt By-Laws not inconsistent with this Declaration to provide for the conduct of the business of the Trust and may amend or repeal such By-Laws to the extent such power is not reserved to the Shareholders.
Section 3.10 - Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for the transaction of the business of the Trust;
(b) enter into joint ventures, partnerships and any other combinations or associations;
(c) remove Trustees or fill vacancies in or add to their number, elect and remove such officers and appoint and terminate such agents or employees as they consider appropriate, and appoint from their own number, and terminate, any one or more committees which may exercise some or all of the power and authority of the Trustees as the Trustees may determine;
(d) purchase, and pay for out of Trust Property, insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers, distributors, selected dealers or independent contractors of the Trust against all claims arising by reason of holding any such position or by reason of any action taken or omitted by any such Person in such capacity, whether or not constituting negligence, or whether or not the Trust would have the power to indemnify such Person against such liability;
(e) establish pension, profit-sharing, share purchase, and other retirement, incentive and benefit plans for any Trustees, officers, employees or agents of the Trust;
(f) to the extent permitted by law, indemnify any person with whom the Trust has dealings, including the Investment Adviser, Distributor, Transfer Agent and any dealer, to such extent as the Trustees shall determine;
(g) determine and change the fiscal year of the Trust and the method by which its accounts shall be kept; and
(h) adopt a seal for the Trust but the absence of such seal shall not impair the validity of any instrument executed on behalf of the Trust.
Section 3.11 - Principal Transactions. Except in transactions permitted by the 1940 Act, or any order of exemption issued by the Commission, the Trustees shall not, on behalf of the Trust, buy any securities (other than Shares) from or sell any securities (other than Shares) to, or lend any assets of the Trust to, any Trustee or officer of the Trust or any firm of which any such Trustee or officer is a member acting as principal, or have any such dealings with the Investment Adviser, Distributor or Transfer Agent or with any Interested Person of such Person; but the Trust may employ any such Person, or firm or company in which such Person is an Interested Person, as broker, legal counsel, registrar, transfer agent, dividend disbursing agent or custodian upon customary terms.
Section 3.12 - Trustees and Officers as Shareholders. Except as hereinafter provided, no officer, Trustee or Member of the Advisory Board of the Trust, and no member, partner, officer, director or trustee of the Investment Adviser or of the Distributor, and no Investment Adviser or Distributor of the Trust, shall take long or short positions in the securities issued by the Trust. The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such purchases are limited (except for reasonable allowances for clerical errors, delays and errors of transmission and cancellation of orders) to purchases for the purpose of filling orders for Shares received by the Distributor and provided that orders to purchase from the Trust are entered with the Trust or the Custodian promptly upon receipt by the Distributor of purchase orders for Shares, unless the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of the Trust;
(c) The purchase from the Trust or from the Distributor of Shares by any officer, Trustee or member of the Advisory Board of the Trust or by any member, partner, officer, director or trustee of the Investment Adviser or of the Distributor at a price not lower than the net asset value of the Shares at the moment of such purchase, provided that any such sales are only to be made pursuant to a uniform offer described in the Trust's current prospectus; or
(d) The Investment Adviser, the Distributor or any of their officers, partners, directors or trustees from purchasing Shares prior to the effective date of the Registration Statement relating to the Shares under the Securities Act of 1933, as amended.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1 - Investment Adviser. Subject to a Majority Shareholder Vote of the Shares of each series affected thereby, the Trustees may in their discretion from time to time enter into one or more investment advisory or management contracts whereby a party to such contract shall undertake to furnish the Trust such management, investment advisory, statistical and research facilities and services, promotional activities, and such other facilities and services, if any with respect to one or more series of Shares, as the Trustees shall from time to time consider desirable and all upon such terms and conditions as the Trustees may in their discretion determine. Notwithstanding any provision of the Declaration, the Trustees may delegate to the Investment Adviser authority (subject to such general or specific instructions as the Trustees may from time to time adopt) to effect purchases, sales, loans or exchanges of assets of the Trust on behalf of the Trustees or may authorize any officer, employee or Trustee to effect such purchases, sales, loans or exchanges pursuant to recommendations of the Investment Adviser (and all without further action by the Trustees). Any such purchases, sales, loans or exchanges shall be deemed to have been authorized by all of the Trustees.
Section 4.2 - Distributor. The Trustees may in their discretion from time to time enter into a contract, providing for the sale of Shares whereby the Trust may either agree to sell the Shares to the other party to the contract or appoint such other party its sales agent for such Shares. In either case, the contract shall be on such terms and conditions as the Trustees may in their discretion determine not inconsistent with the provisions of this Article IV or the By-Laws; and such contract may also provide for the repurchase or sale of Shares by such other party as principal or as agent of the Trust and may provide that such other party may enter into selected dealer agreements with registered securities dealers to further the purpose of the distribution or repurchase of the Shares.
Section 4.3 - Transfer Agent. The Trustees may in their discretion from time to time enter into a transfer agency and shareholder service contract or contracts whereby the other party or parties to such contract or contracts shall undertake to furnish transfer agency and/or shareholder services. The contract or contracts shall have such terms and conditions as the Trustees may in their discretion determine not inconsistent with the Declaration or the By-Laws. Such services may be provided by one or more Persons.
Section 4.4 - Parties to Contract. Any contract of the character described in Section 4.1, 4.2 or 4.3 of this Article IV or any Custodian contract, as described in the By-Laws, may be entered into with any Person, although one or more of the Trustees or officers of the Trust may be an officer, partner, director, trustee, shareholder, or member of such other party to the contract, and no such contract shall be invalidated or rendered voidable by reason of the existence of any such relationship; nor shall any Person holding such relationship be liable merely by reason of such relationship for any loss or expense to the Trust under or by reason of said contract or accountable for any profit realized directly or indirectly therefrom, provided that the contract when entered into was not inconsistent with the provisions of this Article IV or the By-Laws. The same Person may be the other party to contracts entered into pursuant to Sections 4.1, 4.2 and 4.3 above or Custodian contracts, and any individual may be financially interested or otherwise affiliated with Persons who are parties to any or all of the contracts mentioned in this Section 4.4.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1 - No Personal Liability of Shareholders, Trustees, etc. No Shareholder shall be subject to any personal liability whatsoever to any Person in connection with Trust Property or the acts, obligations or affairs of the Trust. No Trustee, officer, employee or agent of the Trust shall be subject to any personal liability whatsoever to any Person, other than the Trust or its Shareholders, in connection with Trust Property or the affairs of the Trust, save only that arising from bad faith, willful misfeasance, gross negligence or reckless disregard for his duty to such Person; and all such Persons shall look solely to the Trust Property for satisfaction of claims of any nature arising in connection with the affairs of the Trust. If any Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is made a party to any suit or proceeding to enforce any such liability, he shall not, on account thereof, be held to any personal liability. The Trust shall indemnify and hold each Shareholder harmless from and against all claims and liabilities to which such Shareholder may become subject by reason of his being or having been a Shareholder, and shall reimburse such Shareholder for all legal and other expenses reasonably incurred by him in connection with any such claim or liability. The rights accruing to a Shareholder under this Section 5.1 shall not exclude any other right to which such Shareholder may be lawfully entitled, nor shall anything herein contained restrict the right of the Trust to indemnify or reimburse a Shareholder in any appropriate situation even though not specifically provided herein. Notwithstanding any other provision of this Declaration to the contrary, no Trust Property shall be used to indemnify or reimburse any Shareholder of any shares of any series other than Trust Property allocated or belonging to such series.
Section 5.2 - Non-Liability of Trustees, etc. No Trustee, officer, employee or agent of the Trust shall be liable to the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or agent thereof for any action or failure to act (including without limitation the failure to compel in any way any former or acting Trustee to redress any breach of trust) except for his own bad faith, willful misfeasance, gross negligence or reckless disregard of his duties.
Section 5.3 - Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is or has been a Trustee or officer of the Trust shall be indemnified by the Trust against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in 35 which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust or the Shareholders by reason of a final adjudication by the court or other body before which the proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or officer or other disposition not involving a final adjudication as provided in paragraph (b) (i) or (b) (ii) above resulting in a payment by a Trustee or officer, unless there has been either a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office by the court or other body approving the settlement or other disposition or by a reasonable determination, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter); or
(B) by vote of a majority of the outstanding Shares of the Trust not including any shares owned by any affiliated person of the Trust; or
(c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Trustee or officer may now or hereafter be entitled, shall continue as to a Person who has ceased to be such Trustee or officer and shall inure to the benefit of the heirs, executors and administrators of such Person. Nothing contained herein shall affect any rights to indemnification to which personnel other than Trustees and officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate security or the Trust shall be insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is not an "Interested Person" of the Trust (including anyone who has been exempted from being an "Interested Person" by any rule, regulation or order of the Commission), and (ii) against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or had been pending.
Section 5.4 - No Bond Required of Trustees. No Trustee shall be obligated to give any bond or other security for the performance of any of his duties hereunder.
Section 5.5 - No Duty of Investigation; Notice in Trust Instruments, etc. No purchaser, lender, Transfer Agent or other Person dealing with the Trustees or any officer, employee or agent of the Trust shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trustees or by said officer, employee or agent or be liable for the application of money or property paid, loaned, or delivered to or on the order of the Trustees or of said officer, employee or agent. Every obligation, contract, instrument, certificate, Share, other security of the Trust or undertaking, and every other act or thing whatsoever executed in connection with the Trust shall be conclusively presumed to have been executed or done by the executors thereof only in their capacity as Trustees under the Declaration or in their capacity as officers, employees or agents of the Trust. Every written obligation, contract, instrument, certificate, Share, other security of the Trust or undertaking made or issued by the Trustees shall recite that the same is executed or made by them not individually, but as Trustees under the Declaration, and that the obligations of any such instrument are not binding upon any of the Trustees or Shareholders individually, but bind only the trust estate, and may contain any further recital which they or he may deem appropriate, but the omission of such recital shall not operate to bind any of the Trustees or Shareholders individually. The Trustees shall at all times maintain insurance for the protection of the Trust Property, the Trust's Shareholders, Trustees, officers, employees and agents in such amount as the Trustees shall deem adequate to cover possible tort liability, and such other insurance as the Trustees in their sole judgment shall deem advisable.
Section 5.6 - Reliance on Experts, etc. Each Trustee and officer or employee of the Trust shall, in the performance of his duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel, or upon reports made to the Trust by any of its officers or employees or by the Investment Adviser, the Distributor, Transfer Agent, selected dealers, accountants, appraisers or other experts or consultants selected with reasonable care by the Trustees, officers or employees of the Trust, regardless of whether such counsel or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 - Beneficial Interest. The interest of the beneficiaries hereunder shall be divided into transferable Shares of Beneficial Interest (without par value) which shall be divided into one or more series as provided in Section 6.9 hereof. The number of Shares authorized hereunder is unlimited. All Shares issued hereunder including, without limitation, Shares issued in connection with a dividend in Shares or a split of Shares, shall be fully paid and non-assessable.
Section 6.2 - Rights of Shareholders. The ownership of the Trust property of every description and the right to conduct any business hereinbefore described are vested exclusively in the Trustees, and the Shareholders shall have no interest therein other than the beneficial interest conferred by their Shares, and they shall have no right to call for any partition or division of any property, profits, rights or interests of the Trust nor can they be called upon to assume any losses of the Trust or suffer an assessment of any kind by virtue of their ownership of Shares. The Shares shall be personal property giving only the rights specifically set forth in the Declaration. The Shares shall not entitle the holder to preference, preemptive, appraisal, conversion or exchange rights, except as the Trustees may determine with respect to any series or class of Shares.
Section 6.3 - Trust Only. It is the intention of the Trustees to create only the relationship of Trustee and beneficiary between the Trustees and each Shareholder from time to time. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment or any form or legal relationship other than a trust. Nothing in the Declaration shall be construed to make the Shareholders, either by themselves or with the Trustees, partners or members of a joint stock association.
Section 6.4 - Issuance of Shares. The Trustees, in their discretion may, from time to time without vote of the Shareholders, issue Shares, in addition to the then issued and outstanding Shares and Shares held in the treasury, to such party or parties and for such amount and type of consideration, including cash or property, at such time or times, and on such terms as the Trustees may deem best, and may in such manner acquire other assets (including the acquisition of assets subject to, and in connection with the assumption of liabilities) and businesses. In connection with any issuance of Shares, the Trustees may issue fractional Shares. The Trustees may from time to time divide or combine the Shares of any series into a greater or lesser number without thereby changing the proportionate beneficial interests in Trust Property allocated or belonging to such series. Contributions to the Trust may be accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a Share or integral multiples thereof.
Section 6.5 - Register of Shares. A register shall be kept at the principal office of the Trust or at an office of the Transfer Agent which shall contain the names and addresses of the Shareholders and the number of Shares held by them respectively and a record of all transfers thereof. Such register shall be conclusive as to who are the holders of the Shares and who shall be entitled to receive dividends or distributions or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive payment of any dividend or distribution, nor to have notice given to him as herein or in the By-Laws provided, until he has given his address to the Transfer Agent or such other officer or agent of the Trustees as shall keep the said register for entry thereon. It is not contemplated that certificates will be issued for the Shares; however, the Trustees, in their discretion, may authorize the issuance of Share certificates and promulgate appropriate rules and regulations as to their use.
Section 6.6 - Transfer of Shares. Shares shall be transferable on the records of the Trust only by the record holder thereof or by his agent thereunto duly authorized in writing, upon delivery to the Trustees or the Transfer Agent of a duly executed instrument of transfer, together with any certificate or certificates (if issued) for such Shares and such evidence of the genuineness of each such execution and authorization and of other matters as may reasonably be required. Upon such delivery the transfer shall be recorded on the register of the Trust. Until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereunder and neither the Trustees nor any Transfer Agent or registrar nor any officer, employee or agent of the Trust shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation of law, shall be recorded on the register of Shares as the holder of such Shares upon production of the proper evidence thereof to the Trustees or the Transfer Agent; but until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereunder and neither the Trustees nor any Transfer Agent or registrar nor any officer or agent of the Trust shall be affected by any notice of such death, bankruptcy or incompetence, or other operation of law.
Section 6.7 - Notices. Any and all notices to which any Shareholder may be entitled and any and all communications shall be deemed duly served or given if mailed, postage prepaid, addressed to any Shareholder of record at his last known address as recorded on the register of the Trust.
Section 6.8 - Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1, (iii) with respect to termination of the Trust as provided in
Section 9.2 hereof, (iv) with respect to any amendment of the Declaration to the
extent and as provided in Section 9.3 hereof, (v) with respect to any merger,
consolidation or sale of assets as provided in Sections 9.4 and 9.6 hereof, (vi)
with respect to incorporation of the Trust or any series to the extent and as
provided in Section 9.5 and 9.6 hereof, (vii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust of the Shareholders,
and (viii) with respect to such additional matters relating to the Trust as may
be required by the Declaration, the By-Laws or any registration of the Trust
with the Commission (or any successor agency) or any state, or as the Trustees
may consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to a proportionate fractional vote, except that Shares held in
the treasury of the Trust shall not be voted. There shall be no cumulative
voting in the election of Trustees. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law, the
Declaration or the By-Laws to be taken by Shareholders. The By-Laws may include
further provisions for Shareholders votes and meetings and related matters.
Section 6.9 - Series Designation. Shares of the Trust may be divided into series, the number and relative rights, privileges and preferences of which shall be established and designated by the Trustees, in their discretion, in accordance with the terms of this Section 6.9. The Trustees may from time to time exercise their power to authorize the division of Shares into one or more series by establishing and designating one or more series of Shares upon and subject to the following provisions:
(a) All Shares shall be identical except that there may be such variations as shall be fixed and determined by the Trustees between different series as to purchase price, rights of redemption and the price, terms and manner of redemption, and special and relative rights as to dividends and on liquidation.
(b) The number of authorized Shares and the number of Shares of each series that may be issued shall be unlimited. The Trustees may classify or reclassify any unissued Shares or any Shares previously issued and reacquired of any series into one or more series that may be established and designed from time to time. The Trustees may hold as treasury Shares (of the same or some other series), reissue for such consideration and on such terms as they may determine, or cancel any Shares of any series reacquired by the Trust at their discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of shares of a particular series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to that series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Trust. In the event that there are any assets, income, earnings, profits, and proceeds thereof, funds, or payments which are not readily identifiable as belonging to any particular series, the Trustees shall allocate them among any one or more of the series established and designated from time to time in such manner and on such basis as they, in their sole discretion, deem fair and equitable. Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all series for all purposes. No holder of Shares of any particular series shall have any claim on or right to any assets allocated or belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged with the liabilities of the Trust in respect of that series and all expenses, cost, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Trust which are not readily identifiable as belonging to any particular series shall be allocated and charged by the Trustees to and among any one or more of the series established and designated from time to time in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the holders of all series for all purposes. The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders. Under no circumstances shall the assets allocated or belonging to any particular series be charged with liabilities attributable to any other series. All Persons who have extended credit which has been allocated to a particular series, or who have a claim or contract which has been allocated to any particular series, shall look only to the assets of that particular series for payment of such credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property allocated or belonging to any particular series shall be governed by Section 3.2 hereof unless otherwise provided in the instrument of the Trustees establishing such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the net assets allocated or belonging to such series only, and such interest shall not extend to the assets of the Trust generally. Dividends and distributions on Shares of a particular series may be paid with such frequency as the Trustees may determine, which may be daily or otherwise, pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Trustees may determine, to the holders of Shares of that series, only from such of the income and capital gains, accrued or realized, from the assets belonging to that series, as the Trustees may determine, after providing for actual and accrued liabilities belonging to that series. All dividends and distributions on Shares of a particular series shall be distributed pro rata to the holders of that series in proportion to the number of Shares of that series held by such holders at the date and time of record established for the payment of such dividends or distributions. Shares of any particular series of the Trust may be redeemed solely out of Trust Property allocated or belonging to that series. Upon liquidation or termination of a series of the Trust, Shareholders of such series shall be entitled to receive a pro rata share of the net assets of such series only. A Shareholder of a particular series of the Trust shall not be entitled to participate in a derivative or class action on behalf of any other series or the Shareholders of any other series of the Trust.
(g) Notwithstanding any provision hereof to the contrary, on any matter submitted to a vote of the Shareholders of the Trust, all Shares then entitled to vote shall be voted in the aggregate, except that (i) when required by the 1940 Act to be voted by individual series, Shares shall not be voted in the aggregate, and (ii) when the Trustees have determined that the matter affects only the interests of Shareholders of one or more series, only Shareholders of such series shall be entitled to vote thereon.
(h) The establishment and designation of any series of Shares shall be effective upon the execution by a majority of the then Trustees of an instrument setting forth such establishment and designation and the relative rights and preferences of such series, or as otherwise provided in such instrument. At any time that there are no Shares outstanding of any particular series previously established and designated, the Trustees may by an instrument executed by a majority of their number abolish that series and the establishment and designation thereof. Each instrument referred to in this paragraph shall have the status of an amendment to this Declaration.
The series of Shares established and designated pursuant to this
Section 6.9 and existing as of the date hereof are set forth in Annex A hereto.
Section 6.10 - Class Designation. The Trustees may, in their discretion, authorize the division of Shares of the Trust (or any series of the Trust) into one or more classes. All Shares of a class shall be identical with each other and with the Shares of each other class of the Trust or the same series of the Trust (as applicable), except for such variations between classes as may be approved by the Board of Trustees and permitted by the 1940 Act or pursuant to any exemptive order issued by the Securities and Exchange Commission. The classes of Shares authorized pursuant to this Section 6.10 and existing as of the date hereof are set forth in Annex B hereto.
ARTICLE VII
REDEMPTIONS
Section 7.1 - Redemption of Shares. All Shares of the Trust shall be redeemable, at the redemption price determined in the manner set out in this Declaration. Redeemed Shares may be resold by the Trust.
The Trust shall redeem the Shares at the price determined as hereinafter set forth, upon the appropriately verified written application of the record holder thereof (or upon such other form of request as the Trustees may determine) at such office or agency as may be designated from time to time for that purpose in the Trust's then effective prospectus under the Securities Act of 1933. The Trustees may from time to time specify additional conditions, not inconsistent with the 1940 Act, regarding the redemption of Shares in the Trust's then effective prospectus under the Securities Act of 1933.
Section 7.2 - Price. Shares shall be redeemed at their net asset value determined as set forth in Article VIII hereof as of such time as the Trustees shall have theretofore prescribed by resolution. In the absence of such resolution, the redemption price of Shares deposited shall be the net asset value of such Shares next determined as set forth in Article VIII hereof after receipt of such application.
Section 7.3 - Payment. Payment of the redemption price of Shares of any series shall be made in cash or in property out of the assets of such series to the Shareholder of record at such time and in the manner, not inconsistent with the 1940 Act or other applicable laws, as may be specified from time to time in the Trust's then effective prospectus under the Securities Act of 1933, subject to the provisions of Section 7.4 hereof.
Section 7.4 - Effect of Suspension of Determination of Net Asset Value. If, pursuant to Section 7.6 hereof, the Trustees shall declare a suspension of the determination of net asset value, the rights of Shareholders (including those who shall have applied for redemption pursuant to Section 7.1 hereof but who shall not yet have received payment) to have Shares redeemed and paid for by the Trust shall be suspended until the termination of such suspension is declared. Any record holder who shall have his redemption right so suspended may, during the period of such suspension, by appropriate written notice of revocation at the office or agency where application was made, revoke any application for redemption not honored and withdraw any certificates on deposits. The redemption price of Shares for which redemption applications have not been revoked shall be the net asset value of such Shares next determined as set forth in Article VIII after the termination of such suspension, and payment shall be made within seven days after the date upon which the application was made plus the period after such applications during which the determination of net asset value was suspended.
Section 7.5 - Redemption of Shares in Order to Qualify as Regulated Investment Company; Disclosure of Holding. If the Trustees shall, at any time and in good faith, be of the opinion that direct or indirect ownership of Shares or other securities of the Trust has or may become concentrated in any Person to an extent which would disqualify the Trust or any series of the Trust as a regulated investment company under the Internal Revenue Code, then the Trustees shall have the power by lot or other means deemed equitable by them (i) to call for redemption by any such Person a number, or principal amount, of Shares or other securities of the Trust sufficient to maintain or bring the direct or indirect ownership of Shares or other securities of the Trust into conformity with the requirements for such qualification and (ii) to refuse to transfer or issue Shares or other securities of the Trust to any Person whose acquisition of the Shares or other securities of the Trust in question would result in such disqualification. The redemption shall be effected at the redemption price and in the manner provided in Section 7.1.
The holders of Shares of other securities of the Trust shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares or other securities of the Trust as the Trustees deem necessary to comply with the provisions of the Internal Revenue Code, or to comply with the requirements of any other taxing authority.
Section 7.6 - Suspension of Right of Redemption. The Trust may declare
a suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
security holders of the Trust by order permit suspension of the right of
redemption or postponement of the date of payment or redemption; provided that
applicable rules and regulations of the Commission shall govern as to whether
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall take
effect at such time as the Trust shall specify but not later than the close of
business on the business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment on redemption until
the Trust shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first day on which said stock exchange shall
have reopened or the period specified in (ii) or (iii) shall have expired (as to
which in the absence of an official ruling by the Commission, the determination
of the Trust shall be conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension as provided in Section 7.4 hereof.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Subject to Section 6.9 hereof, the Trustees, in their absolute discretion, may prescribe and shall set forth in the By-Laws or in a duly adopted vote of the Trustees such basis and times for determining the per Share or net asset value of the Shares of any series or net income attributable to the Shares of any series, or the declaration and payment of dividends and distributions on the Shares of any series, as they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1 - Duration. The Trust shall continue without limitation of time but subject to the provisions of this Article IX.
Section 9.2 - Termination of Trust.
(a) The Trust may be terminated (i) by a Majority Shareholder Vote of the holders of its Shares, or (ii) by the Trustees by written notice to the Shareholders. Any series of the Trust may be terminated (i) by a Majority Shareholder Vote of the holders of Shares of that series, or (ii) by the Trustees by written notice to the Shareholders of that series. Upon the termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business except for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or series of the Trust and all the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or series of the Trust
shall have been wound up, including the power to fulfill or discharge the
contracts of the Trust or series of the Trust, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property or Trust Property of the series to one or more persons
at public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay its
liabilities, and to do all other acts appropriate to liquidate its business;
provided, that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all the Trust Property shall require
Shareholder approval in accordance with Section 9.4 hereof, and any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all of the Trust Property allocated or belonging to any series
shall require the approval of the Shareholders of such series as provided in
Section 9.6 hereof; and
(iii) After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and refunding agreements as they deem necessary for their protection, the Trustees may distribute the remaining Trust Property or Trust Property of the series, in cash or in kind or partly in cash and partly in kind, among the Shareholders of the Trust or the series according to their respective rights.
(b) After termination of the Trust or series and distribution to the Shareholders of the Trust or series as herein provided, a majority of the Trustees shall execute and lodge among the records of the Trust an instrument in writing setting forth the fact of such termination, and the Trustees shall thereupon be discharged from all further liabilities and duties hereunder with respect to the Trust or series, and the rights and interests of all Shareholders of the Trust or series shall thereupon cease.
Section 9.3 - Amendment Procedure.
(a) This Declaration may be amended by a Majority Shareholder Vote of the Shareholders of the Trust or by any instrument in writing, without a meeting, signed by a majority of the Trustees and consented to by the holders of not less than a majority of the Shares of the Trust. The Trustees may also amend this Declaration without the vote or consent of Shareholders to designate series in accordance with Section 6.9 hereof, to change the name of the Trust, to supply any omission, to cure, correct or supplement any ambiguous, defective or inconsistent provision hereof, or if they deem it necessary or advisable to conform this Declaration to the requirements of applicable federal laws or regulations or the requirements of the regulated investment company provisions of the Internal Revenue Code, as amended, but the Trustees shall not be liable for failing so to do.
(b) No amendment which the Trustees shall have determined shall affect the rights, privileges or interests of holders of a particular series of Shares, but not the rights, privileges or interests of holders of Shares of the Trust generally, may be made except with the vote or consent by a Majority Shareholder Vote of such series.
(c) Notwithstanding any other provision hereof, no amendment may be made under this Section 9.3 which would change any rights with respect to the Shares, or any series of Shares, by reducing the amount payable thereon upon liquidation of the Trust or by diminishing or eliminating any voting rights pertaining thereto, except with a Majority Shareholder Vote of Shares or series of Shares. Nothing contained in this Declaration shall permit the amendment of this Declaration to impair the exemption from personal liability of the Shareholders, Trustees, officers, employees and agents of the Trust or to permit assessments upon Shareholders.
(d) A certificate signed by a majority of the Trustees setting forth an amendment and reciting that it was duly adopted by the Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as amended, and executed by a majority of the Trustees, shall be conclusive evidence of such amendment when lodged among the records of the Trust.
(e) Notwithstanding any other provision hereof, until such time as a Registration Statement under the Securities Act of 1933, as amended, covering the first public offering of securities of the Trust shall have become effective, this Declaration may be amended in any respect by the affirmative vote of a majority of the Trustees or by an instrument signed by a majority of the Trustees.
Section 9.4 - Merger, Consolidation and Sale of Assets. The Trust may merge or consolidate with any other corporation, association, trust or other organization or may sell, lease or exchange all or substantially all of the Trust Property, including its good will, upon such terms and conditions and for such consideration when and as authorized at any meeting of Shareholders called for such purpose by the affirmative vote of the holders of not less than two-thirds of the Shares outstanding and entitled to vote, or by an instrument or instruments in writing without a meeting, consented to by the affirmative vote of the holders of not less than two-thirds of the Shares outstanding and entitled to vote; provided, however, that if such merger, consolidation, sale, lease or exchange is recommended by the Trustees, the vote or written consent of the holders of a majority of Shares outstanding, shall be sufficient authorization; and any such merger, consolidation, sale, lease or exchange shall be deemed for all purposes to have been accomplished under and pursuant to the statutes of The Commonwealth of Massachusetts. Nothing contained herein shall be construed as requiring approval of Shareholders for any sale of assets in the ordinary course of the business of the Trust.
Section 9.5 - Incorporation, Reorganization. With the approval of the holders of a majority of the Shares outstanding and entitled to vote, the Trustees may cause to be organized or assist in organizing a corporation or corporations under the laws of any jurisdiction, or any other trust, unit investment trust, partnership, association or other organization to take over all of the Trust Property or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, convey and transfer the Trust Property to any such corporation, trust, partnership, association or organization in exchange for the shares or securities thereof or otherwise, and to lend money to, subscribe for the shares or securities of, and enter into any contracts with any such corporation, trust, partnership, association or organization in which the Trust holds or is about to acquire shares or any other interest. Subject to Section 9.4 hereof, the Trustees may also cause a merger or consolidation between the Trust or any successor thereto and any such corporation, trust, partnership, association or other organization if and to the extent permitted by law. Nothing contained in this Section 9.5 shall be construed as requiring approval of Shareholders for the Trustees to organize or assist in organizing one or more corporations, trusts, partnerships, associations or other organizations and selling, conveying or transferring a portion of the Trust Property to such organization or entities.
Section 9.6 - Incorporation or Reorganization of Series. With the approval of a Majority Shareholder Vote of any series, the Trustees may sell, lease or exchange all of the Trust Property allocated or belonging to that series, or cause to be organized or assist in organizing a corporation or corporations under the laws of any other jurisdiction, or any other trust, unit investment trust, partnership, association or other organization, to take over all of the Trust Property allocated or belonging to that series and to sell, convey and transfer such Trust Property to any such corporation, trust, unit investment trust, partnership, association, or other organization in exchange for the Shares or securities thereof or otherwise.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
The Trustees shall at least semi-annually submit to the Shareholders a written financial report of the transactions of the Trust, including financial statements which shall at least annually be certified by independent public accountants.
Whenever ten or more Shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either Shares having a net asset value of at least $25,000 or at least 1% of the Shares outstanding, whichever is less, shall apply to the Trustees in writing, stating that they wish to communicate with other Shareholders with a view to obtaining signatures to a request for a meeting of Shareholders for the purpose of removing one or more Trustees pursuant to Section 2.2 hereof and accompany such application with a form of communication and request which they wish to transmit, the Trustees shall within five business days after receipt of such application either:
(a) afford to such applicants access to a list of the names and addresses of all Shareholders as recorded on the books of the Trust; or
(b) inform such applicants as to the approximate number of Shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request. If the Trustees elect to follow the course specified in (b) above, the Trustees, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all Shareholders of record, unless within five business days after such tender the Trustees mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion.
ARTICLE XI
MISCELLANEOUS
Section 11.1 - Filing. This Declaration, and any subsequent amendment hereto shall be filed in the office of the Secretary of The Commonwealth of Massachusetts and in such other place or places as may be required under the laws of The Commonwealth of Massachusetts and may also be filed or recorded in such other places as the Trustees deem appropriate. Each amendment so filed shall be accompanied by a certificate signed and acknowledged by a Trustee stating that such action was duly taken in a manner provided herein, and unless such amendment or such certificate sets forth some later time for the effectiveness of such amendment, such amendment shall be effective upon its filing. A restated Declaration, integrating into a single instrument all of the provisions of the Declaration which are then in effect and operative, may be executed from time to time by a majority of the Trustees and shall, upon filing with the Secretary of The Commonwealth of Massachusetts, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration and the various amendments thereto.
Section 11.2 - Governing Law. This Declaration is executed by the Trustees and delivered in The Commonwealth of Massachusetts and with reference to the laws thereof, and the rights of all parties and the validity and construction of every provision hereof shall be subject to and construed according to the laws of said Commonwealth.
Section 11.3 - Counterparts. This Declaration may be simultaneously executed in several counterparts, each of which shall be deemed to be an original, and such counterparts, together, shall constitute one and the same instrument, which shall be sufficiently evidenced by any such original counterpart.
Section 11.4 - Reliance by Third Parties. Any certificate executed by an individual who, according to the records of the Trust appears to be a Trustee hereunder, certifying to: (i) the number or identity of Trustees or Shareholders, (ii) the due authorization of the execution of any instrument or writing, (iii) the form of any vote passed at a meeting of Trustees or Shareholders, (iv) the fact that the number of Trustees or Shareholders present at any meeting or executing any written instrument satisfies the requirements of this Declaration, (v) the form of any By-Laws adopted by or the identity of any officers elected by the Trustees, or (vi) the existence of any fact or facts which in any manner relate to the affairs of the Trust, shall be conclusive evidence as to the matters so certified in favor of any Person dealing with the Trustees and their successors.
Section 11.5 - Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the regulated investment company provisions of the Internal Revenue Code, as amended, or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of the Declaration; provided however, that such determination shall not affect any of the remaining provisions of the Declaration or render invalid or improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of the Declaration in any jurisdiction.
ANNEX A
Pursuant to Section 6.9 of the Declaration, the Trustees of the Trust have established and designated four series of Shares (as defined in the Declaration), such series to have the following special and relative rights:
1. The series are designated:
-MFS Bond Fund
-MFS Limited Maturity Fund
-MFS Municipal Limited Maturity Fund
-MFS International Growth Fund
2. The series shall be authorized to invest in cash, securities, instruments and other property as from time to time described in the Trust's then currently effective registration statement under the Securities Act of 1933 to the extent pertaining to the offering of Shares of such series. Each Share of the series shall be redeemable, shall be entitled to one vote or fraction thereof in respect of a fractional share on matters on which Shares of the series shall be entitled to vote, shall represent a pro rata beneficial interest in the assets allocated or belonging to the series, and shall be entitled to receive its pro rata share of the net assets of the series upon liquidation of the series, all as provided in Section 6.9 of the Declaration of Trust.
3. Shareholders of the series shall vote separately as a class on any matter to the extent required by, and any matter shall be deemed to have been effectively acted upon with respect to the series as provided in Rule 18f-2, as from time to time in effect, under the Investment Company Act of 1940, as amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the previously established and existing series of the Trust as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the Declaration of Trust, the Trustees (including any successor Trustees) shall have the right at any time and from time to time to reallocate assets and expenses or to change the designation of any series now or hereafter created, or to otherwise change the special and relative rights of any such series.
ANNEX B
Pursuant to Section 6.10 of the Declaration of Trust, the Trustees have divided the shares of each series of the Trust to create three classes of shares, within the meaning of Section 6.10, as follows:
1. The three classes of shares are designated "Class A Shares", "Class B Shares" and "Class C Shares";
2. Class A Shares, Class B Shares and Class C Shares shall be entitled to all the rights and preferences accorded to shares under the Declaration; and
3. The purchase price of Class A Shares, Class B Shares and Class C Shares, the method of determination of the net asset value of Class A Shares, Class B Shares and Class C Shares, the price, terms and manner of redemption of Class A Shares, Class B Shares and Class C Shares, any conversion feature of Class B Shares, and the relative dividend rights of holders of Class A Shares, Class B Shares and Class C Shares shall be established by the Trustees of the Trust in accordance with the Declaration and shall be set forth in the current prospectus and statement of additional information of the Trust or any series thereof, as amended from time to time, contained in the Trust's registration statement under the Securities Act of 1933, as amended.
4. Class A Shares, Class B Shares and Class C Shares shall vote together as a single class except that Shares of a class may vote separately on matters affecting only that class and Shares of a class not affected by a matter will not vote on that matter.
5. A class of Shares of any series of the Trust may be terminated by the Trustees by written notice to the Shareholders of the class.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 15th day of February, 1995.
A. KEITH BRODKIN CHARLES W. SCHMIDT - -------------------------- -------------------------- A. Keith Brodkin Charles W. Schmidt 76 Farm Road 63 Claypit Hill Road Sherborn, MA 01770 Wayland, MA 01778 RICHARD B. BAILEY ARNOLD D. SCOTT - -------------------------- -------------------------- Richard B. Bailey Arnold D. Scott 63 Atlantic Avenue 20 Rowes Wharf Boston, MA 02110 Boston, MA 02110 PETER G. HARWOOD JEFFREY L. SHAMES - -------------------------- -------------------------- Peter G. Harwood Jeffrey L. Shames 211 Lindsay Pond Road 60 Brookside Road Concord, MA 01742 Needham, MA 02192 J. ATWOOD IVES ELAINE R. SMITH - -------------------------- -------------------------- J. Atwood Ives Elaine R. Smith 1 Bennington Road 75 Scotch Pine Road Lexington, MA 02173 Weston, MA 02193 LAWRENCE T. PERERA DAVID B. STONE - -------------------------- -------------------------- Lawrence T. Perera David B. Stone 18 Marlborough Street 50 Delano Road Boston, MA 02116 Marion, MA 02736 |
EXHIBIT 99.2
AMENDED AND RESTATED
BY-LAWS
OF
MFS FIXED INCOME TRUST
DECEMBER 21, 1994
AMENDED AND RESTATED
BY-LAWS
OF
MFS FIXED INCOME TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares", "Transfer Agent", "Trust", "Trust Property" and "Trustees" have the respective meanings given them in the Declaration of Trust of MFS Fixed Income Trust, dated August 29, 1985, as amended from time to time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the principal office of the Trust in The Commonwealth of Massachusetts shall be in the City of Boston, County of Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other places without as well as within the Commonwealth as the Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders may be called at any time by a majority of the Trustees and shall be called by any Trustee upon written request of Shareholders holding in the aggregate not less than ten percent (10%) of the outstanding Shares of the Trust having voting rights, if shareholders of all series are required under the Declaration to vote in the aggregate and not by individual series at such meeting, or of any series or class if shareholders of such series or class are entitled under the Declaration to vote by individual series or class, such request specifying the purpose or purposes for which such meeting is to be called. Any such meeting shall be held within or without The Commonwealth of Massachusetts on such day and at such time as the Trustees shall designate.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of Shareholders, stating the time, place and purposes of the meeting, shall be given by the Trustees by mail to each Shareholder entitled to vote at such meeting at his address as recorded on the register of the Trust, mailed at least (ten) 10 days and not more than (sixty) 60 days before the meeting. Only the business stated in the notice of the meeting shall be considered at such meeting. Any adjourned meeting may be held as adjourned without further notice. No notice need be given to any Shareholder who shall have failed to inform the Trust of his current address or if a written waiver of notice, executed before or after the meeting by the Shareholder or his attorney thereunto authorized, is filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose of determining the Shareholders who are entitled to notice of and to vote at any meeting, or to participate in any distribution, or for the purpose of any other action, the Trustees may from time to time close the transfer books for such period, not exceeding thirty (30) days, as the Trustees may determine; or without closing the transfer books the Trustees may fix a date not more than sixty (60) days prior to the date of any meeting of Shareholders or distribution or other action as a record date for the determination of the persons to be treated as Shareholders of record for such purpose.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of Shares entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Clerk, or with such other officer or agent of the Trust as the Clerk may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a vote of a majority of the Trustees, proxies may be solicited in the name of one or more Trustees or one or more of the officers of the Trust. When any Share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Share. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. The placing of a Shareholder's name on a proxy pursuant to telephonic or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such Shareholder shall constitute execution of such proxy by or on behalf of such Shareholder. If the holder of any such Share is a minor or a person of unsound mind, and subject to guardianship or to the legal control of any other person as regards the charge or management of such Share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy. Any copy, facsimile telecommunication or other reliable reproduction of a proxy may be substituted for or used in lieu of the original proxy for any and all purposes for which the original proxy could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original proxy or the portion thereof to be returned by the Shareholder.
SECTION 5. QUORUM, ADJOURNMENT AND REQUIRED VOTE. A majority of outstanding Shares entitled to vote shall constitute a quorum at any meeting of Shareholders, except that where any provision of law, the Declaration or these By-laws permits or requires that holders of any series or class shall vote as a series or class, then a majority of the aggregate number of Shares of that series or class entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series or class. In the absence of a quorum, a majority of outstanding Shares entitled to vote present in person or by proxy, or, where any provision of law, the Declaration or these By-laws permits or requires that holders of any series or class shall vote as a series or class, a majority of outstanding Shares of that series or class entitled to vote present in person or by proxy, may adjourn the meeting from time to time until a quorum shall be present. Only Shareholders of record shall be entitled to vote on any matter. Each full Share shall be entitled to one vote and fractional Shares shall be entitled to a vote of such fraction. Except as otherwise provided any provision of law, the Declaration or these By-laws, Shares representing a majority of the votes cast shall decide any matter (i.e., abstentions and broker non-votes shall not be counted) and a plurality shall elect a Trustee, provided that where any provision of law, the Declaration or these By-Laws permits or requires that holders of any series or class shall vote as a series or class, then a majority of the Shares of that series or class cast on the matter shall decide the matter (i.e., abstentions and broker non-votes shall not be counted) insofar as that series or class is concerned.
SECTION 6. INSPECTION OF RECORDS. The records of the Trust shall be open to inspection by Shareholders to the same extent as is permitted shareholders of a Massachusetts business corporation.
SECTION 7. ACTION WITHOUT MEETING. Any action which may be taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by law, the Declaration or these By-Laws for approval of such matter) consent to the action in writing and the written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their discretion provide for regular or stated meetings of the Trustees. Notice of regular or stated meetings need not be given. Meetings of the Trustees other than regular or stated meetings shall be held whenever called by the Chairman or by any one of the Trustees at the time being in office. Notice of the time and place of each meeting other than regular or stated meetings shall be given by the Secretary or an Assistant Secretary, or the Clerk or an Assistant Clerk or by the officer or Trustee calling the meeting and shall be mailed to each Trustee at least two days before the meeting, or shall be telegraphed, cabled, or wirelessed or sent by facsimile or other electronic means to each Trustee at his business address, or personally delivered to him at least one day before the meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice need not specify the purpose of any meeting. Except as provided by law the Trustees may meet by means of a telephone conference circuit or similar communications equipment by means of which all persons participating in the meeting can hear each other, which telephone conference meeting shall be deemed to have been held at a place designated by the Trustees at the meeting. Participation in a telephone conference meeting shall constitute presence in person at such meeting. Any action required or permitted to be taken at any meeting of the Trustees may be taken by the Trustees without a meeting if all the Trustees consent to the action in writing and the written consents are filed with the records of the Trustees' meetings. Such consents shall be treated as a vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees shall be present at any regular or special meeting of the Trustees in order to constitute a quorum for the transaction of business at such meeting and (except as otherwise required by law, the Declaration or these By-Laws) the act of a majority of the Trustees present at any such meeting, at which a quorum is present, shall be the act of the Trustees. In the absence of a quorum, a majority of the Trustees present may adjourn the meeting from time to time until a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a majority of all the Trustees may elect from their own number an Executive Committee to consist of not less than three (3) Trustees to hold office at the pleasure of the Trustees which shall have the power to conduct the current and ordinary business of the Trust while the Trustees are not in session, including the purchase and sale of securities and the designation of securities to be delivered upon redemption of Shares of the Trust, and such other powers of the Trustees as the Trustees may, from time to time, delegate to the Executive Committee except those powers which by law, the Declaration or these By-Laws they are prohibited from delegating. The Trustees may also elect from their own number other Committees from time to time, the number composing such Committees, the powers conferred upon the same (subject to the same limitations as with respect to the Executive Committee) and the term of membership on such Committees to be determined by the Trustees. The Trustees may designate a chairman of any such Committee. In the absence of such designation a Committee may elect its own Chairman.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING. The Trustees may:
(i) provide for stated meetings of any Committee,
(ii) specify the manner of calling and notice required for special meetings of any Committee,
(iii) specify the number of members of a Committee required to constitute a quorum and the number of members of a Committee required to exercise specified powers delegated to such Committee,
(iv) authorize the making of decisions to exercise specified powers by written assent of the requisite number of members of a Committee without a meeting, and
(v) authorize the members of a Committee to meet by means of a telephone conference circuit.
Each Committee shall keep regular minutes of its meetings and records of decisions taken without a meeting and cause them to be recorded in a book designated for that purpose and kept in the office of the Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board to consist in the first instance of not less than three (3) members. Members of such Advisory Board shall not be Trustees or officers and need not be Shareholders. A member of such Advisory Board shall hold office for such period as the Trustees may by resolution provide. Any member of such board may resign therefrom by a written instrument signed by him which shall take effect upon delivery to the Trustees. The Advisory Board shall have no legal powers and shall not perform the functions of Trustees in any manner, such Advisory Board being intended merely to act in an advisory capacity. Such Advisory Board shall meet at such times and upon such notice as the Trustees may by resolution provide.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a Chairman, a President, a Treasurer and a Clerk, who shall be elected by the Trustees. The Trustees may elect or appoint such other officers or agents as the business of the Trust may require, including one or more Vice Presidents, a Secretary and one or more Assistant Secretaries, one or more Assistant Treasurers, and one or more Assistant Clerks. The Trustees may delegate to any officer or Committee the power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise provided by law, the Declaration or these By-Laws, the Chairman, the President, the Treasurer and the Clerk shall hold office until his resignation has been accepted by the Trustees or until his respective successor shall have been duly elected and qualified, and all other officers shall hold office at the pleasure of the Trustees. Any two or more offices may be held by the same person. Any officer may be, but none need be, a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of the Trustees, may remove any officer with or without cause by a vote of a majority of the Trustees. Any officer or agent appointed by any officer or Committee may be removed with or without cause by such appointing officer or Committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman may call meetings of the Trustees and of any Committee thereof when he deems it necessary and shall preside at all meetings of the Shareholders. Subject to the control of the Trustees and any Committees of the Trustees, the Chairman shall at all times exercise a general supervision and direction over the affairs of the Trust. The Chairman shall have the power to employ attorneys and counsel for the Trust and to employ such subordinate officers, agents, clerks and employees as he may find necessary to transact the business of the Trust. The Chairman shall also have the power to grant, issue, execute or sign such powers of attorney, proxies or other documents as may be deemed advisable or necessary in furtherance of the interests of the Trust. The Chairman shall have such other powers and duties as, from time to time, may be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. In the absence or disability of the Chairman, the President shall perform all the duties and may exercise any of the powers of the Chairman, subject to the control of the Trustees. The President shall perform such other duties as may be assigned to him from time to time by the Trustees or the Chairman.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or disability of the President, the Vice President or, if there be more than one Vice President, any Vice President designated by the Trustees shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Trustees. Each Vice President shall perform such other duties as may be assigned to him from time to time by the Trustees or the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be the principal financial and accounting officer of the Trust. The Treasurer shall deliver all funds of the Trust which may come into his hands to such custodian as the Trustees may employ pursuant to Article X hereof. The Treasurer shall render a statement of condition of the finances of the Trust to the Trustees as often as they shall require the same and shall in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Trustees. The Treasurer shall give a bond for the faithful discharge of his duties, if required to do so by the Trustees, in such sum and with such surety or sureties as the Trustees shall require.
SECTION 8. POWERS AND DUTIES OF THE CLERK. The Clerk shall keep the minutes of all meetings of the Shareholders in proper books provided for that purpose; he shall have custody of the seal of the Trust; he shall have charge of the Share transfer books, lists and records unless the same are in the charge of the Transfer Agent. He or the Secretary shall attend to the giving and serving of all notices by the Trust in accordance with the provisions of these By-Laws and as required by law; and subject to these By-Laws, he shall in general perform all duties incident to the office of Clerk and such other duties as from time to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF THE SECRETARY. The Secretary, if any, shall keep the minutes of all meetings of the Trustees. He shall perform such other duties and have such other powers in addition to those specified in these By-Laws as the Trustees shall from time to time designate. If there be no Secretary or Assistant Secretary, the Clerk shall perform the duties of Secretary.
SECTION 10. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or disability of the Treasurer, any Assistant Treasurer designated by the Trustees shall perform all the duties, and may exercise any of the powers, of the Treasurer. Each Assistant Treasurer shall perform such other duties as from time to time may be assigned to him by the Trustees. Each Assistant Treasurer shall give a bond for the faithful discharge of his duties, if required to do so by the Trustees, in such sum and with such surety or sureties as the Trustees shall require.
SECTION 11. POWERS AND DUTIES OF ASSISTANT CLERKS. In the absence or disability of the Clerk, any Assistant Clerk designated by the Trustees shall perform all the duties, and may exercise any of the powers, of the Clerk. The Assistant Clerks shall perform such other duties as from time to time may be assigned to them by the Trustees.
SECTION 12. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence or disability of the Secretary, any Assistant Secretary designated by the Trustees shall perform all of the duties, and may exercise any of the powers, of the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them by the Trustees.
SECTION 13. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE ADVISORY BOARD. Subject to any applicable law or provision of the Declaration, the compensation of the officers and Trustees and members of the Advisory Board shall be fixed from time to time by the Trustees or, in the case of officers, by any Committee or officer upon whom such power may be conferred by the Trustees. No officer shall be prevented from receiving such compensation as such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of May in each year and shall end on the last day of April in that year, provided, however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in such form and shall have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. A notice shall be deemed to have been telegraphed, cabled or wirelessed or sent by facsimile or other electronic means for the purposes of these By-Laws when it has been delivered to a representative of any telegraph, cable or wireless company with instruction that it be telegraphed, cabled or wirelessed or when a confirmation of such facsimile having been sent, or a confirmation that such electronic means has sent the notice being transmitted, is generated. Any notice shall be deemed to be given at the time when the same shall be mailed, telegraphed, cabled or wirelessed or when sent by facsimile or other electronic means.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times employ a bank or trust company having a capital, surplus and undivided profits of at least five million dollars ($5,000,000) as custodian with authority as its agent, but subject to such restrictions, limitations and other requirements, if any, as may be contained in the Declaration, these By-Laws and the 1940 Act:
(1) to hold the securities owned by the Trust and deliver the same upon written order;
(2) to receive and receipt for any monies due to the Trust and deposit the same in its own banking department or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts of the Trust and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net income of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees and the custodian. If so directed by a Majority Shareholder Vote, the custodian shall deliver and pay over all property of the Trust held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more sub-custodians from time to time to perform such of the acts and services of the custodian and upon such terms and conditions, as may be agreed upon between the custodian and such sub-custodian and approved by the Trustees, provided that in every case such sub-custodian shall be a bank or trust company organized under the laws of the United States or one of the states thereof and having capital, surplus and undivided profits of at least five million dollars ($5,000,000).
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations and orders as the Commission may adopt, the Trustees may direct the custodian to deposit all or any part of the securities owned by the Trust in a system for the central handling of securities established by a national securities exchange or a national securities association registered with the Commission under the Securities Exchange Act of 1934, or such other person as may be permitted by the Commission, or otherwise in accordance with the 1940 Act, pursuant to which system all securities of any particular class or series of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities, provided that all such deposits shall be subject to withdrawal only upon the order of the Trust or its custodian.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to such rules, regulations and orders as the Commission may adopt, the Trustees may direct the custodian to accept written receipts or other written evidences indicating purchases of securities held in book-entry form in the Federal Reserve System in accordance with regulations promulgated by the Board of Governors of the Federal Reserve System and the local Federal Reserve Banks in lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The following provisions shall apply to the employment of a custodian pursuant to this Article X and to any contract entered into with the custodian so employed:
(a) The Trustees shall cause to be delivered to the custodian all securities owned by the Trust or to which it may become entitled, and shall order the same to be delivered by the custodian only upon completion of a sale, exchange, transfer, pledge, or other disposition thereof, and upon receipt by the custodian of the consideration therefor or a certificate of deposit or a receipt of an issuer or of its Transfer Agent, all as the Trustees may generally or from time to time require or approve, or to a successor custodian; and the Trustees shall cause all funds owned by the Trust or to which it may become entitled to be paid to the custodian, and shall order the same disbursed only for investment against delivery of the securities acquired, or in payment of expenses, including management compensation, and liabilities of the Trust, including distributions to Shareholders, or to a successor custodian; provided, however, that nothing herein shall prevent delivery of securities for examination to the broker selling the same in accord with the "street delivery" custom whereby such securities are delivered to such broker in exchange for a delivery receipt exchanged on the same day for an uncertified check of such broker to be presented on the same day for certification.
(b) In case of the resignation, removal or inability to serve of any such custodian, the Trust shall promptly appoint another bank or trust company meeting the requirements of this Article X as successor custodian. The agreement with the custodian shall provide that the retiring custodian shall, upon receipt of notice of such appointment, deliver the funds and property of the Trust in its possession to and only to such successor, and that pending appointment of a successor custodian, or a vote of the Shareholders to function without a custodian, the custodian shall not deliver funds and property of the Trust to the Trust, but may deliver them to a bank or trust company doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus and undivided profits (as shown in its last published report) of at least $5,000,000, as the property of the Trust to be held under terms similar to those on which they were held by the retiring custodian.
ARTICLE XI
SALE OF SHARES OF THE TRUST
The Trustees may from time to time issue and sell or cause to be issued and sold Shares for cash or other property, which shall in every case be paid or delivered to the Custodian as agent of the Trust before the delivery of any certificate for such shares. The Shares, including additional Shares which may have been repurchased by the Trust (herein sometimes referred to as "treasury shares"), may not be sold at a price less than the net asset value thereof (as defined in Article XII hereof) determined by or on behalf of the Trustees next after the sale is made or at some later time after such sale.
No Shares need be offered to existing Shareholders before being offered to others. No Shares shall be sold by the Trust (although Shares previously contracted to be sold may be issued upon payment therefor) during any period when the determination of net asset value is suspended by declaration of the Trustees pursuant to the provisions of Article XII hereof. In connection with the acquisition by merger or otherwise of all or substantially all the assets of an investment company (whether a regulated or private investment company or a personal holding company), the Trustees may issue or cause to be issued Shares and accept in payment therefor such assets valued at not more than market value thereof in lieu of cash, notwithstanding that the federal income tax basis to the Trust of any assets so acquired may be less than the market value, provided that such assets are of the character in which the Trustees are permitted to invest the funds of the Trust.
The Trustees, in their sole discretion, may cause the Trust to redeem all of the Shares of the Trust held by any Shareholder if the value of such Shares is less than a minimum amount established from time to time by the Trustees.
ARTICLE XII
NET ASSET VALUE OF SHARES
The term "net asset value" per Share of any class or series of Shares shall mean: (i) the value of all assets of that series or class; (ii) less total liabilities of such series or class; (iii) divided by the number of Shares of such series or class outstanding, in each case at the time of such determination, all as determine by or under the direction of the Trustees. Such value shall be determined on such days and at such time as the Trustees may determine. Such determination shall be made with respect to securities for which market quotations are readily available, at the market value of such securities; and with respect to other securities and assets, at the fair value as determined in good faith by or pursuant to the direction of the Trustees, provided, however, that the Trustees, without shareholder approval, may alter the method of appraising portfolio securities insofar as permitted under the 1940 Act, and the rules, regulations and interpretations thereof promulgated or issued by the Securities and Exchange Commission or insofar as permitted by any order of the Securities and Exchange commission. The Trustees may delegate any powers and duties under this Article XII with respect to appraisal of assets and liabilities. At any time the Trustees may cause the value per share last determined to be determined again in a similar manner and may fix the time when such predetermined value shall become effective.
ARTICLE XIII
DIVIDENDS AND DISTRIBUTIONS
SECTION 1. LIMITATIONS ON DISTRIBUTIONS. The total of distributions to Shareholders of a particular series or class paid in respect of any one fiscal year, subject to the exceptions noted below, shall, when and as declared by the Trustees, be approximately equal to the sum of:
(i) the net income, exclusive of the profits or losses realized upon the sale of securities or other property, of such series or class for such fiscal year, determined in accordance with generally accepted accounting principles (which, if the Trustees so determine, may be adjusted for net amounts included as such accrued net income in the price of Shares of such series or class issued or repurchased), but if the net income of such series or class exceeds the amount distributed by less than one cent per share outstanding at the record date for the final dividend, the excess shall be treated as distributable income of such series or class for the following fiscal year; and
(ii) in the discretion of the Trustees, an additional amount which shall not substantially exceed the excess of profits over losses on sales of securities or other property allocated or belonging to such series or class for such fiscal year.
The decision of the Trustees as to what, in accordance with generally accepted accounting principles, is income and what is principal shall be final, and except as specifically provided herein the decision of the Trustees as to what expenses and charges of the Trust shall be charged against principal and what against income shall be final, all subject to any applicable provisions of the 1940 Act and rules, regulations and orders of the Commission promulgated thereunder. For the purposes of the limitation imposed by this Section 1, Shares issued pursuant to Section 2 of this Article XIII shall be valued at the amount of cash which the Shareholders would have received if they had elected to receive cash in lieu of such Shares.
Inasmuch as the computation of net income and gains for federal income tax purposes may vary from the computation thereof on the books, the above provisions shall be interpreted to give to the Trustees the power in their discretion to distribute for any fiscal year as ordinary dividends and as capital gains distributions, respectively, additional amounts sufficient to enable the Trust to avoid or reduce liability for taxes. Any payment made to Shareholders pursuant to clause (ii) of this Section 1 shall be accompanied by a written statement showing the source or sources of such payment, and the basis of computation thereof.
SECTION 2. DISTRIBUTIONS PAYABLE IN CASH OR SHARES. The Trustees shall
have power, to the fullest extent permitted by the laws of The Commonwealth of
Massachusetts but subject to the limitation as to cash distributions imposed by
Section 1 of this Article XIII, at any time or from time to time to declare and
cause to be paid distributions payable at the election of any Shareholder of any
series or class (whether exercised before or after the declaration of the
distribution) either in cash or in Shares of such series, provided that the sum
of:
(i) the cash distribution actually paid to any Shareholder, and
(ii) the net asset value of the Shares which that Shareholder elects to receive, in effect at such time at or after the election as the Trustees may specify, shall not exceed the full amount of cash to which that Shareholder would be entitled if he elected to receive only cash.
In the case of a distribution payable in cash or Shares at the election of a Shareholder, the Trustees may prescribe whether a Shareholder, failing to express his election before a given time shall be deemed to have elected to take Shares rather than cash, or to take cash rather then Shares, or to take Shares with cash adjustment of fractions.
The Trustees, in their sole discretion, may cause the Trust to require that all distributions payable to a shareholder in amounts less than such amount or amounts determined from time to time by the Trustees be reinvested in additional shares of the Trust rather than paid in cash, unless a shareholder who, after notification that his distributions will be reinvested in additional shares in accordance with the preceding phrase, elects to receive such distributions in cash. Where a shareholder has elected to receive distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, the Trustees, in their sole discretion, may cause the Trust to require that such Shareholder's distribution option will be converted to having all distributions reinvested in additional shares.
SECTION 3. STOCK DIVIDENDS. Anything in these By-Laws to the contrary notwithstanding, the Trustees may at any time declare and distribute pro rata among the Shareholders of any series or class a "stock dividend" out of either authorized but unissued Shares of such series or class or treasury Shares of such series or class or both.
ARTICLE XIV
DERIVATIVE CLAIMS
No Shareholder shall have the right to bring or maintain any court action, proceeding or claim on behalf of the Trust or any series or class thereof without first making demand on the Trustees requesting the Trustees to bring or maintain such action, proceeding or claim. Such demand shall be excused only when the plaintiff makes a specific showing that irreparable injury to the Trust or any series or class thereof would otherwise result. Such demand shall be mailed to the Clerk of the Trust at the Trust's principal office and shall set forth in reasonable detail the nature of the proposed court action, proceeding or claim and the essential facts relied upon by the Shareholder to support the allegations made in the demand. The Trustees shall consider such demand within 45 days of its receipt by the Trust. In their sole discretion, the Trustees may submit the matter to a vote of Shareholders of the Trust or any series or class thereof, as appropriate. Any decision by the Trustees to bring, maintain or settle (or not to bring, maintain or settle) such court action, proceeding or claim, or to submit the matter to a vote of Shareholders, shall be made by the Trustees in their business judgment and shall be binding upon the Shareholders. Any decision by the Trustees to bring or maintain a court action, proceeding or suit on behalf of the Trust or any series or class thereof shall be subject to the right of the Shareholders under Article VI, Section 6.8 of the Declaration to vote on whether or not such court action, proceeding or suit should or should not be brought or maintained.
ARTICLE XV
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new By-Laws may be adopted
(a) by Majority Shareholder Vote, or
(b) by the Trustees,
provided, however, that no By-Law may be amended, adopted or repealed by the Trustees if such amendment, adoption or repeal requires, pursuant to law, the Declaration or these By-Laws, a vote of the Shareholders or if such amendment, adoption or repeal changes or affects the provisions of Sections 1 and 4 of Article X or the provisions of this Article XV.
EXHIBIT NO. 99.5(a)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made this 2nd day of December, 1985, by and between MASSACHUSETTS FINANCIAL BOND FUND, a Massachusetts business trust (the "Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end investment company registered under the Investment Company Act of 1940;
WHEREAS, the Adviser is willing to provide business management services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows:
ARTICLE 1. Duties of the Adviser. The Adviser shall provide the Fund with such investment advice and supervision as the latter may from time to time consider necessary for the proper management of its funds. The Adviser shall act as Adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of its Declaration of Trust, dated August 29, 1985, and By-Laws, each as amended from time to time (respectively, the "Declaration" and the "By-Laws"), and to the provisions of the Investment Company Act of 1940. The Adviser shall also make recommendations as to the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's portfolio securities shall be exercised. Should the Trustees at any time, however, make any definite determination as to investment policy and notify the Adviser thereof in writing, the Adviser shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination has been revoked. The Adviser shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above, and in particular to place all orders for the purchase or sale of portfolio securities for the Fund's account with brokers or dealers selected by it, and to that end the Adviser is authorized as the agent of the Fund to give instructions to the Custodian of the Fund as to deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers or dealers and the placing of such orders, the Adviser is directed to seek for the Fund the most favorable execution and price. After fulfilling this primary requirement of seeking for the Fund the most favorable execution and price, the Adviser is hereby expressly authorized to consider, subject to any applicable laws, rules and regulations, statistical, research and other information or services furnished to the Adviser or the Fund.
ARTICLE 2. Allocation of Charges and Expenses. The Adviser shall furnish at its own expense all necessary administrative services, office space, equipment and clerical personnel, and investments advisory facilities and executive and supervisory personnel for managing the investments, effecting the portfolio transactions and in general administering the affairs of the Fund. The Adviser shall arrange, if desired by the Fund, for Directors, officers and employees of the Adviser to serve as Trustees, officers or agents of the Fund if duly elected or appointed to such positions and subject to their individual consent and to any limitations imposed by law. It is understood that the Fund will pay all of its own expenses including, without limitation, compensation of Trustees not affiliated with the Adviser, governmental fees, interest charges, taxes, membership dues in the Investment Company Institute allocable to the Fund, fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar and dividend disbursing agent of the Fund, expenses of repurchasing and redeeming shares, expenses of preparing, printing and mailing share certificates, prospectuses shareholders reports, notices, proxy statements and reports to governmental officers and commissions, brokerage and other expenses connected with the execution of portfolio security transactions, insurance premiums, fees and expenses of the custodian for all services to the Fund, including safekeeping of funds and securities, keeping of books and accounts, and calculation of the net asset value of shares of the Fund, expenses of shareholders' meetings, and expenses relating to the issuance, registration and qualification of shares of the Fund.
ARTICLE 3. Compensation of the Adviser. For the services to be rendered and for the facilities to be furnished as provided in Articles 1 and 2 above, the Fund shall pay to the Adviser a fee computed and paid monthly at the annual rate .225% of the Fund's average daily net assets plus 2.75% of the Fund's adjusted gross income (i.e., income other than proceeds from the sale of securities) for the Fund's current fiscal year, provided that such computation shall commence on the effective date of this Agreement and shall be based on the average daily net assets and adjusted gross income of the Fund on the after such date; and provided further that:
(a) The annual rate applicable to average daily net assets in excess of $200 million shall be .191%;
(b) The annual rate applicable to adjusted gross income in excess of $20 million shall be 2.34%; and
(c) Within thirty days following the close of any fiscal year of the Fund, the Adviser will pay to the Fund a sum equal to the amount by which the aggregate expenses of the Fund incurred during such fiscal year, but excluding interest, taxes and brokerage commissions, exceed the lesser of either 25% of gross income of the Fund for the preceding year or the sum of (a) 1 1/2% of the average daily net assets of the preceding year up to and including $30,000,000 and (b) 1% of any excess of average daily net assets of the preceding year over $30,000,000.
The obligation of the Adviser to reimburse the Fund for expenses incurred for any year may be terminated or revised at any time by the Adviser without the consent of the Fund by notice in writing from the Adviser to the Fund, provided, however, that termination or revision of the Adviser's obligation to reimburse for expenses is not to be effective with respect to the fiscal year within which such notice is given. If the Adviser shall serve for less than the whole of any period specified in this Article 3, the compensation to the Adviser shall be prorated.
ARTICLE 4. Covenants of the Adviser. The Adviser agrees that it will not deal with itself, or with the Trustees of the Fund or the Fund's principal underwriter, as principals in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the Investment Company Act of 1940 and the Rules, Regulations or orders thereunder, will not take a long or short position in the shares of the Fund except as provided by the Declaration, and will comply with all other provisions of the Declaration and By-Laws relative to the Adviser and its Directors and officers.
ARTICLE 5. Limitation of Liability of the Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its duties and obligations hereunder. As used in this Article 5, the term "Adviser" shall include Directors, officers and employees of the Adviser as well as that corporation itself.
ARTICLE 6. Activities of the Adviser. The services of the Adviser to the Fund are not to be deemed to be exclusive, the Adviser being free to render services to others. The Adviser may permit other fund clients to use the words "Massachusetts Financial" in their names. The Fund agrees that if the Adviser shall for any reason no longer serve as the Adviser to the Fund, the Fund will change its name so as to delete the words "Massachusetts Financial". It is understood that Trustees, officers, and shareholders of the Fund are or may be or become interested in the Adviser, as Directors, officers, employees, or otherwise and that Directors, officers and employees of the Adviser are or may become similarly interested in the Fund, and that the Adviser may be or become interested in the Fund as a shareholder or otherwise.
ARTICLE 7. Duration, Termination and Amendments of this Agreement. This Agreement shall become effective on the date of its execution and shall govern the relations between the parties hereto thereafter, and shall remain in force until August 1, 1986 on which date it will terminate unless its continuance after August 1, 1986 is specifically approved at least annually (i) by the vote of a majority of the Trustees of the Fund who are not interested persons of the Fund or of the Adviser at a meeting specifically called for the purpose of voting on such approval, and (ii) by the Board of Trustees of the Fund, or by vote of a majority of the outstanding voting securities of the Fund. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the Investment Company Act of 1940 and the Rules and Regulations thereunder.
This Agreement may be terminated at any time without the payment of any penalty by the Trustees or by vote of a majority of the outstanding voting securities of the Fund, or by the Adviser, on not more than sixty days' nor less than thirty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by vote of a majority of the outstanding voting securities of the Fund.
The terms "vote of a majority of the outstanding voting securities", "assignment", "affiliated person", and "interested person", when used in this Agreement, shall have the respective meanings specified in the Investment Company Act of 1940 and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned officers thereunto duly authorized, and their respective seals to be hereto affixed, all as of the day and year first above written. The undersigned Trustee of the Fund has executed this Agreement not individually, but as Trustee under the Declaration and the obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Fund, individually, but bind only the trust estate.
MASSACHUSETTS FINANCIAL
BOND FUND
By: RICHARD B. BAILEY
Richard B. Bailey
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: H. ALDEN JOHNSON, JR.
H. Alden Johnson, Jr.
President
EXHIBIT NO. 99.5(b)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this 8th day of January, 1992, by and between MFS FIXED INCOME TRUST, a Massachusetts business trust (the "Trust"), on behalf of MFS QUALITY LIMITED MATURITY FUND (the "Fund"), a series of the Trust, and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment company registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows:
ARTICLE 1. Duties of the Adviser. The Adviser shall provide the Fund with such investment advice and supervision as the latter may from time to time consider necessary for the proper supervision of its funds. The Adviser shall act as Adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Declaration of Trust of the Trust dated August 29, 1985, and By-Laws, each as amended from time to time (respectively, the "Declaration" and the "By-Laws"), to the provisions of the Investment Company Act of 1940 and the Rules, Regulations and orders thereunder and to the Fund's then-current Prospectus. The Adviser shall also make recommendations as to the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's portfolio securities shall be exercised. Should the Trustees at any time, however, make any definite determination as to the investment policy and notify the Adviser thereof in writing, the Adviser shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination shall be revoked. The Adviser shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above, and in particular to place all orders for the purchase or sale of portfolio securities for the Fund's account with brokers or dealers selected by it, and to that end, the Adviser is authorized as the agent of the Fund to give instructions to the Custodian of the Fund as to the deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers or dealers and the placing of such orders, the Adviser is directed to seek for the Fund execution at the most reasonable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement the Adviser shall not be deemed to have acted unlawfully or to have breached any duty, created by this Agreement or otherwise, solely by reason of its having caused the Fund to pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund and to other clients of the Adviser as to which the Adviser exercises investment discretion.
ARTICLE 2. Allocation of Charges and Expenses. The Adviser shall furnish at its own expense investment advisory and administrative services, office space, equipment and clerical personnel necessary for servicing the investments of the Fund and maintaining its organization, and investment advisory facilities and executive and supervisory personnel for managing the investments and effecting the portfolio transactions of the Fund. The Adviser shall arrange, if desired by the Fund, for Directors, officers and employees of the Adviser to serve as Trustees, officers or agents of the Fund if duly elected or appointed to such positions and subject to their individual consent and to any limitations imposed by law. It is understood that the Fund will pay all of its own expenses including, without limitation, compensation of Trustees "not affiliated" with the Adviser; governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Fund; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Fund; expenses of repurchasing and redeeming shares and servicing shareholder accounts; expenses of preparing, printing and mailing stock certificates, shareholder reports, notices, proxy statements and reports to governmental officers and commissions; brokerage and other expenses connected with the execution, recording and settlement of portfolio security transactions; insurance premiums; fees and expenses of the custodian for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; expenses of calculating the net asset value of shares of the Fund; expenses of shareholders' meetings; and expenses relating to the issuance, registration and qualification of shares of the Fund and the preparation, printing and mailing of prospectuses for such purposes (except to the extent that any Distribution Agreement to which the Fund is a party provides that another party is to pay some or all of such expenses).
ARTICLE 3. Compensation of the Adviser. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee computed and paid monthly at a rate equal to 0.55% of the Fund's
average daily net assets on an annualized basis for the Fund's then current
fiscal year. In addition, the Adviser agrees to pay the expenses attributable to
the Fund described in Section 2 hereof (except for fees payable by the Fund
pursuant to the Fund's Distribution Plan, dated January 8, 1992 (the
"Distribution Fees")) until February 28, 2002, and to pay the expenses relating
to the organization of the Fund all subject to reimbursement by the Fund. To
accomplish the reimbursement of expenses of the Fund advanced by the Adviser,
the Fund shall pay the Adviser out of the assets of the Fund an expense
reimbursement fee in addition to the investment advisory fee and Distribution
Fees payable with respect to the Fund, such expense reimbursement fee to be
computed and paid monthly at the annual rate of 0.40% of the average daily net
assets of the Fund on an annualized basis for its then-current year. The first
payment of the expense reimbursement fee payable with respect to the Fund shall
be made by the Fund on March 27, 1992. The obligation of the Fund to make
payments of the expense reimbursement fee shall terminate on the earlier of (i)
the date on which the total of the payments of such fee made by the Fund equal
the prior payment by the Adviser of reimbursable expenses attributable to the
Fund or (ii) February 28, 2002. If the Adviser shall serve as the investment
adviser to the Fund for less than the whole of any period specified in this
Section 3, the compensation (including the expense reimbursement) payable to the
Adviser with respect to the Fund will be prorated.
This obligation of the Adviser to pay the expenses of the Fund may be amended or terminated at any time by the Adviser without the consent of the Trust by written notice from the Adviser to the Trust.
ARTICLE 4. Covenants of the Adviser. The Adviser agrees that it will not deal with itself, or with the Trustees of the Trust or the Trust's principal underwriter, if any, as principals in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the Investment Company Act of 1940 and the Rules, Regulations or orders thereunder, will not take a long or short position in the shares of the Fund except as permitted by the Declaration and will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus of the Fund relative to the Adviser and its Directors and officers.
ARTICLE 5. Limitation of Liability of the Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties and obligations hereunder. As used in this Article 5, the term "Adviser" shall include Directors, officers and employees of the Adviser as well as that corporation itself.
ARTICLE 6. Activities of the Adviser. The services of the Adviser to the Fund are not deemed to be exclusive, the Adviser being free to render investment advisory and/or other services to others. The Adviser may permit other fund clients to use the initials "MFS" or the words "Massachusetts Financial" in their names. The Fund agrees that if the Adviser shall for any reason no longer serve as the Adviser to the Fund, the Fund will change its name so as to delete the initials "MFS" and the words "Massachusetts Financial". It is understood that the Trustees, officers and shareholders of the Trust are or may be or become interested in the Adviser, as Directors, officers, employees, or otherwise and that Directors, officers and employees of the Adviser are or may become similarly interested in the Trust, and that the Adviser may be or become interested in the Fund as a shareholder or otherwise.
ARTICLE 7. Duration, Termination and Amendment of this Agreement. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 1993 on which date it will terminate unless its
continuance after August 1, 1993 is "specifically approved at least annually"
(i) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
This Agreement may be terminated at any time without the payment of any penalty by the Trustees or by "vote of a majority of the outstanding voting securities" of the Fund, or by the Adviser, in each case on not more than sixty days' nor less than thirty days' written notice to the other party. This Agreement shall automatically terminate in the event of its "assignment".
This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund.
The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "affiliated person", and "interested person", when used in this Agreement, shall have the respective meanings specified, and shall be construed in a manner consistent with, the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, and their respective seals to be hereto affixed, all as of the day and year first written above. The undersigned Trustee of the Trust has executed this Agreement not individually, but as Trustee under the Declaration and the obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Trust, individually, but bind only the trust estate.
MFS Fixed Income Trust on behalf of the MFS Quality Limited Maturity Fund
By: A. KEITH BRODKIN
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: A. KEITH BRODKIN
A. Keith Brodkin,
Chairman and President
EXHIBIT 99.5(c)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this 1st day of September, 1993, by and between MFS FIXED INCOME TRUST, a Massachusetts business trust (the "Trust"), on behalf of MFS MUNICIPAL LIMITED MATURITY FUND, a series of the Trust (the "Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment company registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows:
ARTICLE 1. Duties of the Adviser. The Adviser shall provide the Fund with such investment advice and supervision as the latter may from time to time consider necessary for the proper supervision of its funds. The Adviser shall act as Adviser to the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Declaration of Trust of the Trust, dated August 29, 1985, and By-Laws, each as amended from time to time (respectively, the "Declaration" and the "By-Laws"), to the provisions of the Investment Company Act of 1940 and the Rules, Regulations and orders thereunder and to the Fund's then-current Prospectus. The Adviser shall also make recommendations as to the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's portfolio securities shall be exercised. Should the Trustees at any time, however, make any definite determination as to the investment policy and notify the Adviser thereof in writing, the Adviser shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination shall be revoked. The Adviser shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above, and in particular to place all orders for the purchase or sale of portfolio securities for the Fund's account with brokers or dealers selected by it, and to that end, the Adviser is authorized as the agent of the Fund to give instructions to the Custodian of the Fund as to the deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers or dealers and the placing of such orders, the Adviser is directed to seek for the Fund execution at the most reasonable price by responsible brokerage firms at reasonably competitive commission rates. In fulfilling this requirement the Adviser shall not be deemed to have acted unlawfully or to have breached any duty, created by this Agreement or otherwise, solely by reason of its having caused the Fund to pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser determined in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Fund and to other clients of the Adviser as to which the Adviser exercises investment discretion.
ARTICLE 2. Allocation of Charges and Expenses. The Adviser shall furnish at its own expense investment advisory and administrative services, office space, equipment and clerical personnel necessary for servicing the investments of the Fund and maintaining its organization, and investment advisory facilities and executive and supervisory personnel for managing the investments and effecting the portfolio transactions of the Fund. The Adviser shall arrange, if desired by the Trust, for Directors, officers and employees of the Adviser to serve as Trustees, officers or agents of the Trust if duly elected or appointed to such positions and subject to their individual consent and to any limitations imposed by law. It is understood that the Fund will pay all of its own expenses including, without limitation, compensation of Trustees "not affiliated" with the Adviser; governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to the Fund; fees and expenses of independent auditors, of legal counsel, and of any transfer agent, registrar or dividend disbursing agent of the Fund; expenses of repurchasing and redeeming shares and servicing shareholder accounts; expenses of preparing, printing and mailing stock certificates, shareholder reports, notices, proxy statements and reports to governmental officers and commissions; brokerage and other expenses connected with the execution, recording and settlement of portfolio security transactions; insurance premiums; fees and expenses of the custodian for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; expenses of calculating the net asset value of shares of the Fund; expenses of shareholders' meetings; and expenses relating to the issuance, registration and qualification of shares of the Fund and the preparation, printing and mailing of prospectuses for such purposes (except to the extent that any Distribution Agreement to which the Trust is a party on behalf of the Fund provides that another party is to pay some or all of such expenses).
ARTICLE 3. Compensation of the Adviser. For the services to be rendered and the facilities provided, the Fund shall pay to the Adviser an investment advisory fee computed and paid monthly at a rate equal to 0.55% of the Fund's average daily net assets on an annualized basis for the Fund's then current fiscal year. In addition, the Adviser agrees to pay the expenses attributable to the Fund described in Section 2 hereof (except for fees payable by the Fund pursuant to the Fund's Distribution Plans, dated September 1, 1993 (the "Distribution Fees")) until February 28, 2002, and to pay the expenses relating to the organization of the Fund all subject to reimbursement by the Fund. To accomplish the reimbursement of expenses of the Fund advanced by the Adviser, the Fund shall pay the Adviser out of the assets of the Fund an expense reimbursement fee in addition to the investment advisory fee and Distribution Fees payable with respect to the Fund, such expense reimbursement fee to be computed and paid monthly at the annual rate of 0.40% of the average daily net assets of the Fund on an annualized basis for its then-current year. The first payment of the expense reimbursement fee payable with respect to the Fund shall be made by the Fund on April 30, 1992. The obligation of the Fund to make payments of the expense reimbursement fee shall terminate on the earlier of (i) the date on which the total of the payments of such fee made by the Fund equal the prior payment by the Adviser of reimbursable expenses attributable to the Fund or (ii) February 28, 2002. If the Adviser shall serve as the investment adviser to the Fund for less than the whole of any period specified in this Section 3, the compensation (including the expense reimbursement) payable to the Adviser with respect to the Fund will be prorated.
This obligation of the Adviser to pay the expenses of the Fund may be amended or terminated at any time by the Adviser without the consent of the Trust by written notice from the Adviser to the Trust.
ARTICLE 4. Covenants of the Adviser. The Adviser agrees that it will not deal with itself, or with the Trustees of the Trust or the Fund's principal underwriter, if any, as principals in making purchases or sales of securities or other property for the account of the Fund, except as permitted by the Investment Company Act of 1940 and the Rules, Regulations or orders thereunder, will not take a long or short position in the shares of the Fund except as permitted by the Declaration and will comply with all other provisions of the Declaration and the By-Laws and the then-current Prospectus of the Fund relative to the Adviser and its Directors and officers.
ARTICLE 5. Limitation of Liability of the Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution and management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties and obligations hereunder. As used in this Article 5, the term "Adviser" shall include Directors, officers and employees of the Adviser as well as that corporation itself.
ARTICLE 6. Activities of the Adviser. The services of the Adviser to the Fund are not deemed to be exclusive, the Adviser being free to render investment advisory and/or other services to others. The Adviser may permit other fund clients to use the initials "MFS" in their names. The Fund agrees that if the Adviser shall for any reason no longer serve as the Adviser to the Fund, the Fund will change its name so as to delete the initials "MFS". It is understood that the Trustees, officers and shareholders of the Trust are or may be or become interested in the Adviser, as Directors, officers, employees, or otherwise and that Directors, officers and employees of the Adviser are or may become similarly interested in the Fund, and that the Adviser may be or become interested in the Fund as a shareholder or otherwise.
ARTICLE 7. Duration, Termination and Amendment of this Agreement. This Agreement shall become effective on the date first above written and shall govern the relations between the parties hereto thereafter, and shall remain in force until August 1, 1995 on which date it will terminate unless its continuance after August 1, 1995 is "specifically approved at least annually" (i) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust or of the Adviser at a meeting specifically called for the purpose of voting on such approval, and (ii) by the Board of Trustees of the Trust, or by "vote of a majority of the outstanding voting securities" of the Fund.
This Agreement may be terminated at any time without the payment of any penalty by the Trustees or by "vote of a majority of the outstanding voting securities" of the Fund, or by the Adviser, in each case on not more than sixty days' nor less than thirty days' written notice to the other party. This Agreement shall automatically terminate in the event of its "assignment".
This Agreement may be amended only if such amendment is approved by "vote of a majority of the outstanding voting securities" of the Fund.
The terms "specifically approved at least annually", "vote of a majority of the outstanding voting securities", "assignment", "affiliated person", and "interested person", when used in this Agreement, shall have the respective meanings specified, and shall be construed in a manner consistent with, the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, and their respective seals to be hereto affixed, all as of the day and year first written above. The undersigned Trustee of the Trust has executed this Agreement not individually, but as Trustee under the Declaration and the obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Trust, individually, but bind only the trust estate applicable to the Fund.
MFS FIXED INCOME TRUST on
behalf of MFS MUNICIPAL
LIMITED MATURITY FUND
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
EXHIBIT NO. 99.6(a)
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made this first day of January, 1995, by and between MFS FIXED INCOME TRUST, a Massachusetts business trust (the "Trust"), on behalf of each series from time to time of the Trust (referred to individually as a "Fund" and collectively as the "Funds") and MFS FUND DISTRIBUTORS, INC., a Delaware corporation (the "Distributor");
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein contained, the parties hereto agree as follows:
1. The Trust grants to the Distributor the right, as agent of the Trust, to sell Shares of Beneficial Interest, without par value, of the Funds (the "Shares") upon the terms herein below set forth during the term of this Agreement. While this Agreement is in force, the Distributor agrees to use its best efforts to find purchasers for Shares.
The Distributor shall have the right, as agent of the Trust, to order from the Trust the Shares needed, but not more than the Shares needed (except for clerical errors and errors of transmission) to fill unconditional orders for Shares placed with the Distributor by dealers, banks or other financial institutions or investors as set forth in the current Prospectus and Statement of Additional Information (collectively, the "Prospectus") relating to the Shares. The price which shall be paid to the Trust for the Shares so purchased shall be the net asset value used in determining the public offering price on which such orders were based. The Distributor shall notify the Custodian of the Trust, at the end of each business day, or as soon thereafter as the orders placed with it have been compiled, of the number of Shares and the prices thereof which have been ordered through the Distributor since the end of the previous day.
The right granted to the Distributor to place orders for Shares with the Trust shall be exclusive, except that said exclusive right shall not apply to Shares issued in the event that an investment company (whether a regulated or private investment company or a personal holding company) is merged or consolidated with the Trust (or a Fund) or in the event that the Trust (or a Fund) acquires by purchase or otherwise, all (or substantially all) the assets or the outstanding shares of any such company; nor shall it apply to Shares issued by the Trust (or a Fund) as a stock dividend or a stock split. The exclusive right to place orders for Shares granted to the Distributor may be waived by the Distributor by notice to the Trust in writing, either unconditionally or subject to such conditions and limitations as may be set forth in the notice to the Trust. The Trust hereby acknowledges that the Distributor may render distribution and other services to other parties, including other investment companies. In connection with its duties hereunder, the Distributor shall also arrange for computation of performance statistics with respect to the Trust and arrange for publication of current price information in newspapers and other publications.
2. The Shares may be sold through the Distributor to dealers, banks and other financial institutions having sales agreements with the Distributor, upon the following terms and conditions:
The public offering price, i.e., the price per Share at which the Distributor or dealers, banks or other financial institutions purchasing Shares through the Distributor may sell Shares to the public, shall be the public offering price as set forth in the current Prospectus relating to the Shares, including a sales charge (where applicable) not to exceed the amount permitted by Article III, Section 26 of the National Association of Securities Dealers, Inc.'s Rule of Fair Practice, as amended from time to time. The Distributor shall retain the sales charge (where applicable) less any applicable dealer or comparable discount. If the resulting public offering price does not come out to an even cent, the public offering price shall be adjusted to the nearer cent. In addition, the Trust agrees that the Distributor may impose certain contingent deferred sales charges (where applicable) in connection with the redemption of Shares, not to exceed 6% of the net asset value of Shares, and the Distributor shall retain (or receive from the Trust, as the case may be) all such contingent deferred sales charges.
The Distributor may place orders for Shares at the net asset value for such Shares (as established pursuant to paragraph l above) on behalf of such purchasers and under such circumstances as the Prospectus describes, provided that such sales comply with Rule 22d-1 under the Investment Company Act of 1940 or any exemptive order granted by the Securities and Exchange Commission. The Distributor may also place orders for Shares at net asset value on behalf of persons reinvesting the proceeds of the redemption or resale of Shares or shares of other investment companies for which the Distributor acts as Distributor or as otherwise provided in the current Prospectus.
The net asset value of Shares shall be determined by the Trust or by an agent of the Trust, as of the close of regular trading of the New York Stock Exchange on each business day on which said Exchange is open, in accordance with the method set forth in the governing instruments (as hereinafter defined) of the Trust. The Trust may also cause the net asset value to be determined in substantially the same manner or estimated in such manner and as of such other hour or hours as may from time to time be agreed upon in writing by the Trust and Distributor. The Trust shall have the right to suspend the sale of Shares if, because of some extraordinary condition, the New York Stock Exchange shall be closed, or if conditions obtaining during the hours when the Exchange is open render such action advisable, or for any other reasons deemed adequate by the Trust.
3. The Trust agrees that it will, from time to time, take all necessary action to register the offering and sale of Shares under the Securities Act of l933, as amended (the "Act"), and applicable state securities laws.
The Distributor shall be an independent contractor and neither the Distributor nor any of its directors, officers or employees as such, is or shall be an employee of the Trust. It is understood that Trustees, officers and shareholders of the Trust are or may become interested in the Distributor, as Directors, officers and employees, or otherwise and that Directors, officers and employees of the Distributor are or may become similarly interested in the Trust and that the Distributor may be or become interested in the Trust as a shareholder or otherwise. The Distributor is responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees. The Distributor assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder.
4. The Distributor covenants and agrees that, in selling Shares, it
will use its best efforts in all respects duly to conform with the requirements
of all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD") relating to the sale of
Shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees incurred in
connection therewith), arising by reason of any person's acquiring any Shares,
which may be based upon the Act or any other statute or common law, on account
of any wrongful act of the Distributor or any of its employees (including any
failure to conform with any requirement of any state or federal law or the Rules
of Fair Practice of the NASD relating to the sale of Shares) or on the ground
that the registration statement or Prospectus as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless any such act, statement or omission
was made in reliance upon information furnished to the Distributor by or on
behalf of the Trust, provided, however, that in no case (i) is the indemnity of
the Distributor in favor of any person indemnified to be deemed to protect the
Trust or any such person against any liability to which the Trust or any such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its or his duties or by reason of its or
his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Distributor to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or such person, as the case may be, shall have
notified the Distributor in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon the Trust or upon such person (or after the Trust or such
person shall have received notice of such service on any designated agent), but
failure to notify the Distributor of any such claim shall not relieve it from
any liability which it may have to the Trust or any person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph. The Distributor shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if the Distributor elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Distributor elects to assume the defense of any such suit and retain such
counsel, the Trust or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Distributor does
not elect to assume the defense of any such suit, it shall reimburse the Trust
and such officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any Shares.
Neither the Distributor nor any other person is authorized to give any information or to make any representation on behalf of the Trust, other than those contained in the registration statement or Prospectus filed with the Securities and Exchange Commission under the Act (as said registration statement or Prospectus may be amended or supplemented from time to time), covering the Shares or other than those contained in periodic reports to shareholders of the Trust.
5. The Trust will pay, or cause to be paid -
(i) all costs and expenses of the Trust, including fees and disbursements of its counsel, in connection with the preparation and filing of any required registration statement or Prospectus under the Act covering Shares and all amendments and supplements thereto and any notices regarding the registration of shares, and preparing and mailing to shareholders Prospectuses, statements and confirmations and periodic reports (including the expense of setting up in type any such registration statement, Prospectus or periodic report);
(ii) the expenses (including auditing expenses) of qualification of the Shares for sale, and, if necessary or advisable in connection therewith, of qualifying the Trust as a dealer or broker, in such states as shall be selected by the Distributor and the fees payable to each such state with respect to shares sold and for continuing the qualification therein until the Distributor notifies the Trust that it does not wish such qualification continued;
(iii) the cost of preparing temporary or permanent certificates for Shares;
(iv) all fees and disbursements of the transfer agent of the Trust;
(v) the cost and expenses of delivering to the Distributor at its office in Boston, Massachusetts, all Shares sold through it as Distributor hereunder; and
(vi) all the federal and state issue and/or transfer taxes payable upon the issue by or (in the case of treasury Shares) transfer from the Trust of any and all Shares purchased through the Distributor hereunder.
The Distributor agrees that, after the Prospectus and periodic reports have been set up in type, it will bear the expense (other than the cost of mailing to shareholders of the Trust of printing and distributing any copies thereof which are to be used in connection with the offering of Shares to dealers, banks or other financial institutions or investors. The Distributor further agrees that it will bear the expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by dealers, banks or other financial institutions in connection with the offering of the Shares for sale to the public and expenses of advertising in connection with such offering. The Distributor will also bear the expense of sending confirmations and statements to dealers, banks and other financial institutions having sales agreements with the Distributor. Nothing in this paragraph 5 shall be deemed to prohibit or conflict with any payment by the Trust or any Fund to the Distributor pursuant to any Distribution Plan adopted as in effect pursuant to Rule 12b-1 under the Investment Company Act of 1940.
6. The Trust hereby authorizes the Distributor to repurchase, upon the terms and conditions set forth in written instructions given by the Trust to the Distributor from time to time, as agent of the Trust and for its account, such Shares as may be offered for sale to the Trust from time to time; provided the Distributor shall have the right, as stated above in paragraph 2 of this Agreement, to retain (or to receive from the Trust, as the case may be) a deferred sales charge not to exceed 6% of the net asset value of the Shares so repurchased.
(a) The Distributor shall notify in writing the Custodian of the Trust, at the end of each business day, or as soon thereafter as the repurchases have been compiled, of the number of Shares repurchased for the account of the Trust since the last previous report, together with the prices at which such repurchases were made, and upon the request of any Officer or Trustee of the Trust shall furnish similar information with respect to all repurchases made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the foregoing authorization at any time. Unless otherwise stated, any such suspension or revocation shall be effective forthwith upon receipt of notice thereof by an officer of the Distributor, by telegraph or by written notice from the Trust. In the event that the authorization of the Distributor is, by the terms of such notice, suspended for more than twenty-four hours or until further notice, the authorization given by this paragraph 6 shall not be revived except by action of a majority of the members of the Board of Trustees of the Trust.
(c) The Distributor shall have the right to terminate the operation of this paragraph 6 upon giving to the Trust thirty days' written notice thereof.
(d) The Trust agrees to authorize and direct the Custodian to pay, for the account of the Trust, the purchase price of any Shares so repurchased against delivery of the certificates, if any, in proper form for transfer to the Trust or for cancellation by the Trust.
(e) The Distributor shall receive no commission in respect of any repurchase of Shares under the foregoing authorization and appointment as agent, except in connection with contingent deferred sales charge as provided in the current Prospectus relating to the Shares.
(f) The Trust agrees to reimburse the Distributor, from time to time upon demand, for any reasonable expenses incurred in connection with the repurchase of Shares pursuant to this paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust shall deem it necessary or advisable in the best interests of the Trust that any amendment of this Agreement be made in order to comply with the recommendations or requirements of the Securities and Exchange Commission or other governmental authority or to obtain any advantage under Massachusetts, any state or federal tax laws, it shall notify the Distributor of the form of amendment which it deems necessary or advisable and the reasons therefore. If the Distributor declines to assent to such amendment, the Trust may terminate this Agreement forthwith by written notice to the Distributor without payment of any penalty. If, at any time during the existence of this Agreement, upon request by the Distributor, the Trust fails (after a reasonable time) to make any changes in its governing instruments or in its methods of doing business which are necessary in order to comply with any requirements of federal or state laws or regulations, laws or regulations of the Securities and Exchange Commission or of a national securities association of which the Distributor is or may be a member, relating to the sale of Shares, the Distributor may terminate this Agreement forthwith by written notice to the Trust without payment of any penalty.
8. The Distributor agrees that it will not take any long or short positions in the Shares except as permitted by paragraphs l and 6 hereof. Whenever used in this Agreement, the term "governing instruments" shall mean the Declaration of Trust and the By-Laws of the Trust, as from time to time amended.
9. This Agreement shall become effective on January 1, 1995 and shall
continue in force until August 1, 1996 on which date it will terminate unless
its continuance after August 1, 1996, is specifically approved at least annually
(i) by the vote of a majority of the Board of Trustees of the Trust who are not
interested persons of the Trust or of the Distributor at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of that Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of l940 and the Rules and
Regulations thereunder.
This Agreement may be terminated as to any Fund at any time by either party without payment of any penalty on not more than sixty days' or less than thirty days' written notice to the other party.
10. This Agreement shall automatically terminate in the event of its assignment.
11. The terms "vote of a majority of the outstanding voting securities", "interested person" and "assignment" shall have the respective meanings specified in the Investment Company Act of l940 and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act.
12. This Agreement shall be governed by the laws of The Commonwealth of Massachusetts.
13. A copy of the Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts. The Distributor acknowledges that the obligations of or arising out of this instrument are not binding upon any of the Trust's trustees, officers, employees, agents or shareholders individually, but are binding solely upon the assets and property of the Trust. If this instrument is executed by the Trust on behalf of one or more series of the Trust, the Distributor further acknowledges that the assets and liabilities of each series of the Trust are separate and distinct and that the obligations of or arising out of this instrument are binding solely upon the assets or property of the series on whose behalf the Trust has executed this instrument. If the Trust has executed this instrument on behalf of more than one series of the Trust, the Distributor also agrees that the obligations of each series hereunder shall be several and not joint, in accordance with its proportionate interest hereunder, and the Distributor agrees not to proceed against any series for the obligations of another series.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above.
MFS FIXED INCOME TRUST
On behalf of: MFS Bond Fund
MFS Limited Maturity Fund
MFS Municipal Limited Maturity Fund
By: W. THOMAS LONDON
-----------------------------
W. Thomas London as officer
and not individually
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MFS FUND DISTRIBUTORS, INC.
President
EXHIBIT NO. 99.7
MFS FIXED INCOME TRUST
RETIREMENT PLAN FOR NON-INTERESTED PERSON TRUSTEES
MFS Fixed Income Trust (the "Fund") has adopted this Retirement Plan for Non-Interested Person Trustees (the "Plan"). The Plan has been established for the purpose of providing certain benefits to eligible Independent Trustees of the Fund, or their beneficiaries, after termination of the Independent Trustees' services as such.
1. DEFINITIONS
The following terms shall have the following meanings:
Accrued Benefit: A benefit which is equal to the Normal Retirement Benefit calculated using an Independent Trustee's Years of Service and Annual Compensation as of the determination date.
Actuarial Equivalent: A benefit equal in value, based on (a) an interest rate equal to the immediate annuity rate published by the Pension Guaranty Corporation for the January of the Plan Year of calculation and (b) the 1983 Individual Annuity Mortality Tables for Males.
Annual Compensation: The average of the total compensation (retainer and meeting fees) received by an Independent Trustee during each of the last three Plan Years preceding his termination of services as such for which he served either as an Independent Trustee or a Nonaffiliated Trustee for the entire year; provided, that if an Independent Trustee served as an Independent Trustee and/or a Nonaffiliated Trustee for fewer than three full Plan Years prior to his termination of services, there shall be taken into account his annualized compensation for the one or more most recent partial Plan Years (if any) for which he served as an Independent Trustee or a Nonaffiliated Trustee that, when aggregated with his full Plan Years, does not exceed three Plan Years.
Disability: Disability as defined in ss.22(e)(3) of the Internal Revenue Code of 1986, as amended.
Independent Trustee: A Trustee of the Fund who is not an "interested person" (as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended) of the Fund, Lifetime Advisers, Inc. ("Lifetime"), Massachusetts Financial Services Company ("MFS") or MFS Financial Services, Inc. ("FSI").
Nonaffiliated Trustee: A Trustee of the Fund who has no material business or professional relationship with the Fund, Lifetime, MFS or FSI and who is subject to being declared an "interested person" solely by reason of his relationship with the Fund, Lifetime, MFS or FSI during the two most recently completed fiscal years of the Fund.
Normal Retirement Benefit: An annual benefit at Normal Retirement Date equal to 5% of an Independent Trustee's Annual Compensation multiplied by the Independent Trustee's whole Years of Service, up to a maximum of ten Years of Service, payable in the Normal Form of Benefit, as defined in ss.3(g).
Normal Retirement Date: December 31 of the Plan Year in which an Independent Trustee attains age 73.
Plan Year: January 1 through December 31.
Retirement: Termination of service of an Independent Trustee after having completed at least Five Years of Service and having attained age 62, other than: (1) any termination by reason of death; (ii) any termination by reason of Disability, provided that any Independent Trustee who suffers a Disability and who has otherwise satisfied the requirements for Retirement shall have the right to elect whether his termination is by reason of Retirement or by reason of Disability; or (iii) any termination resulting from the Independent Trustee's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Independent Trustee ("Misconduct").
Year of Service: A Plan Year during which an Independent Trustee completed at least six months of service as either a Nonaffiliated Trustee or an Independent Trustee.
2. ELIGIBILITY
No Trustee of the Fund shall be eligible to participate in the Plan or be entitled to any rights or benefits hereunder until the Trustee becomes an Independent Trustee. Each individual who completes any service as an Independent Trustee on or after the Effective Date of this Plan, and who so elects in such manner as the Committee determines from time to time, will be eligible to participate in the Plan.
3. RETIREMENT DATE; AMOUNT OF BENEFIT
(a) Retirement. Each Independent Trustee shall retire on that Independent Trustee's Normal Retirement Date, if he has not previously ceased to perform services as an Independent Trustee. Each retired Independent Trustee is referred to as a "Retired Trustee".
(b) Normal Retirement Benefit. Upon an Independent Trustee's Retirement on his Normal Retirement Date, the Independent Trustee shall receive, commencing on his Normal Retirement Date, his Normal Retirement Benefit.
(c) Early Retirement Benefit. Upon an Independent Trustee's Retirement prior to his Normal Retirement Date, the Independent Trustee shall receive an Early Retirement Benefit commencing on the Independent Trustee's date of Retirement. The benefit payable on an Independent Trustee's early Retirement shall be his Accrued Benefit reduced by 5% for every year that payment of an Early Retirement Benefit precedes that Trustee's Normal Retirement Date.
(d) Deferred Termination Benefit. If an Independent Trustee's service as such terminates, other than (i) termination as a result of his Misconduct or (ii) termination that constitutes termination by reason of his Retirement, Disability or death, after he has completed at least five Years of Service, he shall receive, commencing on the date he attains age 62, his Accrued Benefit reduced by 55%.
(e) Disability Benefit. If an Independent Trustee's service as such terminates by reason of his Disability and, if the Independent Trustee is eligible for Retirement, he elects that his termination be treated as being by reason of Disability, he shall receive his Accrued Benefit paid for the one hundred twenty (120) months immediately following the month in which his service so terminates. In the event the Independent Trustee dies before he has received one hundred twenty (120) payments, monthly payments in the same amount shall be paid to his beneficiary until the number of payments to the Independent Trustee plus the number of payments to the beneficiary equal one hundred twenty (120) payments.
(f) Death Benefit. Each Independent Trustee who elects to participate in this Plan shall designate a beneficiary in such form as the Committee approves from time to time to receive any benefits payable under this Plan in the event of his death. In the event there is no validly designated beneficiary in existence on the date of an Independent Trustee's death, his beneficiary shall be his surviving spouse, if any, or if none, his estate. The beneficiary of an Independent Trustee who dies during service, and with respect to whom benefit payments have not commenced, shall be entitled to that Independent Trustee's Accrued Benefit paid for the one hundred twenty (120) months immediately following death.
(g) Form of Benefit. Except as otherwise provided in thisss.3, benefits payable under thisss.3 shall be payable in the form of a monthly annuity for the life of the Independent Trustee, and, if the Independent Trustee dies before he has received one hundred twenty (120) payments, monthly payments in the same amount shall be payable to his beneficiary until the number of payments to the Independent Trustee plus the number of payments to the beneficiary equal one hundred twenty (120) payments (the "Normal Form of Benefit"). However, notwithstanding any other provision of this Section 3 to the contrary, if an Independent Trustee's beneficiary is entitled to payments under this Plan upon the Independent Trustee's death, then (i) if the Independent Trustee's beneficiary is his estate, the lump sum Actuarial Equivalent present value of those payments shall be paid to the estate in a single lump sum as soon as administratively reasonable following the Independent Trustee's death, and (ii) if the Independent Trustee's beneficiary is other than his estate, the Committee in its sole discretion may direct that the Actuarial Equivalent value of those payments be paid in such form other than the Normal Form of Benefit (including without limitation a lump sum) as it determines.
4. PAYMENT OF BENEFIT; ALLOCATION OF COSTS
The Fund is responsible for the payment of the benefits, as well as all expenses of administration of the Plan, including without limitation all accounting, legal and actuarial fees and expenses. The obligations of the Fund to pay such benefits and expenses will not be secured or funded in any manner, and the obligations will not have any preference over the lawful claims of the Fund's creditors and shareholders. The Fund shall be under no obligation to segregate any assets for the purpose of providing retirement benefits pursuant to this Plan, and to the extent that any Independent Trustee or beneficiary acquires a right to receive a benefit under the Plan, such right shall be limited to that of a recipient of an unfunded, unsecured promise to pay amounts in the future and such person's position with respect to such amounts shall be that of a general unsecured creditor of the Fund. To the extent that the Fund consists of one or more separate portfolios, costs and expenses will be allocated among the portfolios by the Board of Trustees of the Fund (the "Board") in a manner that is determined by the Board to be fair and equitable under the circumstances.
5. ADMINISTRATION
(a) The Committee. Any question involving entitlement to payments under or the interpretation or administration of the Plan will be referred to a committee (the "Committee") of Independent Trustees designated by the Board. Except as otherwise provided herein, the Committee will make all interpretations and determinations necessary or desirable for the Plan's administration, and such interpretations and determinations will be final and conclusive.
(b) Powers of the Committee. The Committee will represent and act on behalf of the Fund in respect of the Plan and, subject to the other provisions of the Plan, the Committee may adopt, amend or repeal by-laws or other regulations, relating to the administration of the Plan, the conduct of the Committee's affairs, its rights or powers or the rights or powers of its members or of the Board. The Committee will report to the Board from time to time on its activities in respect of the Plan. The Committee or persons designated by it will cause such records to be kept as may be necessary for the administration of the Plan.
6. MISCELLANEOUS PROVISIONS
(a) Rights Not Assignable. The right to receive any payment under the Plan may not be transferred, assigned, pledged or otherwise alienated.
(b) Amendment, etc. The Committee, with the concurrence of the Board, may at any time amend or terminate the Plan or waive any provision of the Plan, provided that no amendment, termination or waiver will impair the rights of an Independent Trustee to receive upon Retirement the payments which would have been made to that Independent Trustee had there been no such amendment, termination or waiver (based upon that Independent Trustee's Years of Service to the date of such amendment, termination or waiver) or the rights of a former Independent Trustee or Retired Trustee to receive any benefit due under the Plan, without the consent of such present or former Independent Trustee or Retired Trustee, as the case may be. A present or former Independent Trustee or Retired Trustee may elect to waive receipt of his benefit by so advising the Committee.
Notwithstanding any provision of this Plan to the contrary, however, in the event of the sale of all or substantially all of the assets of the Fund, the liquidation or dissolution of the Fund, or any merger or other similar reorganization of the Fund that the Fund does not survive:
(i) if although the Fund does not survive there is a surviving entity, all rights and benefits (including without limitation those of Retired Trustees) under the Plan shall cease upon consummation of such transaction, unless, and only to the extent that, the board of trustees (or other similar governing body) of the surviving entity agrees to assume the Plan and/or to provide any such rights or benefits; and
(ii) if there is no surviving entity, the Board shall have the right to take specific action to terminate the Plan and/or to cause any or all rights and benefits (including without limitation those of Retired Trustees) under the Plan to cease as of the date of such event but, in the absence of any such specific action, the lump sum Actuarial Equivalent present value of the Accrued Benefit of each present or former Independent Trustee or Retired Trustee (or beneficiary thereof) who on the date of liquidation is receiving or entitled to receive a benefit under the Plan or would be entitled to receive a benefit under the Plan based on his actual or deemed termination of service as of the date of such liquidation shall be paid to such person.
(c) No Right to Re-election. Nothing in the Plan will create any obligation on the part of the Board to nominate any Independent Trustee for re-election.
(d) Vacancies. Although the Board will retain the right to increase or decrease its size, it shall be the general policy of the Board to replace each person who ceases to serve as an Independent Trustee by selecting a new Independent Trustee from candidates duly proposed.
(e) Consulting. Each Retired Trustee may render such services for the Fund, for such compensation, as may be agreed upon from time to time by such Trustee and the Board of the Fund.
(f) Construction. Whenever any masculine terminology is used in this Plan, it shall be taken to include the feminine, unless the context otherwise indicates. The titles and headings included herein are for convenience only and shall not be construed as in any way affecting or modifying the text of this Plan, which text shall control. This Plan shall be construed and regulated in accordance with the laws of The Commonwealth of Massachusetts, except to the extent such state law is preempted by federal law.
(g) Effective Date. This Plan will become effective on January 1, 1991 (the "Effective Date").
EXHIBIT No. 99.8(a)
CUSTODIAN CONTRACT
BETWEEN
MASSACHUSETTS FINANCIAL BOND FUND
AND
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
PAGE
1. Employment of Custodian and Property to be Held By It............................ 1
2. Duties of the Custodian with Respect to Property of the Fund
Held by the Custodian in the United States..................................... 2
2.1. Holding Securities...................................................... 2
2.2. Delivery of Securities.................................................. 2
2.3. Registration of Securities.............................................. 5
2.4. Bank Accounts........................................................... 6
2.5. Payments for Shares..................................................... 6
2.6. Investment and Availability of Federal Funds............................ 6
2.7. Collection of Income.................................................... 7
2.8. Payment of Fund Monies.................................................. 9
2.9. Liability for Payment in Advance of Receipt of Securities Purchased..... 9
2.10. Appointment of Agents................................................... 9
2.11. Deposit of Fund Assets in Securities System............................. 9
2.1lA. Fund Assets Held in the Custodian's Direct Paper System................. 11
2.12. Segregated Account...................................................... 13
2.13. Ownership Certificates for Tax Purposes................................. 13
2.14. Proxies................................................................. 13
2.15. Communications Relating to Fund Portfolio Securities.................... 14
2.16. Reports to Fund by Independent Public Accountants....................... 14
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States.............................................. 14
3.1. Appointment of Chase as Subcustodian.................................... 15
3.2. Standard of Care; Liability............................................. 15
3.3. Fund's Responsibility for Rules and Regulations......................... 15
4. Payments for Repurchases or Redemptions of Shares of the Fund.................... 15
5. Proper Instructions.............................................................. 16
6. Actions Permitted Without Express Authority...................................... 16
7. Evidence of Authority............................................................ 17
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.................................. 17
9. Records ........................................................................ 18
10. Opinion of Fund Independent Accountants.......................................... 18
11. Compensation of Custodian........................................................ 18
12. Responsibility of Custodian...................................................... 18
13. Effective Period, Termination and Amendment...................................... 19
14. Successor Custodian.............................................................. 20
15. Interpretive and Additional Provisions........................................... 21
16. Massachusetts Law to Apply....................................................... 22
17. Prior Contracts.................................................................. 22
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CUSTODIAN CONTRACT
This Contract between Massachusetts Financial Bond Fund, a business trust organized and existing under the laws of Massachusetts, having its principal place of business at 200 Berkeley Street, Boston, Massachusetts, hereinafter called the "Trust", and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of its assets pursuant to the provisions of the Declaration of Trust including securities and cash it desires to be held within the United States (collectively "domestic securities") and securities and cash it desires to be held outside the United States (collectively "foreign securities"), subject to the terms of Article 3 hereof. The Trust agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Trust from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest ("Shares") of the Trust as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Trust held or received by the Trust and not delivered to the Custodian. with respect to all securities owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest ("Shares") of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Article 5), the Custodian shall from time to time employ one or more sub custodians, but only in accordance with an applicable vote by the Board of Directors of the Fund, and provided that, except as expressly provided in Article 3 hereof, the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any subcustodian so employed than any such subcustodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held By the Custodian in the United States
The provisions of this Article 2 shall apply to the duties of the Custodian as they relate to domestic securities, held in the United States.
2.1. Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non cash property, including all
domestic securities owned by the Fund to be held in the United States,
other than (a) securities which are maintained pursuant to Section 2.11
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as a "Securities System"; and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in State Street Bank and Trust Company's
Direct Paper Book-Entry System ("Direct Paper System") pursuant to
Section 2.11.A.
2.2. Delivery of Securities. The Custodian shall release and deliver securities owned by the Fund held by the Custodian or in a Securities System account of the Custodian or in the Direct Paper System only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
1. Upon sale of such securities for the account of the Fund and receipt of payment therefor;
2. Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund;
3. In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.11 hereof;
4. To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund;
5. To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;
6. To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.10 or into the name or nominee name of any subcustodian appointed pursuant to Article l; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian;
7. Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct;
8. For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
9. In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
10. For delivery in connection with any loans of securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral;
11. For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed;
12. For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund;
13. For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund;
14. Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time the Fund's currently effective prospectus and statement of additional information ("prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and
15. For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose for which such delivery is to be made, declaring such purposes to be proper corporate purposes, and naming the person or persons to whom delivery of such securities shall be made.
2.3. Registration of Securities. Domestic securities held by the Custodian (other than bearer securities) in the United States shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.10 or in the name or nominee name of any subcustodian appointed pursuant to Article 1. All domestic securities accepted by the Custodian on behalf of the Fund under the terms of this Contract shall be in "street name" or other good delivery form.
2.4. Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts (the "Fund's Account or Accounts") in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such Account or Accounts, subject to the provisions hereof, all cash received by it from or for the Account of the Fund, other than cash maintained by the Fund in a bank Account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of majority of the Board of Directors of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.
2.5. Payments for Shares. The Custodian shall receive from the distributor for the Fund's Shares or from the Transfer Agent of the Fund and deposit into the Fund's account such payments as are received for Shares of the Fund issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund.
2.6. Investment and Availability of Federal Funds. Upon mutual agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of Proper Instructions,
1. Invest in such instruments as may be set forth in such instruments as may be set forth in such instructions on the same day as received all federal funds received after a time agreed upon between the Custodian and the Fund; and
2. Make federal funds available to the Fund as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of the Fund which are deposited into the Fund's Account.
2.7. Collection of Income. The Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such domestic securities are held by the Custodian or agent thereof and shall credit such income, as collected, to the Fund's custodian Account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on domestic securities held hereunder. Income due the Fund on domestic securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled.
2.8. Payment of Fund Monies. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of the Fund in the following cases only:
1. Upon the purchase of domestic securities for the account of the Fund but only (a) against the delivery of such securities to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.11 hereof; (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.11A; or (d) in the case of repurchase agreements entered into between the Fund and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund;
2. In connection with conversion, exchange or surrender of
domestic securities owned by the Fund as set forth in
Section 2.2 hereof;
3. For the redemption or repurchase of Shares issued by the Fund as set forth in Article 4 hereof;
4. For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;
5. For the payment of any dividends declared pursuant to the governing documents of the Fund;
6. For payment of the amount of dividends received in respect of domestic securities sold short;
7. For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made.
2.9. Liability for Payment in Advance of Receipt of Securities Purchased. In any and every case where payment for purchase of domestic securities for the account of the Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian, except that in the case of repurchase agreements entered into by the Fund with a bank which is a member of the Federal Reserve System, the Custodian may transfer funds to the account of such bank prior to the receipt of written evidence that the securities subject to such repurchase agreement have been transferred by book-entry into a segregated non-proprietary account of the Custodian maintained with the Federal Reserve Bank of Boston or of the safekeeping receipt, provided that such securities have in fact been so transferred by book-entry.
2.10. Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder.
2.11. Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1. The Custodian may keep domestic securities of the Fund in a Securities System provided that such securities are represented in an account ("Custodian's Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers;
2. The records of the Custodian with respect to domestic securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund;
3. The Custodian shall pay for domestic securities purchased for the account of the Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Custodian's Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer domestic securities sold for the account of the Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Custodian's Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advises from the Securities System of transfers of domestic securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund.
4. The Custodian shall provide the Fund with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding domestic securities deposited in the Securities System;
5. The Custodian shall have received the initial or annual certificate, as the case may be, required by Article 10 hereof;
6. Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage.
2.11A. Fund Assets Held in the Custodian's Direct Paper System. The Custodian may deposit and/or maintain domestic securities owned by the Fund in the Direct Paper System subject to the following provisions:
1. No transaction relating to domestic securities in the Direct Paper System will be effected in the absence of Proper Instructions;
2. The Custodian may keep domestic securities of the Fund in the Direct Paper System only if such securities are represented in an account of the Custodian in the Direct Paper System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers;
3. The records of the Custodian with respect to domestic securities of the Fund which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Fund;
4. The Custodian shall furnish the Fund confirmation of each transfer of Direct Paper to or from the account of the Fund, in the form of a written advice or notice on the next business day following such transfer and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transaction in the Direct Paper System for the account of the Fund;
5. The Custodian shall pay for domestic securities purchased for the account of the Fund upon the making of an entry on the records of the custodian to reflect such payment and transfer of securities to the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Fund;
6. The Custodian shall provide the Fund with any report on the system of internal accounting control for the Direct Paper System that the Custodian receives and as the Fund may reasonably request from time to time;
2.12. Segregated Account. The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or domestic securities, including securities maintained in an account by the Custodian pursuant to Section 2.11 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act ant a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purpose of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper corporate purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Directors or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes.
2.13. Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of the Fund held by it and in connection with transfers of domestic securities.
2.14. Proxies. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the domestic securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.
2.15. Communications Relating to Fund Portfolio Securities. The Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the domestic securities being held for the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the domestic securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action.
2.16. Reports to Fund by Independent Public Accountants. The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports, which shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States.
The provisions of this Article 3 shall apply to the duties of the Custodian as they relate to foreign securities held outside the United States.
3.1. Appointment of Chase as Subcustodian. The Custodian is authorized and instructed by the Fund to employ Chase Manhattan Bank N.A. ( "Chase") as subcustodian for the Fund's foreign securities (including cash incidental to transactions in such securities) on the terms and conditions set forth in the Subcustody Contract between the Custodian and Chase which is attached hereto as Exhibit A (the "Subcustody Contract"). The Custodian acknowledges that it has entered into the Subcustody Contract and hereby agrees to provide such services to the Fund and in accordance with such Subcustody Contract as necessary for foreign custody services to be provided pursuant thereto.
3.2. Standard of Care; Liability. Notwithstanding anything to the contrary in this Contract, the Custodian shall not be liable to the Fund for any loss, damage, cost, expense, liability or claim arising out of or in connection with the maintenance of custody of the Fund's foreign securities by Chase or by any other banking institution or securities depository employed pursuant to the terms of the Subcustody Contract, except that the Custodian shall be liable for any such loss, damage, cost, expense, liability or claim directly resulting from the failure of the Custodian to exercise reasonable care in the performance of its duties hereunder. At the election of the Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian under the Subcustody Contract with respect to any claim arising hereunder against Chase or any other banking institution or securities depository employed by Chase if and to the extent that the Fund has not been made whole therefor.
3.3. Fund's Responsibility for Rules and Regulations. As between the Custodian and the Fund, the Fund shall be solely responsible to assure that the maintenance of foreign securities and cash pursuant to the terms of the Subcustody Contract comply with all applicable rules, regulations, interpretations and orders of the Securities and Exchange Commission, and the Custodian assumes no responsibility and makes no representations as to such compliance.
4. Payments for Repurchases or Redemptions of Shares of the Fund.
From such funds as may be available for the purpose but subject to the limitations of the Articles of Incorporation and any applicable votes of the Board of Directors of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions.
Proper Instructions as used throughout this Contract means a writing signed or initialed by one or more person or persons as the Board of Directors shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Directors of the Fund accompanied by a detailed description of procedures approved by the Board of Directors, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Directors and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets.
6. Actions Permitted without Express Authority.
The Custodian may in its discretion, without express authority from the Fund:
1. Make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that all such payments shall be accounted for to the Fund;
2. Surrender securities in temporary form for securities in definitive form;
3. Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and
4. In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board of Directors of the Fund.
7. Evidence of Authority.
The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Directors of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Directors pursuant to the Articles of Incorporation as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Directors of the Fund to keep the books of account of the Fund and/or compute the net asset value per share of the outstanding shares of the Fund or, if directed in writing to do so by the Fund, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the Fund's currently effective prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of the Fund shall be made at the time or times described from time to time in the Fund's currently effective prospectus.
9. Records.
The Custodian shall create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant.
The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission.
11. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian.
12. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by the Fund for any action taken or omitted by it in the proper execution of instructions from the Fund. It shall be entitled to rely on and may act upon advice of counsel for the Fund on all matters and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts and omissions of Chase appointed as its subcustodian pursuant to the provision of Article 3 to the extent set forth in Sections 3.2 and 3.3 hereof.
The Fund agrees to indemnify and hold harmless the Custodian and its nominee from and against all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominee in connection with the performance of this Contract, except such as may arise from it or its nominee's own negligent action, negligent failure to act or willful misconduct. The Custodian is authorized to charge any account of the Fund for such items and its fees. To secure any such authorized charges and any advances of cash or securities made by the Custodian to or for the benefit of the Fund for any purpose which results in the Fund incurring and overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Fund hereby grants to the Custodian a security interest in and pledges to the Custodian securities held for it by the Custodian, in an amount not to exceed five percent of the Fund's gross assets, the specific securities to be designated in writing from time to time by the Fund or its investment adviser (the "Pledged Securities"). Should the Fund fail to repay promptly any advances of cash or securities, the Custodian shall be entitled to use available cash and to dispose of the Pledged Securities as is necessary to repay any such advances.
13. Effective Period. Termination and Amendment.
This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however that the Custodian shall not act under Section 2.11 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors of the Fund has approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Directors has reviewed the use by the Fund of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended and that the Custodian shall not act under Section 2.11.A hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Directors has approved the initial use of the Direct Paper System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Directors has reviewed the use by the Fund of the Direct Paper System; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Articles of Incorporation, and (b) that the Fund may at any time by action of its Board of Director (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian.
If a successor custodian shall be appointed by the Board of Directors of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities then held by it hereunder and shall transfer to an account of the successor custodian all of the Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Directors of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Directors shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian and all instruments held by the Custodian relative thereto and all other property held by it under this Contract and to transfer to an account of such successor custodian all of the Fund's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board of Directors to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Articles of Incorporation of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract.
16. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts.
17. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof, the assisting custodian contracts between the Fund and the Custodian. Any reference to the custodian contract between the Fund and the Custodian in documents executed prior to the date hereof shall be deemed to refer to this Contract.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 25th day of April, 1988.
ATTEST MASSACHUSETTS FINANCIAL
BOND FUND
(ILLEGIBLE) By: RICHARD B. BAILEY
- -------------------------- ---------------------------
(Illegible) Richard B. Bailey
ATTEST STATE STREET BANK AND
TRUST COMPANY
(ILLEGIBLE) By: (ILLEGIBLE)
- -------------------------- ---------------------------
(Illegible) (Illegible)
Assistant Secretary Vice President
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EXHIBIT NO. 99.8(b)
AMENDMENT TO CUSTODIAN CONTRACT
Amendment to Custodian Contract between Massachusetts Financial Bond Fund, a business trust organized and existing under the laws of Massachusetts, having a principal place of business at 200 Berkeley Street, Boston, Massachusetts 02116 (hereinafter called the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts 02110 (hereinafter called the "Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian Contract dated April 25, l988 (the "Custodian Contract");
WHEREAS: The Fund desires that the Custodian issue a letter of credit (the "Letter of Credit") on behalf of the Fund for the benefit of ICI Mutual Insurance Company (the "Company") in accordance with the Continuing Letter of Credit and Security Agreement and that the Fund's obligations to the Custodian with respect to the Letter of Credit shall be fully collateralized at all times while the Letter of Credit is outstanding by, among other things, segregated assets of the Fund equal to 125% of the face amount to the amount of the Letter of Credit;
WHEREAS: the Custodian Contract provides for the establishment of segregated accounts for proper Fund purposes upon Proper Instructions (as defined in the Custodian Contract); and
WHEREAS: The Fund and the Custodian desire to establish a segregated account to hold the collateral for the Fund's obligations to the Custodian with respect to the Letter of Credit and to amend the Custodian Contract to provide for the establishment and maintenance thereof;
WITNESSETH: That in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto hereby amend the Custodian Contract as follows:
1. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Custodian Contract.
2. The Fund hereby instructs the Custodian to establish and maintain a segregated account (the "Letter of Credit Custody Account") for and in behalf of the Fund as contemplated by Section 2.13(iv) for the purpose of collateralizing the Fund's obligations under this Amendment to the Custodian Contract.
3. The Fund shall deposit with the Custodian and the Custodian shall hold in the Letter of Credit Custody Account cash, U.S. government securities and other high-grade debt securities owned by the Fund acceptable to the Custodian (collectively "Collateral Securities") equal to 125% of the face amount to the amount which the Company may draw under the Letter of Credit. Upon receipt of such Collateral Securities in the Letter of Credit Custody Account, the Custodian shall issue the Letter of Credit to the Company.
4. The fund hereby grants to the Custodian a security interest in the Collateral Securities from time to time in the Letter of Credit Custody Account (the "Collateral") to secure the performance of the Fund's obligations to the Custodian with respect to the Letter of Credit, including, without limitation, under Section 5-114(3) of the Uniform Commercial Code. The Fund shall register the pledge of Collateral and execute and deliver to the Custodian such powers and instruments of assignment as may be requested by the Custodian to evidence and perfect the limited interest in the Collateral granted hereby.
5. The Collateral Securities in the Letter of Credit Custody Account may be substituted or exchanged (including substitutions or exchanges which increase or decrease the aggregate value of the Collateral) only pursuant to Proper Instructions from the Fund after the Fund notifies the Custodian of the contemplated substitution or exchange and the Custodian agrees that such substitution or exchange is acceptable to the Custodian.
6. Upon any payment made pursuant to the Letter of Credit by the Custodian to the Company, after notice to the company, the Custodian may withdraw from the Letter of Credit Custody Account Collateral Securities in an amount equal in value to the amount actually so paid. The Custodian shall have with respect to the Collateral so withdrawn all of the rights of a secured creditor under the Uniform Commercial Code as adopted in the Commonwealth of Massachusetts at the time of such withdrawal and all other rights granted or permitted to it under law.
7. The Custodian will transfer upon receipt all income earned on the Collateral to the Fund custody account unless the Custodian receives Proper Instructions from the Fund to the contrary.
8. Upon the drawing by the Company of all amounts which may become payable to it under the Letter of Credit and the withdrawal of all Collateral Securities with respect thereto by the Custodian pursuant to Section 6 hereof, or upon the termination of the Letter of Credit by the Fund with the written consent of the Company, the Custodian shall transfer any Collateral Securities then remaining in the Letter of Credit Custody Account to another fund custody account.
9. Collateral held in the Letter of Credit Custody Account shall be released only in accordance with the provisions of this Amendment to Custodian Contract. The Collateral shall at all times until withdrawn pursuant to Section 6 hereof remain the property of the Fund, subject only to the extent of the interest granted herein to the Custodian.
10. Notwithstanding any other termination of the Custodian Contract, the Custodian Contract shall remain in full force and effect with respect to the Letter of Credit Custody Account until transfer of all Collateral Securities pursuant to Section 8 hereof.
11. The Custodian shall be entitled to reasonable compensation for its issuance of the Letter of Credit and for its services in connection with the Letter of Credit Custody Account as agreed upon from time to time between the Fund and the Custodian.
12. The Custodian Contract as amended hereby, shall be governed by, and construed and interpreted under, the laws of the Commonwealth of Massachusetts.
13. The parties agree to execute and deliver all such further documents and instruments and to take such further action as may be required to carry out the purposes of the Custodian Contract, as amended hereby.
14. Except as provided in this Amendment to Custody Contract, the Custodian Contract shall remain in full force and effect, without amendment or modification, and all applicable provisions of the Custodian Contract, as amended hereby, including, without limitation, Section 8 thereof, shall govern the Letter of Credit Custody Account and the rights and obligations of the Fund and the Custodian under this Amendment to Custodian Contract. No provision of this Amendment to Custodian Contract shall be deemed to constitute a waiver of any rights of the Custodian under the Custodian Contract or under law.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to Custodian Contract to be executed in its name and behalf by its duly authorized representatives and its seal to be hereunder affixed as of the 25th day of April, 1988.
ATTEST:
By: DANIEL JAFFE By: W. THOMAS LONDON
--------------------- ---------------------------
Daniel Jaffe W. Thomas London, Treasurer
ATTEST: STATE STREET BANK &
TRUST COMPANY
By: (Illegible) By: (Illegible)
-------------------- --------------------------
(Illegible) (Illegible)
Assistant Secretary Vice President
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EXHIBIT NO. 99.8(c)
AMENDMENT TO CUSTODIAN AGREEMENT
Delegation of Certain Custodian Duties to MFS
The Custodian may delegate to Massachusetts Financial Services Company
("MFS") the performance of any or all of its duties hereunder relating to (i)
accounting for investments in currency and for financial instruments (including,
without limitation, options contracts, futures contracts, options on futures
contracts, options on foreign currency and forward foreign currency exchange
contracts) and (ii) federal and state regulatory compliance. The Custodian shall
compensate MFS for the performance of such duties at such fee or fees as MFS
shall determine to be equal to MFS's cost for performing such duties (the "MFS
Fees"). Following its payment of the MFS Fees to MFS, the Custodian shall
recover the amount of the MFS Fees from the Trust on such terms as the Custodian
and the Trust shall agree. MFS assumes responsibility for all duties delegated
to it by the Custodian pursuant to this Section 18, and the Custodian may rely
on MFS for the accuracy and correctness of the accounting information provided
by MFS to the Custodian pursuant to this Section 18.
EXHIBIT NO. 99.8(d)
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made as of this 1st day of October, 1989 by and between State Street Bank and Trust Company (the "Custodian") and Massachusetts Financial Bond Fund (the "Trust").
WHEREAS, the Custodian and the Trust are parties to a Custodian Contract dated April 25, 1988 (the "Custodian Contract which governs the terms and conditions under which the Custodian maintains custody of the securities and other assets of the Trust;
WHEREAS, the Custodian may delegate to Massachusetts Financial Services Company ("MFS") the performance of certain duties the Custodian would otherwise be obligated to perform pursuant to the Custodian Agreement;
WHEREAS, the Trust agrees to any such delegation of certain Custodian duties;
NOW THEREFORE, the Custodian and the Trust hereby amend the terms of the Custodian Contract and mutually agree to the following:
1. Add new Section 18 which shall read as follows:
18. Delegation of Certain Custodian Duties to MFS
The Custodian may delegate to MFS the performance of any or all of its duties hereunder relating to (i) accounting for investments in currency and for financial instruments (including, without limitation, options, contracts, futures contracts, options on futures contracts, options on foreign currency and forward foreign currency exchange contracts and (ii) federal and state regulatory compliance. The Custodian shall compensate MFS for the performance of such duties at such fee or fees as MFS shall determine to be equal to MFS's cost for performing such duties (the "MFS Fees"). Following its payment of the MFS Fees to MFS, the Custodian shall recover the amount of the MFS Fees and from the Trust on such terms as the Custodian and the Trust shall agree. MFS assumes responsibility for all duties delegated to it by the Custodian pursuant to this Section 18, and the Custodian may rely on MFS for the accuracy and correctness of the accounting information provided by MFS to the Custodian pursuant to this Section 18.
IN WITNESS WHEREOF, each of the parties hereto have caused this instrument to be executed in its name and on its behalf by a duly authorized representative as of the aforementioned day and year.
ATTEST MASSACHUSETTS FINANCIAL
BOND FUND
LINDA J. HOARD By: A. KEITH BRODKIN
Linda J. Hoard A. Keith Brodkin
ATTEST STATE STREET BANK AND
TRUST COMPANY
By: (Illegible) By:(Illegible)
(Illegible) (Illegible
Assistant Secretary Vice President
|
EXHIBIT NO. 99.8(e)
CUSTODIAN AGREEMENT
BETWEEN
MASSACHUSETTS FINANCIAL BOND FUND
AND
INVESTORS BANK & TRUST COMPANY
TABLE OF CONTENTS
PAGE
1. Bank Appointed Custodian....................................... 1
2. Definitions ................................................ 1
2.1. Authorized Person...................................... 1
2.2. Security............................................... 1
2.3. Portfolio Security..................................... 2
2.4. Officers' Certificate.................................. 2
2.5. Book-Entry System...................................... 2
2.6. Depository............................................. 2
3. Proper Instructions............................................ 2
4. Separate Accounts.............................................. 3
5. Certification as to Authorized Persons......................... 3
6. Custody of Cash and Securities of the Fund..................... 3
6.1. Cash ................................................ 3
(a) Purchase of Securities............................ 4
(b) Redemptions....................................... 4
(c) Distributions and Expenses of Fund................ 4
(d) Payment in Respect of Securities.................. 4
(e) Repayment of Loans................................ 4
(f) Repayment of Cash................................. 4
(g) Foreign Exchange Transactions..................... 5
(h) Commodities....................................... 5
(i) Other Authorized Payments......................... 5
(j) Termination....................................... 5
6.2. Securities............................................. 5
(a) Book-Entry System................................. 6
(b) Use of a Depository............................... 8
(c) Use of Book-Entry System for Commercial Paper..... 10
(d) Use of Bond Immobilization Programs............... 11
(e) Eurodollar CDs.................................... 11
6.3. Options and Futures Transactions........................ 11
(a) Puts and Calls Traded on Securities
Exchanges, NASDAQ or Over-the Counter............. 11
(b) Puts, Calls and Futures Traded on
Commodities Exchanges............................. 12
(c) Segregated Account................................ 13
6.4. Segregated Account For "When Issued", "Forward
Commitments" and Reverse Repurchase Agreement
Transactions............................................ 13
6.5. Interest Bearing Call or Time Deposits.................. 14
7. Transfer of Securities.......................................... 14
8. Redemptions .................................................... 16
9. Merger, Dissolution, etc. of Fund............................... 16
10. Actions of Bank Without Prior Authorization..................... 17
11. Maintenance of Records; Fund Evaluation, Accounting Services.... 18
12. Concerning the Bank............................................. 19
12.1. Performance of Duties................................... 19
12.2. Fees and Expenses of Bank............................... 21
12.3. Advances by Bank........................................ 21
13. Termination ................................................. 22
14. Notices......................................................... 23
15. Amendments ..................................................... 24
16. Parties......................................................... 24
17. Governing Law .................................................. 24
18. Interpretive and Additional Provisions.......................... 24
19. Delegation of Certain Custodian Duties to
Massachusetts Financial Services Company ("MFS")................ 24
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CUSTODIAN AGREEMENT
AGREEMENT made as of this 1st day of August, 1991 between MASSACHUSETTS
FINANCIAL BOND FUND, established as a Massachusetts Business Trust under the
laws of the Commonwealth of Massachusetts (the "Fund"), and INVESTORS BANK &
TRUST COMPANY ("Bank").
The Fund, an open end management investment company, desires to place and maintain all of the securities and cash of the Portfolio in the custody of the Bank. The Bank has at least the minimum qualifications required by Section 17(f)(1) of the Investment Company Act of 1940 to act as custodian of the securities and cash of the Portfolio, and has indicated its willingness to so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian of the securities and cash of the Portfolio delivered to the Bank as hereinafter described, and the Bank agrees to act as such upon the terms and conditions hereinafter set forth. Any reference in this Agreement to any actions to be taken by the Fund shall be deemed to refer to the Fund acting on behalf of the Portfolio, any reference in this Agreement to any assets of the Fund, including, without limitation, any portfolio securities and cash and earnings thereon, shall be deemed to refer only to assets of the Portfolio, and any obligation or liability of the Fund hereunder shall be binding only with respect to the Portfolio, and shall be discharged only out of the assets of such Portfolio.
2. Definitions. Whenever used herein, the terms listed below will have the following meaning:
2.1. Authorized Person. Authorized Person will mean any of the persons duly authorized to give Proper Instructions or otherwise act on behalf of the Fund by appropriate resolution of the Board of Trustees of the Fund (the "Board") or with respect to actions regarding transfers of securities and other investment activities, those persons duly authorized by the investment adviser of the Fund.
2.2. Security. The term security as used herein will have the same meaning as when such term is used in the Securities Act of 1933 as amended, including, without limitation, any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to a foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to, or option contract to purchase or sell any of the foregoing and futures, forward contracts and options thereon.
2.3. Portfolio Security. Portfolio security will mean any security owned by the Fund.
2.4. Officers' Certificate. Officers' Certificate will mean unless otherwise indicated, any request, direction, instruction, or certification in writing signed by any Authorized Person or Persons of the Fund as the Fund shall designate to the Bank in writing from time to time.
2.5. Book-Entry System. Book-Entry System shall mean the Federal Reserve-Treasury Department Book Entry System for United States government, instrumentality and agency securities operated by the Federal Reserve Banks, its successor or successors and its nominee or nominees.
2.6. Depository. Depository shall mean The Depository Trust
Company ("DTC"), or Participants Trust Company ("PTC"), both of which are
clearing agencies registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, and their respective
successor or successors and nominee or nominees. The term "Depository shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board.
3. Proper Instructions. Proper Instructions shall mean (i) instructions regarding the purchase or sale of securities for the portfolio of the Fund, and payments and deliveries in connection therewith, given by an Authorized Person or Persons as designated by the Fund in writing from time to time, such instructions to be given in such form and manner as the Bank and the Fund shall agree upon from time to time, and (ii) instructions (which may be continuing instructions) regarding other matters signed or initialed by such one or more Authorized Persons. Oral instructions will be considered Proper Instructions if the Bank reasonably believes them to have been given by an Authorized Person. The Fund shall cause all oral instructions to be promptly confirmed in writing. The Bank shall act upon and comply with any subsequent Proper Instruction which modifies a prior instruction and the Bank shall make reasonable efforts to detect any discrepancy between the original instruction and such confirmation and to report such discrepancy to the Fund. Proper Instructions may include communication effected directly between electro-mechanical or electronic devices provided that the Fund and the Bank are satisfied that such procedures afford adequate safeguards for the Fund's assets.
4. Separate Accounts. The Bank will segregate the assets of the Portfolio into a separate account containing the assets of such Portfolio (and all investment earnings thereon), all as directed from time to time by Proper Instructions.
5. Certification as to Authorized Persons. The Secretary or Assistant Secretary of the Fund will at all times maintain on file with the Bank his certification to the Bank, in such form as may be acceptable to the Bank, of (i) the names and signatures of the Authorized Persons and (ii) the names of the members of the Board, it being understood that upon the occurrence of any change in the information set forth in the most recent certification on file (including without limitation any person named in the most recent certification who is no longer an Authorized Person as designated therein), the Secretary or Assistant Secretary of the Fund will sign a new or amended certification setting forth the change and the new, additional or omitted names or signatures. The Bank will be entitled to rely and act upon any Officers' Certificate given to it by the Fund.
6. Custody of Cash and Securities. As custodian for the Fund, the Bank will keep safely all of the portfolio securities delivered to the Bank, and will deposit to the account of the Fund all of the cash of the Fund delivered to the Bank, as set forth below.
6.1. Cash. The Bank will open and maintain a separate account or accounts in the name of the Fund or, if directed by the Fund, in the name of the Bank, as custodian of the Fund, subject only to draft or order by the Bank acting pursuant to the terms of this Agreement. The Bank will hold in such account or accounts as custodian, subject to the provisions hereof, all cash received by it, including borrowed funds, for the account of the Fund. Upon receipt by the Bank of Proper Instructions (which may be continuing instructions) or in the case of payments for redemptions and repurchases of outstanding shares of beneficial interest of the Fund, notification from the Fund's transfer agent as provided in Section 8, requesting such payment, designating the payee or the account or accounts to which the Bank will release funds for deposit, and stating that it is for a purpose permitted under the terms of this Section 6.1, specifying the applicable subsection, or describing such purpose with sufficient particularity to permit the Bank to ascertain the applicable subsection, the Bank will make payments of cash held for the accounts of the Fund, insofar as funds are available for that purpose, only as permitted in (a)-(j) below.
(a) Purchase of Securities: upon the purchase of securities for the Fund, against contemporaneous receipt of such securities by the Bank registered in the name of the Fund or in the name of, or properly endorsed and in form for transfer to, the Bank, or a nominee of the Bank, or receipt for the account of the Bank through use of (1) the Book-Entry System pursuant to Section 6.2(a)(3) below, (2) Depository pursuant to 6.2(b) below, or (3) Book Entry Paper pursuant to Section 6.2(c) below, each such payment to be made at the purchase price shown in the Proper Instructions received by the Bank before such payment is made;
(b) Redemptions: in such amount as may be necessary for the repurchase or redemption of shares of beneficial interest of the Fund offered for repurchase or redemption in accordance with Section 8 of this Agreement;
(c) Distributions and Expenses of Fund: for the payment on the account of the Fund of dividends or other distributions to shareholders as may from time to time be declared by the Board, interest, taxes, management or supervisory fees, distribution fees, fees of the Bank for its services hereunder and reimbursement of the expenses and liabilities of the Bank as provided hereunder, fees of any transfer agent, fees for legal, accounting, and auditing services, or other operating expenses of the Fund;
(d) Payment in Respect of Securities: for payments in connection with the conversion, exchange or surrender of Portfolio securities or securities subscribed to by the Fund held by or to be delivered to the Bank;
(e) Repayment of Loans: to repay loans of money made to the Fund, but, in the case of final payment, only upon redelivery to the Bank of any Portfolio securities pledged or hypothecated therefor and upon surrender of documents evidencing the loan;
(f) Repayment of Cash: to repay the cash delivered to the Fund for the purpose of collateralizing the obligation to return to the Fund Portfolio securities borrowed from the Fund but only upon redelivery to the Bank of such borrowed Portfolio securities;
(g) Foreign Exchange Transactions: for payments in connection with foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery which may be entered into by the Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper Instructions to specify the currency broker or banking institution (which may be the Bank, or any other sub custodian or agent hereunder, acting as principal) with which the contract or option is made, and the Bank shall have no duty with respect to the selection of such currency brokers or banking institutions with which the Fund deals or for their failure to comply with the terms of any contract or option;
(h) Commodities: upon the purchase of commodities for the Fund, against contemporaneous receipt of such commodities by the Bank registered in the name of the Fund or in the name of, or properly endorsed and in form for transfer to, the Bank, or a nominee of the Bank;
(i) Other Authorized Payments: for other authorized transactions of the Fund, or other obligations of the Fund incurred for proper Fund purposes including, without limitation, payments in connection with any tender offer by the Fund; provided that before making any such payment the Bank will also receive an Officer's Certificate naming the person or persons to whom such payment is to be made, and either describing the transaction for which payment is to be made and declaring it to be an authorized transaction of the Fund, or specifying the amount of the obligation for which payment is to be made, setting forth the purpose for which such obligation was incurred and declaring such purpose to be a proper corporate purpose; and
(j) Termination: upon the termination of this Agreement as hereinafter set forth pursuant to Section 9 and Section 13 of this Agreement.
The Bank is hereby authorized to endorse for collection and collect on behalf of and in the name of the Fund all checks, drafts, or other negotiable or transferable instruments or other orders for the payment of money received by it for the account of the Fund.
6.2. Securities. Except as otherwise provided herein, the Bank as custodian, will receive and hold pursuant to the provisions hereof, in a separate account or accounts and physically segregated at all times from those of other persons, any and all Portfolio securities which may now or hereafter be delivered to it by or for the account of the Fund. All such Portfolio securities will be held or disposed of by the Bank for, and subject at all times to, the instructions of the Fund pursuant to the terms of this Agreement. Subject to the specific provisions herein relating to Portfolio securities that are not physically held by the Bank, the Bank will register all Portfolio securities (unless otherwise directed by Proper Instructions or an Officers' Certificate), in the name of a registered nominee of the Bank as defined in the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, and will execute and deliver all such certificates in connection therewith as may be required by such laws or Regulations or under the laws of any State. The Bank will ensure that the specific securities physically held by it hereunder will be at all times identifiable and will exercise prudent care and use its best efforts to the end that the other securities held by it hereunder will be at all times identifiable.
The Bank will use the same care with respect to the safekeeping of portfolio securities and cash of the Fund held by it as it uses in respect of its own similar property (which will at minimum be reasonable care) but it need not maintain any special insurance for the benefit of the Fund. The Bank shall provide to the Fund, at least annually and upon request, information relating to its insurance coverage. The Bank will also immediately notify the Fund in the event any of its insurance coverage is materially changed, cancelled or not renewed.
The Fund will from time to time furnish to the Bank appropriate instruments to enable it to hold or deliver in proper form for transfer, or to register in the name of its registered nominee, any securities which it may hold for the account of the Fund and which may from time to time be registered in the name of the Fund.
Neither the Bank nor any nominee of the Bank will vote any of the portfolio securities held hereunder by or for the account of the Fund, except in accordance with Proper Instructions or an Officers' Certificate.
The Bank will promptly execute and deliver, or cause to be executed and delivered, to the Fund all notices, proxies and proxy soliciting materials with respect to such securities, such proxies to be executed by the registered holder of such securities (if registered otherwise than in the name of the Fund), but without indicating the manner in which such proxies are to be voted.
(a) Book-Entry System. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving deposits of Fund assets in the Book-Entry System, and (ii) for each year following such approval, the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that it has withdrawn its approval:
1. The Bank may keep Securities of the Fund in the Book-Entry System provided that such securities are represented in an account ("Account") of the Bank (or its agent) in such System which shall not include any assets of the Bank (or such agent) other than assets held as a fiduciary, custodian, or otherwise for customers.
2. The records of the Bank (and any such agent) with respect to the Fund's participation in the Book-Entry System through the Bank (or any such agent) will identify by book entry securities belonging to the Fund which are included with other securities deposited in the Account and shall at all times during the regular business hours of the Bank (or such agent) be open for inspection by duly authorized officers, employees or agents of the Fund. Where securities are transferred to the Fund's account, the Bank shall also, by book entry or otherwise, identify as belonging to the Fund a quantity of securities in fungible bulk of securities (i) registered in the name of the Bank or its nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve Bank.
3. The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay cash collateral against the
return of securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment for Securities sold or payment of the initial cash collateral against the delivery of securities loaned by the Fund has been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect such transfer and payment for the account of the Fund. Copies of all advices from the Book-Entry System of transfers of Securities or the account of the Fund shall identify the Fund, be maintained for the Fund by the Bank and shall be provided to the Fund at its request. The Bank shall send the Fund a confirmation, as defined by Rule 17f-4 under the Investment Company Act of 1940, of any transfers to or from the account of the Fund.
4. The Bank will promptly provide the Fund with any report obtained by the Bank or its agent on the Book-Entry System's accounting system, internal accounting control and procedures for safeguarding Securities deposited in the Book-Entry System. The Bank will provide the Fund and cause any such agent to provide, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, including Securities deposited in the Book-Entry System, relating to the services provided by the Bank or such agent under the Agreement.
5. Anything to the contrary in the Agreement notwithstanding, the Bank shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Book-Entry System by reason of any negligence, willful misfeasance or bad faith of the Bank or any of its agents or of any of its or their employees or from any negligent disregard by the Bank or any such agent of its duty to enforce effectively such rights as it may have against the Book-Entry System; at the election of the Fund, it shall be entitled to be subrogated for the Bank in any claim against the Book-Entry System or any other person which the Bank or its agent may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any loss or damage.
(b) Use of a Depository. Provided (i) the Bank has received a certified copy of a resolution of the Fund's Board specifically approving deposits in DTC and PTC or other such Depository; (ii) the Bank appoints any such depository its agent; and (iii) for each year following such Board approval, the Board has reviewed and approved the arrangement and has not delivered an Officer's Certificate to the Bank indicating that it has withdrawn its approval:
1. The Bank may use a Depository to hold, receive, exchange, release, lend, deliver and otherwise deal with the securities owned by the Fund, including stock dividends, rights and other items of like nature, and to receive and remit to the Bank on behalf of the Fund all income and other payments thereon and to take all steps necessary and proper in connection with the collection thereof, provided that such securities are held in an account of the Bank (or its agent) in such Depository which shall not include any assets of the Bank (or such agent) other than assets held as a fiduciary, custodian, or otherwise for customers. The records of the Bank shall identify those securities of the Trust held by the Depository.
2. Registration of the Fund's securities may be made in the name of any nominee or nominees used by such Depository.
3. Payment for securities purchased and sold may be made through the clearing medium employed by such Depository for transactions of participants acting through it. Upon any purchase of securities for the account of the Fund, payment will be made only upon delivery of the securities to or for the account of the Fund and the Fund shall pay cash collateral against the return of securities loaned by the Fund only upon delivery of the securities to or for the account of the Fund; and upon any sale of securities for the account of the Fund, delivery of the securities will be made only against payment thereof or, in the event securities are loaned, delivery of securities will be made only against receipt of the initial cash collateral to or for the account of the Fund.
4. Anything to the contrary in the Agreement notwithstanding, the Bank shall be liable to the Fund for any loss or damage to the Fund resulting from use of a Depository by reason of any negligence, willful misfeasance or bad faith of the Bank or any of its agents or of any of its or their employees or from any negligent disregard by the Bank or any such agent of its duty to enforce effectively such rights as it may have against a Depository. At the election of the Fund, it shall be entitled to be subrogated for the Bank in any claim against a Depository or any other person which the Bank or its agent may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any loss or damage. In this connection, with respect to the use of the Depository by the Bank, the Bank, without cost to the Fund, shall ensure that:
(i) The Depository obtains replacement of any certificated security deposited with it in the event such security is lost, destroyed, wrongfully taken or otherwise not available to be returned to the Bank upon its request;
(ii) Any proxy materials received by Depository with respect to securities of the Fund deposited with such Depository are forwarded immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank confirmation of any purchase or sale of securities for the account of the Fund and of the appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such records with respect to the performance of the Bank's obligations and duties hereunder as may be necessary for the Fund to comply with the recordkeeping requirements of Section 31(a) of the Act and Rule 31a thereunder and such other rules and regulations relating to recordkeeping requirements of the Fund as may be enacted from time to time; and
(v) Such Depository delivers to the Bank and the Fund all internal accounting control reports, whether or not audited by an independent public accountant, as well as such other reports as the Fund may reasonably request in order to verify the Fund's securities held by such Depository.
(c) Use of Book-Entry System for Commercial Paper. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving participation in a system maintained by the Bank for the holding of commercial paper in book-entry form ("Book Entry Paper") and (ii) for each year following such approval the Board has reviewed and approved the arrangements, upon receipt of Proper Instructions and upon receipt of confirmation from an Issuer (as defined below) that the Fund has purchased such Issuer's Book Entry Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund, commercial paper issued by issuers with whom the Bank has entered into a book-entry agreement (the "Issuers"). In maintaining its Book Entry Paper System, the Bank agrees that:
1. The Bank will maintain all Book Entry Paper held by the Fund in an account of the Bank that includes only assets held by it for customers;
2. The records of the Bank with respect to the Fund's purchase of Book Entry Paper through the Bank will identify, by book entry, Commercial Paper belonging to the Fund which is included in the Book Entry Paper System and shall at all times during the regular business hours of the Bank be open for inspection by duly authorized officers, employees or agents of the Fund.
3. (a) The Bank shall pay for Book Entry Paper purchased for the account of the Fund upon contemporaneous (i) receipt of advice from the Issuer that such sale of Book Entry Paper has been effected, and (ii) the making of an entry on the records of the Bank to reflect such payment and transfer for the account of the Fund.
(b) The Bank shall cancel such Book Entry Paper
obligation upon the maturity thereof upon contemporaneous (i) receipt of advice
that payment for such Book Entry Paper has been transferred to the Fund, and
(ii) the making of an entry on the records of the Bank to reflect such payment
for the account of the Fund.
4. The Bank shall transmit to the Fund a transaction journal confirming each transaction in Book Entry Paper for the account of the Fund on the next business day following the transaction;
5. The Bank will send to the Fund such reports on its system of internal accounting control as the Fund may reasonably request from time to time;
(d) Use of Bond Immobilization Programs. Provided (i) the Bank has received a certified copy of a resolution of the Board specifically approving the maintenance of portfolio securities in an immobilization program operated by a bank which meets the requirements of Section 26(a)(1) of the Investment Company Act of 1940, and (ii) for each year following such approval the Board has reviewed and approved the arrangement and has not delivered an officer's Certificate to the Bank indicating that it has withdrawn its approval, the Bank shall enter into such immobilization program with such bank acting as a subcustodian hereunder.
(e) Eurodollar CDs. Any Eurodollar CDs belonging to the Fund may be physically held by the European branch of the U.S. banking institution that is the issuer of such Eurodollar CD (a "European Branch"), provided that such securities are identified on the books of the Bank as belonging to the Fund and that the books of the Bank identify the European branch holding such securities. Notwithstanding any other provision of this Agreement to the contrary, except as stated in the first sentence of this subparagraph (e), the Bank shall be under no other duty with respect to such Eurodollar CDs belonging to the Fund, and shall have no liability to the Fund or its shareholders with respect to the actions, inactions, whether negligent or otherwise of such European Branch in connection with such Eurodollar CDs, except for any loss or damage to the Fund resulting from the Bank's own negligence, willful misfeasance or bad faith in the performance of its duties hereunder.
6.3. Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges. NASDAQ or Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and call options ("calls") purchased or sold (written) by the Fund regarding escrow or other arrangements in accordance with the provisions of any requirement entered into upon receipt of Proper Instructions between the Bank, any broker and, if necessary, the Fund. In the case of a call option written by the Fund, the Bank will arrange for an escrow receipt to be issued when requested to do so by the Fund.
2. Unless another agreement requires it to do so, the Bank shall be under no duty or obligation to see that the Fund has deposited or is maintaining adequate margin, if required, with any broker in connection with any option, nor shall the Bank be under duty or obligation to present such option to the broker for exercise unless it receives Proper Instructions from the Fund. The Bank shall, however, comply with all Proper Instructions regarding margin and exercise of options. The Bank shall have no responsibility for the legality of any put or call purchased or sold on behalf of the Fund, the propriety of any such purchase or sale, or the adequacy of any collateral delivered to a broker in connection with an option or deposited to or withdrawn from a Segregated Account as described in sub-paragraph c of this Section 6.3. The Bank specifically, but not by way of limitation, shall not be under any duty or obligation to: (i) periodically check or notify the Fund that the amount of such collateral held by a broker or held in a Segregated Account as described in sub-paragraph (c) of this Section 6.3 is sufficient to protect such broker of the Fund against any loss; (ii) effect the return of any collateral delivered to a broker, provided however, the Bank shall, upon expiration of an option, return to the Fund any collateral held by the Bank relating to such option; or (iii) advise the Fund that any option it holds, has or is about to expire. Such duties or obligations shall be the sole responsibility of the Fund.
(b) Puts. Calls and Futures Traded on Commodities Exchanges.
1. The Bank shall take action as to puts, calls and futures contracts ("Futures") purchased or sold by the Fund in accordance with the provisions of any agreement among the Fund, the Bank and a Futures merchant relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market, or any similar organization or organizations, (including any foreign organization) regarding account deposits in connection with transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to Futures, puts and calls traded on commodities exchanges, any Futures Commission Merchant account and the Segregated Account shall be limited as set forth in sub-paragraph (a)(2) of this Section 6.3 as if such sub-paragraph referred to Futures Commission Merchants rather than brokers, and Futures and puts and calls thereon instead of options.
(c) Segregated Account.
The Bank shall upon receipt of Proper Instructions establish and
maintain a Segregated Account or Accounts for and on behalf of the Fund, into
which Account or Accounts may be transferred cash and/or securities including
securities maintained in an Account by the Bank pursuant to Section 6.2 hereof,
(i) in accordance with the provisions of any agreement among the Fund, the Bank
and a broker or any Futures merchant, relating to compliance with the rules of
the Options Clearing Corporation and of any registered national securities
exchange or the Commodity Futures Trading Commission or any registered contract
market, or of any similar organization or organizations (including any foreign
organization) regarding escrow or other arrangements in connection with
transactions by the Fund, and (ii) for the purpose of segregating cash or
securities in connection with options purchased, or written by the Fund or
commodity futures or options thereon purchased or written by the Fund, and (iii)
for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
or rules or regulations of the Securities and Exchange Commission relating to
the maintenance of Segregated Accounts by registered investment companies, and
(iv) for the purpose of segregating cash or securities for the ICI Mutual
Insurance Company letter of credit, and (v) for other proper corporate purposes,
but only, in the case of clause (v), upon receipt of an Officers' Certificate,
setting forth the purpose or purposes of such Segregated Account and declaring
such purposes to be proper corporate purposes.
6.4. Segregated Account for "When-Issued". "Forward Commitment" and Reverse Repurchase Agreement Transactions. Notwithstanding any other provisions hereof, the Bank will maintain a segregated account (the "Segregated Account") in the name of the Fund (i) for the deposit of liquid assets, such as cash, U.S. Government securities or other high grade obligations, having a value (marked to the market on a daily basis by the Bank) at all times equal to not less than the aggregate purchase price due on the settlement dates (or such other amount as the Fund shall indicate) of all the Fund's then outstanding forward commitment or "when-issued" agreements relating to the purchase of portfolio securities and all the Fund's then outstanding commitments under reverse repurchase agreements entered into with broker-dealer firms, and (ii) for the deposit of any portfolio securities which the Fund has agreed to sell on a forward commitment basis, all in accordance with Securities and Exchange Commission Release No. IC-10666. No assets shall be deposited in the Segregated Account except pursuant to Proper Instructions. Assets may be withdrawn from the segregated account pursuant to Proper Instructions only (a) for sale or delivery to meet the Fund's obligations under outstanding firm commitment or when-issued agreements for the purchase of portfolio securities and under reverse repurchase agreements, (b) for exchange for other liquid assets of equal or greater value deposited in the Segregated Account, (c) to the extent that the Fund's outstanding forward commitment or when-issued agreements for the purchase of portfolio securities or reverse repurchase agreements are sold to other parties or the Fund's obligations thereunder are met from assets of the Fund other than those in the Segregated Account, or (d) for delivery upon settlement of a forward commitment agreement for the sale of portfolio securities.
6.5. Interest Bearing Call or Time Deposits. The Bank shall, upon receipt of Proper Instructions relating to the purchase by the Fund of interest bearing fixed term and call deposits, transfer cash, by wire or otherwise, in such amounts and to such bank or banks as shall be indicated in such Proper Instructions. The Bank shall include in its records with respect to the assets of the Fund appropriate notation as to the amount of each such deposit, the banking institution with which such deposit is made (the "Deposit Bank"), and shall retain such forms of advice or receipt evidencing the deposit, if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed portfolio securities of the Fund and the responsibility of the Bank therefore shall be the same as and no greater than the Bank's responsibility in respect of other portfolio securities of the Fund.
7. Transfer of Securities. The Bank will transfer, exchange, deliver or release Portfolio securities held by it hereunder, insofar as such securities are available for such purpose, provided that before making any transfer, exchange, delivery or release under this Section the Bank will receive Proper Instructions requesting such transfer, exchange or delivery stating that it is for a purpose permitted under the terms of this Section 7, specifying the applicable subsection, or describing the purpose of the transaction with sufficient particularity to permit the Bank to ascertain the applicable subsection, only
7.1. upon sales of Portfolio securities for the account of the Fund, against contemporaneous receipt by the Bank of payment therefor in full, each such payment to be in the amount of the sale price shown in the Proper Instructions received by the Bank before such payment is made;
7.2. in exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan of merger, consolidation, reorganization, share split-up, change in par value, recapitalization or readjustment or otherwise, upon exercise of subscription, purchase or sale or other similar rights represented by such Portfolio securities, or for the purpose of tendering shares in the event of a tender offer therefore, provided however that in the event of an offer of exchange, tender offer, or other exercise of rights requiring the physical tender or delivery of Portfolio securities, the Bank shall have no liability for failure to so tender in a timely matter unless such Proper Instructions are received by the Bank at least two business days prior to the date required for tender, and unless the Bank (or its agent or subcustodian hereunder) has actual possession of such security at least two business days prior to the date of tender:
7.3. upon conversion of Portfolio securities pursuant to their terms into other securities;
7.4. for the purpose of redeeming in kind shares of common stock of the Fund upon authorization from the Fund;
7.5. in the case of option contracts owned by the Fund, for presentation to the endorsing broker;
7.6. when such Portfolio securities are called, redeemed or retired or otherwise become payable;
7.7. for the purpose of effectuating the pledge of portfolio securities held by the Bank pursuant to this Agreement in order to collaterals loans made to the Fund by any bank, including the Bank; provided, however, that such Portfolio securities will be released only upon payment to the Bank for the account of the Fund of the moneys borrowed, except that in cases where additional collateral is required to secure a borrowing already made, and such fact is made to appear in the Proper Instructions, further portfolio securities may be released for that purpose without any such payment;
7.8. for the purpose of releasing certificates representing Portfolio securities of the Fund, against contemporaneous receipt by the Bank of the fair value of such security, as set forth in Proper Instructions received by the Bank before such payment is made;
7.9. for the purpose of delivering securities lent by the Fund to a bank or broker dealer, but only against receipt in accordance with street delivery custom except as otherwise provided in Subsections 6.2(a) and (b) hereof, of adequate collateral as agreed upon from time to time by the Fund and the Bank, and upon receipt of payment in connection with any repurchase agreement relating to such securities entered into by the Fund;
7.10. for other authorized transactions of the Fund or for other proper corporate purposes; provided that before making such transfer, the Bank will also receive an Officers' Certificate specifying the portfolio securities to be delivered, setting forth the transaction in or purpose for which such delivery is to be made, declaring such transaction to be an authorized transaction of the Fund or such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made; and
7.11. upon termination of this Agreement as hereinafter set forth pursuant to Section 9 and Section 13 of this Agreement.
7.12. for delivery in accordance with the provisions of any agreement among the Fund, the Bank and a broker-dealer relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations (including foreign organizations), regarding escrow or other arrangements in connection with transactions by the Fund;
7.13. For delivery in accordance with the provisions of any agreement among the Fund, the Bank, and a Futures commission merchant relating to compliance with the rules of the Commodity Futures Trading Commissions or any similar organization or organizations (including foreign organizations), regarding account deposits in connection with transactions by the Fund.
As to any deliveries made by the Bank pursuant to subsections 7.1, 7.2, 7.3, 7.5, 7.6, 7.7, 7.8 and 7.9, securities or cash receivable in exchange therefor shall be delivered to the Bank.
8. Redemptions. In the case of payment of assets of the Fund held by the Bank in connection with redemptions and repurchases by the Fund of its outstanding shares of beneficial interest, the Bank will rely on written notification by the Fund's transfer agent of receipt of a request for redemption and certificates, if issued, in proper form for redemption before such payment is made. Payment shall be made in accordance with the Declaration of Trust of the Fund, from assets available for said purpose.
9. Merger, Dissolution, etc. of Fund. In the case of the following transactions, not in the ordinary course of business, namely, the merger of the Fund into or the consolidation of the Fund with another investment company, the sale by the Fund of all, or substantially all of its assets to another investment company, or the liquidation or dissolution of the Fund and distribution of its assets, the Bank will deliver the Portfolio securities held by it under this Agreement and disburse cash only upon the order of the Fund set forth in an officers Certificate, accompanied by a certified copy of a resolution of the Fund's Board authorizing any of the foregoing transactions. Upon completion of such delivery and disbursement and the payment of the preapproved fees, disbursements and expenses of the Bank, this Agreement will terminate.
10. Actions of Bank Without Prior Authorization. Notwithstanding anything herein to the contrary, unless and until the Bank receives an Officers' Certificate to the contrary, it will without prior authorization or instruction of the Fund or the transfer agent:
10.1. Receive and hold for the account of the Fund hereunder and deposit in the account or accounts referred to in Section 6 hereof, all income, dividends, interest and other payments or distribution of cash with respect to the Portfolio securities held thereunder;
10.2. Present for payment all coupons and other income items held by it for the account of the Fund which call for payment upon presentation and hold the cash received by it upon such payment for the account of the Fund account or accounts referred to in Section 6 hereof;
10.3. Receive and hold for the account of the Fund hereunder and deposit in the account or accounts referred to in Section 6 hereof all securities received as a distribution on Portfolio securities as a result of a stock dividend, share split-up, reorganization, recapitalization, merger, consolidation, readjustment, distribution of rights and similar securities issued with respect to any Portfolio securities held by it hereunder.
10.4. Execute as agent on behalf of the Fund all necessary ownership and other certificates and affidavits required by the Internal Revenue Code or the regulations of the Treasury Department issued thereunder, or by the laws of any state, now or hereafter in effect, inserting the Fund's name on such certificates as the owner of the securities covered thereby, to the extent it may lawfully do so and as may be required to obtain payment in respect thereof. The Bank will execute and deliver such certificates in connection with Portfolio securities delivered to it or by it under this Agreement as may be required under the provisions of the Internal Revenue Code and any Regulations of the Treasury Department issued thereunder, or under the laws of any State;
10.5. Present for payment all portfolio securities which are called, redeemed, retired or otherwise become payable, and hold cash received by it upon payment for the account of the Fund in the account or accounts referred to in Section 6 hereof: and
10.6. Exchange interim receipts or temporary securities for definitive securities.
The Bank shall collect any funds which are collectible arising from Portfolio securities, including dividends, interest and other income, and shall transmit promptly to the Fund all written information affecting such securities including, without limitation, any call for redemption, offer of exchange, pendency of maturity, notices regarding options and futures contracts, right of subscription, reorganization or other proceedings.
If Portfolio securities upon which such income is payable are in default or payment is refused after due demand or presentation, the Bank will notify the Fund in writing of any default or refusal to pay within two business days from the day on which it receives knowledge of such default or refusal. In addition, the Bank will send the Fund a written report once each month showing any income on any Portfolio security held by it which is more than ten days overdue on the date of such report.
11. Maintenance of Records; Fund Evaluation; Accounting Services. The Bank will maintain records with respect to transactions for which the Bank is responsible pursuant to the terms and conditions of this Agreement, and in compliance with the applicable rules and regulations of the Investment Company Act of 1940 as amended, as well as applicable federal and state tax laws and all other laws and regulations which may be applicable, and will furnish the Fund daily with a statement of assets and liabilities and a portfolio of investments of the Fund as well as such other calculations and reports as the Bank and Fund may agree from time to time. The Bank will furnish to the Fund at the end of every month, and at the close of each quarter of the Fund's fiscal year as well as at such other times as the Fund may request, a list of the Portfolio securities and the aggregate amount of cash held by it for the Fund. The books and records of the Bank pertaining to its actions under this Agreement and reports by the Bank or its independent accountants concerning its accounting system, procedures for safeguarding the Fund's assets and internal accounting controls, which shall be of sufficient scope and in sufficient detail as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, shall so state, and will be open to inspection and audit at reasonable times by officers of or auditors employed by the Fund as well as any other person authorized by the Fund by Proper Instructions. The books and records relating to the Fund will be preserved by the Bank in the manner and in accordance with the applicable rules and regulations under the Investment Company Act of 1940 and shall be the property of the Fund. As custodian the Bank shall have and perform the following powers and duties:
11.1. To keep the books of account and render statements or copies from time to time as reasonably requested by the Treasurer or any executive officer of the Fund.
11.2. To compute and, unless otherwise directed by the Board,
determine as of the close of business on the New York Stock Exchange on each day
on which said Exchange is open for trading or as of such other hours, if any, as
may be authorized by said Board the net asset value and the public offering
price of a share of beneficial interest of the Fund, such determination to be
made in accordance with the provisions of the Declaration of Trust of the Fund
and Prospectus and Statement of Additional Information relating to the Fund, as
they may from time to time be amended, and any applicable resolutions of the
Board at the time in force and applicable; and promptly to notify the Fund and
the National Association of Securities Dealers ("NASD") or such other persons as
the Fund may request of the results of such computation and determination. In
computing the net asset value hereunder, the Bank may rely in good faith upon
information furnished in writing to it by any Authorized Person in respect of
(i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board or that no such reserves have
been authorized, (iii) the source of the quotations to be used in computing the
net asset value, (iv) the value to be assigned to any security for which no
price quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
11.3. To assist generally in the preparation of reports to shareholders and others, audits of accounts, and other ministerial matters of like nature.
12. Concerning the Bank.
12.1. Performance of Duties. In performing its duties hereunder and any other duties listed on any Schedule hereto, if any, the Bank will be entitled to receive and act upon the advice of independent counsel of its own selection, which may be counsel for the Fund, and will be without liability for any action taken or thing done or omitted to be done in accordance with this Agreement in good faith in conformity with such advice, if such counsel and such advice are approved by the Fund, provided however such approval shall not be unreasonably withheld. In the performance of its duties hereunder, so long as it exercises reasonable care, the Bank will be protected and not be liable, and will be indemnified and saved harmless for any action taken or omitted to be taken by it in good faith reliance upon the terms of this Agreement, any Officers' Certificate, Proper Instructions, resolution of the Board, telegram, notice, request, certificate or other instrument reasonably believed by the Bank to be genuine and to have been sent by an Authorized Person and for any other loss to the Fund except in the case of the Bank's negligence, willful misfeasance or misconduct or bad faith in the performance of its duties or negligent disregard of its obligations and duties hereunder.
The Bank may employ agents in the performance of its duties hereunder and the Bank shall be responsible for the acts and omissions of such agents as if performed by the Bank hereunder. The Bank may employ subcustodians upon receipt of Proper Instructions indicating that the Board has so approved the appointment, provided that any such sub custodian meets at least the minimum qualifications required by Section 17(f)(1) of the Investment Company Act of 1940 to act as a custodian of the Fund's assets. In order to comply with Rule 17f-5, (and 17f-4, if applicable) of the Investment Company Act of 1940, the contract between the Bank and any foreign sub custodian relating to securities of the Fund shall be subject to approval of the Fund. The appointment of any subcustodian by the Bank pursuant to this Agreement shall not relieve the Bank of its responsibilities and liabilities under this Agreement, and the Bank shall be liable to the Fund, to the extent of the Fund's damages, resulting from the failure of any subcustodian to exercise reasonable care and to act in good faith without negligence, provided however, the Bank shall not be liable for any loss resulting from, or caused by nationalization, expropriation, currency restrictions, acts of war or terrorism, insurrection, revolution, nuclear fusion, fission or radiation, acts of God or other similar events or acts not due to the failure of the Bank or any sub custodians to exercise reasonable care in the performance of their duties. Notwithstanding the foregoing, in connection with the Bank's liability for the performance of The Chase Manhattan Bank, N. A. ("Chase") as a subcustodian of the Fund pursuant to an agreement by and between Chase and the Bank, which form of agreement is attached hereto (the "Chase Agreement"), and any subcustodian of the Fund appointed under the Chase Agreement with the approval of the Board, the "Fund's damages" for the purpose of the preceding sentence will be determined based on the market value of the property which is the subject of the loss at the date of discovery of such loss and without reference to any special conditions or circumstances.
The Bank will be under no duty or obligation to inquire into and will not be liable for:
(a) the validity of the issue of any Portfolio securities purchased by or for the Fund, the legality of the purchases thereof or the propriety of the price incurred therefor;
(b) the legality of any sale of any portfolio securities by or for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any shares of beneficial interest of the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any shares of beneficial interest of the Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or the legality of the distribution of any Portfolio securities as payment in kind of such dividend; or
(f) any property or moneys of the Fund already delivered or paid by the Bank pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain whether any Portfolio securities at any time delivered to or held by it for the account of the Fund are such as may properly be held by the Fund under the provisions of its Declaration of Trust or By-Laws, any federal or state statutes or any rule or regulation of any governmental agency.
12.2. Fees and Expenses of Bank. The Fund will pay or reimburse the Bank from time to time for any transfer taxes payable upon transfer of Portfolio securities made hereunder, and for all necessary proper disbursements, expenses and charges made or incurred by the Bank in the performance of this Agreement (including any duties listed on any Schedule hereto, if any) including any indemnities for any loss, liabilities or expense to the Bank as specifically provided above. For the services rendered by the Bank hereunder, the Fund will pay to the Bank such compensation or fees at such rate and at such times as shall be agreed upon in writing by the parties from time to time. The Bank will also be entitled to reimbursement by the Fund for all preapproved expenses incurred in conjunction with termination of this Agreement by the Fund.
12.3. Advances by Bank. The Bank may, in its sole discretion, advance funds on behalf of the Fund to make any payment permitted by this Agreement upon receipt of any proper authorization required by this Agreement for such payments by the Fund. Should such a payment or payments, with advanced funds, result in an overdraft (due to insufficiencies of the Fund's account with the Bank, or for any other reason) this Agreement deems any such or related indebtedness, a loan made by the Bank to the Fund payable on demand and bearing interest at the rate set forth in writing by the Bank concurrently herewith (as amended from time to time) unless the Fund shall provide the Bank with agreed upon compensating balances. The Fund agrees that the Bank shall have a continuing lien and security interest on the assets of the Fund to the extent of any overdraft, provided that in no event shall the amount of such lien exceed the lesser of (i) the amount of such overdraft or (ii) 10% of the Fund's gross assets on the date of such overdraft, and provided further that to the extent consistent with the foregoing, the Bank will comply with any Proper Instructions indicating which Portfolio securities and/or which account of the Fund shall be subject to such lien. If such overdraft is not repaid within a reasonable period of time, the Bank shall have the right to exercise any rights it may have as a lien holder or secured party.
13. Termination.
13.1. This Agreement may be terminated at any time without penalty upon sixty days written notice delivered by either party to the other by means of registered mail, and upon the expiration of such sixty days this Agreement will terminate; provided, however, that the effective date of such termination may be postponed to a date not more than ninety days from the date of delivery of such notice (i) by the Bank in order to prepare for the transfer by the Bank of all of the assets of the Fund held hereunder, and (ii) by the Fund in order to give the Fund an opportunity to make suitable arrangements for a successor custodian. The Fund may immediately terminate this Agreement; (i) in the event of the appointment of a conservator or receiver for the Bank or upon the happening of a like event; (ii) if the Bank shall make a general assignment for the benefit of creditors; admit in writing its inability to pay its debts as they become due; file a petition in bankruptcy or a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future bankruptcy, reorganization, insolvency or similar statute, law or regulation or seek the appointment of any trustee, receiver, custodian or liquidator of the Bank or of all or substantially all of its properties; (iii) if a proceeding is commenced against the Bank seeking relief or an appointment of a type described in paragraph 13.1(ii) above and such proceeding is not dismissed within 30 days after the commencement thereof; (iv) if the Bank's insurance is materially adversely changed. At any time after the termination of this Agreement, the Fund will, at its request, have access to the records of the Bank relating to the performance of its duties as custodian.
13.2. In the event of the termination of this Agreement, the Bank will immediately upon receipt or transmittal, as the case may be, of notice of termination, commence and prosecute diligently to completion the transfer of all cash and the delivery of all Portfolio securities duly endorsed and all records maintained under Section 11 to the successor custodian when appointed by the Fund. The obligation of the Bank to deliver and transfer over the assets of the Fund held by it directly to such successor custodian will commence as soon as such successor is appointed and will continue until completed as aforesaid. If the Fund does not select a successor custodian within ninety (90) days from the date of delivery of notice of termination the Bank may, subject to the provisions of subsection 13.3 of this Section 13, deliver the Portfolio securities and cash of the Fund held by the Bank to a bank or trust company of its own selection which meets the requirements of Section 17(f)(1) of the Investment Company Act of 1940 and has a reported capital, surplus and undivided profits aggregating not less than $25,000,000, to be held as the property of the Fund under terms similar to those on which they were held by the Bank, whereupon such bank or trust company so selected by the Bank will become the successor custodian of such assets of the Fund with the same effect as though selected by the Board.
13.3. Prior to the expiration of ninety (90) days after notice of termination has been given, the Fund may furnish the Bank with an order of the Fund advising that a successor custodian cannot be found willing and able to act upon reasonable and customary terms and that there has been submitted to the Board of the Fund the question of whether the Fund will be liquidated or will function without a custodian for the assets of the Fund held by the Bank. In that event the Bank will deliver the Portfolio securities and cash of the Fund held by it, subject as aforesaid, in accordance with one of such alternatives which may be approved by the requisite vote of the Board, upon receipt by the Bank of a copy such vote certified by the Fund's Secretary or Assistant Secretary.
14. Notices. Any notice or other instrument in writing authorized or required by this Agreement to be given to either party hereto will be sufficiently given if addressed to such party and mailed or delivered to it at its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Treasurer, Series Trust IV - MFS OTC Fund c/o Massachusetts Financial Services Company 500 Boylston Street Boston, MA 02116
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company One Lincoln Plaza P.O. Box 1537 Boston, Massachusetts 02205-1537
or at such other place as such party may from time to time designate in writing.
15. Amendments. This Agreement may not be altered or amended, except by an instrument in writing, executed by both parties, and in the case of the Fund, any alteration or amendment which is material will be authorized and approved by its Board.
16. Parties. This Agreement will be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement will not be assignable by the Fund without the prior written consent of the Bank or by the Bank without the prior written consent of the Fund, authorized and approved by its Board; and provided further that termination proceedings pursuant to Section 13 hereof will not be deemed to be an assignment within the meaning of this provision.
17. Governing Law. This Agreement and all performance hereunder will be governed by the laws of the Commonwealth of Massachusetts.
18. Interpretive and Additional Provisions. In connection with the operation of this Agreement, the Bank and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in writing signed by both parties and shall be annexed hereto and shall be binding upon the parties hereto as if incorporated into this Agreement, provided however, no such interpretive or additional provisions shall be deemed to be an alteration or amendment of this Agreement.
19. Delegation of Certain Duties to Massachusetts Financial Services
Company ("MFS"), The Bank, with the prior written consent of MFS, may delegate
to MFS the performance of any or all of the duties it has agreed to perform for
the Fund in a separate written agreement relating to (i) accounting for
investments in currency and for financial instruments (including, without
limitation, options contracts, futures contracts, options on futures contracts,
options on foreign currency and forward foreign currency exchange contracts) and
(ii) federal and state regulatory compliance. The Bank shall compensate MFS for
the performance of such duties at such fee or fees as MFS shall determine to be
equal to MFS' cost for performing such duties (the "MFS Fees") Following its
payment of MFS Fees to MFS, the Bank shall recover the amount of the MFS Fees
from the Fund on such terms as the Bank and the Fund shall agree. MFS assumes
responsibility for all duties delegated to it by the Bank pursuant to this
Section 19, and the Bank may rely on MFS for the accuracy and correctness of the
accounting information provided by MFS to the Bank pursuant to this Section 19.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate and their respective corporate seals to be affixed hereto as of the date first above written by their respective officers there unto duly authorized.
MASSACHUSETTS FINANCIAL
BOND FUND
ATTEST:
INVESTORS BANK & TRUST COMPANY
ATTEST:
The officer of the Fund signing this Agreement is executing this Agreement not individually but in his capacity as an officer of the Fund. The obligations of the Fund under this Agreement are not binding upon any of the trustees, officers, employees, agents or shareholders of the Fund individually, but bind only the trust estate of the Fund.
EXHIBIT NO. 99.8(f)
AMENDMENT TO
CUSTODIAN AGREEMENT
Amendment dated as of this 21st day of April, 1992 to the Custodian Agreement between MFS Fixed Income Trust (formerly, Massachusetts Financial Bond Fund) (the "Fund") and Investors Bank & Trust Company (the "Bank") dated August 1, 1991 (the "Agreement").
Section 12.3 of the Agreement is amended and restated as follows:
12.3 Advances by Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund, or any series of the
Fund, to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement
for such payments by the Fund or any series of the Fund.
Should such a payment or payments, with advanced funds, result
in an overdraft (due to insufficiencies of the Fund's or, if
applicable, any series' of the Fund account with the Bank) or
for any other reason, this Agreement deems any such or related
indebtedness, a loan made by the Bank to the Fund (or if the
overdraft relates to a series of the Fund, such series)
payable on demand and bearing interest at the rate set forth
in writing by the Bank concurrently herewith (as amended from
time to time) unless the Fund (or, if applicable, the Fund on
behalf of the series) shall provide the Bank with agreed upon
compensating balances. The Fund agrees that the Bank shall
have a continuing lien and security interest on the assets of
the Fund (or, if the overdraft is on behalf of a series of the
Fund, the assets of such series) to the extent of any
overdraft, provided that in no event shall the amount of such
lien exceed the lesser of (i) the amount of such overdraft or
(ii) 10% of the Fund's gross assets (or if the overdraft is on
behalf of a series of the Fund, such series' gross assets) on
the date of such overdraft, and provided further that to the
extent consistent with the foregoing, the Bank will comply
with any Proper Instructions indicating which Portfolio
securities and/or which account of the Fund (or if the
overdraft is on behalf of a series of the Fund, which
Portfolio securities and/or which account of the series) shall
be subject to such lien. If such overdraft is not repaid
within a reasonable period of time, the Bank shall have the
right to exercise any rights it may have as a lienholder or
secured party.
Section 15 of the Agreement is amended and restated as follows:
15. Amendments. This Agreement may not be altered or amended, except by an instrument in writing, executed by both parties, and in the case of the Fund, any alteration or amendment which is material will be authorized and approved by its Board.
The Fund and the Bank also hereby agree that notwithstanding any provision to the contrary in this Agreement, each series of the Fund (including any future series of the Fund) is separately liable for its own expenses and liabilities under the Agreement and that the assets of one series of the Fund may not be set off against the obligations of another series or otherwise be used to satisfy the obligations or indebtedness of another series of the Fund.
Executed as of the date first above written.
MFS FIXED INCOME TRUST*
Attest: (Illegible) By: W. THOMAS LONDON
----------------- ------------------------
(Illegible) W. Thomas London
|
INVESTORS BANK & TRUST
COMPANY
Attest: J. M. KEENAN By: (Illegible)
---------------- --------------------------
J. M. Keenan (Illegible)
|
*A copy of the Declaration of Trust of the Fund is on file with the Secretary of State of the Commonwealth of Massachusetts. You acknowledge that the obligations of or arising out of this instrument are not binding upon any of the Fund trustees, officers or shareholders individually, but are binding only upon the assets and property of the Fund.
EXHIBIT NO. 99.9(a)
MASSACHUSETTS FINANCIAL BOND FUND
200 Berkeley Street
Boston, Massachusetts 02116
December 2, 1985
Massachusetts Financial Service Center, Inc.
200 Berkeley Street
Boston, Massachusetts 02116
SHAREHOLDER SERVICING AGENT AGREEMENT
Dear Sirs:
Massachusetts Financial Bond Fund, a Massachusetts business trust (the "Fund"), is an open-end registered investment company. The Fund has selected you to act as the Shareholder Servicing Agent and you hereby agree to act as such Agent and perform the duties and functions thereof in the manner and on the conditions hereinafter set forth. Accordingly, the Fund hereby agrees with you as follows:
1. The Facility. You represent that you have the necessary computer equipment, software and other office equipment ("Facility") adequate to perform the services contemplated hereby as well as for other investment companies (such investment companies, together with the Fund, are herein collectively referred to as the "MFS Funds") for which Massachusetts Financial Services Company ("MFS") acts as investment adviser. The Facility is presently located at 50 Milk Street, Boston, Massachusetts, and is to be dedicated solely to the performance of services for the MFS Funds, provided that the Facility may be utilized to perform services for others with the permission of the MFS Funds.
2. Name. Unless otherwise directed in writing by MFS, you shall perform the services contemplated hereby under the name "Massachusetts Financial Service Center, Inc.", which name and any similar names and any logos of which shall remain the property and under the control of MFS. Upon termination of this Agreement, you shall cease to use such name or any similar name within a reasonable period of time.
3. Services to be Performed. As Shareholder Servicing Agent ("Agent"), you shall be responsible for administering and performing transfer and dividend and distribution disbursing functions in connection with the issuance, transfer and redemption of shares of beneficial interest ("Shares"). The details of the operating standards and procedures to be followed by you shall be determined from time to time by agreement between you and the Fund.
4. Standard of Service. As Agent for the Fund, you agree to provide service equal to or better than that provided by you or others furnishing shareholder services to other open-end investment companies ("Standard") at a fee comparable to the fee paid you for your services hereunder. The Standard shall include at least the following:
(a) Prompt reconciliation of any differences as to the number of outstanding shares between various Facility records or between Facility records and records of an MFS Fund's Custodian;
(b) Prompt processing of shareholder correspondence and of other matters requiring action by you;
(c) Prompt clearance of any daily volume backlog;
(d) Providing innovative services and technological improvements;
(e) Meeting the requirements of any governmental authority having jurisdiction over you or the Fund; and
(f) Prompt reconciliation of all bank accounts under your control belonging to the Fund or MFS.
If any MFS Fund serviced by you is reasonably of the view that the service provided by you does not meet the Standard, it shall give you written notice specifying the particulars, and you then shall have 120 days in which to restore the service so that it meets the Standard, except that such period shall be 180 days with respect to meeting that portion of the Standard described above in item (d) of this paragraph 4. If at the end of such period the Fund remains reasonably of the view that the service provided by you, in the particulars specified, does not meet the Standard, then the MFS Fund or Funds having a majority of the accounts for which you are then Agent may, by appropriate action (including the concurrence of a majority of the Trustees or Directors, as the case may be, of such MFS Fund or Funds who are not interested persons of MFS), elect to terminate this Agreement for cause as to all such Funds upon 90 days notice to you. Upon termination hereof, the Fund shall pay you such compensation as may be due to you as of the date of such termination, and shall likewise reimburse you for any costs, expenses, and disbursements reasonably incurred by you to such date in the performance of your duties hereunder.
5. Purchase of Facility. In the event that you have given notice of termination of this Agreement pursuant to the provisions of paragraph 14 hereof, for cause as provided in paragraph 4 hereof, the MFS Funds shall have the right, but shall not be required (a) to purchase the Facility and assume the unexpired portion of any leases of equipment or real estate relating to the Facility from you at a price equal to your unrecovered acquisition value (as supported by the schedules and records used in determining monthly billings) of the machinery, equipment, software, furniture, fixtures and leasehold improvements included in the Facility, and (b) to negotiate with persons then employed by you in the operation of the Facility and to hire all of them in connection with the purchase of the Facility from you by the MFS Funds. You agree to release each such employee from any contractual obligations such persons may have to you that may interfere with such person's being hired at such time by the MFS Funds and agree not to interfere with the negotiation and hiring of any such persons at such time. In the event that the MFS Funds have given notice of termination of this Agreement pursuant to the provisions of paragraph 14 hereof for reasons other than cause as defined in paragraph 4 hereof, the MFS Funds shall purchase the Facility under the terms and conditions set forth in subsections (a) and (b) of this paragraph 5.
You shall effect the transfer of the Facility pursuant to this paragraph 5 upon the termination date specified in the notice, or at such other time as shall be agreed upon by the parties hereto.
6. Rights in Data and Confidentiality. You agree that all records, data, files, input materials, reports, forms and other data received, computed or stored in the performance of this Agreement are the exclusive property of the Fund and that all such records and other data shall be furnished without additional charge, except for actual processing costs, to the Fund in machine readable as well as printed form immediately upon termination of this Agreement or at the Fund's request. You shall safeguard and maintain the confidentiality of the Fund's data and information supplied to you by the Fund and you shall not transfer or disclose the Fund's data to any third party without the Fund's prior written consent unless compelled to do so by order of a court or regulatory authority.
7. Fees. The fee per Fund shareholder account for your services hereunder shall not be in excess of such amount as shall be agreed in writing between us. Such fee shall be payable in monthly installments of one-twelfth of the annual fee. Such fee shall be subject to review at least annually and fixed by the parties in good faith negotiation on the basis of a statement of the expenses of the Facility prepared by you, which either you or the Fund may require to be certified by a major accounting firm acceptable to the parties. The party or parties requesting such certification shall bear all expenses thereof. In addition to the foregoing fee, you will be reimbursed by the Fund for out-of-pocket expenses reasonably incurred by you on behalf of the Fund, including but not limited to expenses for stationery (including business forms and checks), postage, telephone and telegraph line and toll charges, and premiums for negotiable instrument insurance and similar items.
8. Record Keeping. You will maintain records in a form acceptable to the Fund and in compliance with the rules and regulation of the Securities and Exchange Commission, including, but not limited to, records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder, which at all times will be the property of the Fund and will be available for inspection and use by the Fund.
9. Duty of Care and Indemnification. You will at all times act in good faith in performing your duties hereunder. You will not be liable or responsible for delays or errors by reason of circumstances beyond your control, including acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdown beyond your control, flood or catastrophe, acts of God, insurrection, war, riots or failure beyond your control of transportation, communication or power supply. The Fund will indemnify you against and hold you harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit not resulting from your bad faith or negligence, and arising out of, or in connection with, your duties on behalf of the Fund hereunder. In addition, the Fund will indemnify you against and hold you harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit as a result of your acting in accordance with any instructions reasonably believed by you to have been executed or orally communicated by any person duly authorized by the Fund or its Principal Underwriter, or as a result of acting in accordance with written or oral advice reasonably believed by you to have been given by counsel for the Fund, or as a result of acting in accordance with any instrument or share certificate reasonably believed by you to have been genuine and signed, countersigned or executed by any person or persons authorized to sign, countersign or execute the same (unless contributed to by your gross negligence or bad faith). In any case in which the Fund may be asked to indemnify you or hold you harmless, the Fund shall be advised of all pertinent facts concerning the situation in question and you will use reasonable care to identify and notify the Fund promptly concerning any situation which presents or appears likely to present a claim for indemnification against the Fund. The Fund shall have the option to defend you against any claim which may be the subject of this indemnification, and in the event that the Fund so elects such defense shall be conducted by counsel chosen by the Fund and satisfactory to you and it will so notify you, and thereupon the Fund shall take over complete defense of the claim and you shall sustain no further legal or other expenses in such situation for which you seek indemnification under this paragraph, except the expense of any additional counsel retained by you. You will in no case confess any claim or make any compromise in any case in which the Fund will be asked to indemnify you except with the Fund's prior written consent. The obligations of the parties hereto under this paragraph shall survive the termination of this Agreement.
If any officer of the Fund shall no longer be vested with authority to sign for the Fund, written notice thereof shall forthwith be given to you by the Fund and until receipt of such notice by it, you shall be fully indemnified and held harmless by the Fund in recognizing and acting upon certificates or other instruments bearing the signatures or facsimile signatures of such officer.
10. Insurance. You will notify the Fund should any of your insurance coverage, as set forth on Exhibit A hereto, be changed for any reason, such notification to include the date of change and reason or reasons therefor.
11. Notices. All notices or other communications hereunder shall be in writing and shall be deemed sufficient if mailed to either party at the addresses set forth in this Agreement, or at such other addresses as the parties hereto may designate by notice to each other.
12. Further Assurances. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
13. Use of a Sub- or Co-Transfer Agent. Notwithstanding any other provision of this Agreement, it is expressly understood and agreed that you are authorized in the performance of your duties hereunder to employ, from time to time, one or more Sub-Transfer Agents and/or Co-Transfer Agents.
14. Termination. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing, which, except in the case of termination, shall be signed by the party against which enforcement of such change waiver or discharge is sought. Except as otherwise provided in paragraph 4 hereof, this Agreement shall continue indefinitely until terminated by 90 days' written notice given by the Fund to you or by you to the Fund provided that the Fund may terminate this Agreement upon 15 days' written notice of termination and election of the right to purchase the Facility pursuant to the provisions of paragraph 5 hereof. Upon termination hereof, the Fund shall pay you such compensation as may be due to you as of the date of such termination, and shall likewise reimburse you for any costs, expenses, and disbursements reasonably incurred by you to such date in the performance of your duties hereunder. You agree to cooperate with the Fund and provide all necessary assistance in effectuating an orderly transition upon termination of this Agreement.
15. Successor. In the event that in connection with termination a successor to any of your duties or responsibilities hereunder is designated by the Fund by written notice to you, you will, promptly upon such termination and at the expense of the Fund, transfer to such successor a certified list of the shareholders of the Fund (with name, address and tax identification or Social Security number) an historical record of the account of each shareholder and the status thereof, and all other relevant books, records, correspondence, and other data established or maintained by you under this Agreement in form reasonably acceptable to the Fund (if such form differs from the form in which you have maintained the same, the Fund shall pay any expenses associated with transferring the same to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from your cognizant personnel in the establishment of books, records and other data by such successor.
16. Miscellaneous. This Agreement shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Massachusetts. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. This Agreement has been executed on behalf of the Fund by the undersigned not individually, but in the capacity indicated, and the obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Fund individually, but bind only the trust estate.
Very truly yours,
MASSACHUSETTS FINANCIAL
BOND FUND
The foregoing is hereby accepted as of the date thereof.
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
President
The foregoing is hereby accepted as of the date thereof.
MASSACHUSETTS FINANCIAL
SERVICE CENTER, INC.
EXHIBIT NO. 99.9(b)
MFS FIXED INCOME TRUST
500 Boylston Street o Boston o Massachusetts 02116
December 28, 1993
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Dear Sir/Madam:
This will confirm our understanding that Exhibit B to the Shareholder Servicing Agent Agreement between us, dated December 2, 1985, as amended, is hereby amended, effective immediately, to read in its entirety as set forth on Attachment 1 hereto.
Please indicate your acceptance of the foregoing by signing below.
Sincerely,
MFS FIXED INCOME TRUST
Accepted and Agreed:
MFS SERVICE CENTER, INC.
ATTACHMENT 1
DECEMBER 28, 1993
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MFS FIXED INCOME TRUST (THE "FUND")
1. The fees to be paid by the Fund on behalf of its series with respect to Class A shares of each series of the Fund to MFSC, for MFSC's services as shareholder servicing agent, shall be:
0.15% of the first $500 million of the assets of the series
attributable to such class;
0.12% of the second $500 million of the assets of the series
attributable to such class;
0.09% over $1 billion of the assets of the series attributable to such
class.
2. The fees to be paid by the Fund on behalf of its series with respect to Class B shares of each series of the Fund to MFSC, for MFSC's services as shareholder servicing agent, shall be:
0.22% of the first $500 million of the assets of the series
attributable to such class;
0.18% of the second $500 million of the assets of the series
attributable to such class;
0.13% over $1 billion of the assets of the series attributable to such
class.
3. The fees to be paid by the Fund on behalf of its series with respect to Class C shares of each series of the Fund to MFSC, for MFSC's services as shareholder servicing agent, shall be:
0.15% of the first $500 million of the assets of the series
attributable to such class;
0.12% of the second $500 million of the assets of the series
attributable to such class;
0.09% over $1 billion of the assets of the series attributable to such
class.
EXHIBIT NO. 99.10
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 BOYLSTON STREET, BOSTON MASSACHUSETTS 02116-3741
(617) 954 5047/800 343 2829/FAX 617 954 6624
August 23, 1995
MFS Series Trust IX
500 Boylston Street
Boston, MA 02116
Re: POST-EFFECTIVE AMENDMENT NO. 32 TO REGISTRATION STATEMENT ON
FORM N-1A (FILE NO. 2-50409) (THE "REGISTRATION STATEMENT")
Gentlemen:
I am Vice President and Associate General Counsel of Massachusetts Financial Services Company, which serves as investment adviser to MFS Series Trust IX (the "Trust") (on behalf of MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited Maturity Fund) and the Assistant Secretary of the Trust. I am admitted to practice law in The Commonwealth of Massachusetts. The Trust was created under a written Declaration of Trust dated August 29, 1985, and executed and delivered in Boston, Massachusetts, as amended and restated February 17, 1995 (the "Declaration of Trust"). The beneficial interest thereunder is represented by transferable shares without par value. The Trustees have the powers set forth in the Declaration of Trust, subject to the terms, provisions and conditions therein provided.
I am of the opinion that the legal requirements have been complied with in the creation of the Trust, and that said Declaration of Trust is legal and valid.
Under Article III, Section 3.4 and Article VI, Section 6.4 of the Declaration of Trust, the Trustees are empowered, in their discretion, from time to time to issue shares of the Trust for such amount and type of consideration, at such time or times and on such terms as the Trustees may deem best. Under Article VI, Section 6.1, it is provided that the number of shares of beneficial interest authorized to be issued under the Declaration of Trust is unlimited.
By vote adopted on January 18, 1995, the Trustees of the Trust determined to sell to the public the authorized but unissued shares of beneficial interest of the Trust for cash at a price which will net the Trust (before taxes) not less than the net asset value thereof, as defined in the Trust's By-Laws, determined next after the sale is made or at some later time after such sale.
The Trust is about to register under the Securities Act of 1933, as amended, 1,135,784 shares of beneficial interest by Post-Effective Amendment No. 32 to the Trust's Registration Statement. W. Thomas London, Treasurer of the Trust, has certified that the Trust received cash consideration for the issuance of each of the Shares of the Trust sold during the Trust's fiscal year ended April 30, 1995, including the 22,364,029 shares which were sold in reliance upon Rule 24f-2 of the General Rules and Regulations under the Investment Company Act of 1940, as amended, at a price which netted the Trust (before taxes) not less than the net asset value per share, as defined in the Trust's Declaration of Trust, determined next after the sale was made.
Based on the foregoing, I am of the opinion that all necessary Trust action precedent to the issue of the shares of the Trust, comprising the shares covered by Post-Effective Amendment No. 32 to the Registration Statement has been duly taken, and that all such shares may legally and validly be issued for cash, and when sold will be fully paid and nonassessable, except as described below, by the Trust upon receipt by the Trust or its agent of consideration thereof in accordance with the terms described in the Registration Statement. I express no opinion as to compliance with the Securities Act of 1933, the Investment Company Act of 1940 and applicable state "Blue Sky" or securities laws regulating the sale of securities.
The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of the Trust property for all loss and expense of any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations.
I consent to your filing this opinion with the Securities and Exchange Commission as an exhibit to Post-Effective Amendment No. 32 to the Registration Statement.
Very truly yours,
JAMES R. BORDEWICK, JR.
James R. Bordewick, Jr.
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment No. 32 to Registration Statement No. 2-50409 of MFS Series Trust IX of our reports each dated June 2, 1995 appearing in the annual reports to shareholders for the year ended April 30,1995, of MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited Maturity Fund, series of MFS Series Trust IX, and to the references to us under the headings "Condensed Financial Information" in the Prospectus and "Independent Accountants and Financial Statements" in the Statement of Additional Information, both of which are part of such Registration Statement.
DELOITTE & TOUCHE, LLP
Deloitte & Touche, LLP
Boston, Massachusetts
August 24, 1995
EXHIBIT NO. 99.13
February 14, 1992
MFS Quality Limited Maturity Fund
500 Boylston Street
Boston, MA 02116
Gentlemen:
In connection with the purchase by the undersigned of 13.67 Shares of Beneficial Interest (without par value) of MFS Quality Limited Maturity Fund, the undersigned hereby represents and warrants to you that it is purchasing said shares as an investment with no intention of reselling said shares until a date at least two years hereafter.
Very truly yours,
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
EXHIBIT NO. 99.14(a)
MFS(R) IRA DISCLOSURE STATEMENT
The following information is being provided to you by The First National Bank of Boston (the "Trustee") in accordance with the requirements of the Internal Revenue Code of 1986 and regulations thereunder, as amended (the "Code"). This Statement should be read in conjunction with the MFS IRA Agreement and Application (collectively, the "Agreement"), and the prospectus for each investment option you have selected. The provisions of the Agreement and prospectus(es) must prevail over this Statement in any instance where this Statement is incomplete or unclear.
This Statement summarizes the requirements for establishing an MFS IRA and provisions of federal tax law applicable to IRAs. The state tax treatment of your IRA may be different; state tax information should be available from your state taxing authority or your own tax adviser.
RIGHT TO REVOKE
You may revoke your IRA for any reason within seven calendar days after the date you signed the Application by mailing or delivering a written request that your IRA be revoked to:
MFS SERVICE CENTER
ATTENTION: INDIVIDUAL RETIREMENT ACCOUNT
J.W. MCCORMACK STATION, P.O. BOX 4501
BOSTON, MA 02101-9817
If you revoke your IRA, the entire amount of your contribution, without adjustment for items such as administrative expenses, fees, interest, or fluctuation in market value, will be returned to you. If you have any questions concerning this revocation procedure you may phone MFS at 1-800-637-1255.
CONTRIBUTIONS
1. Who Can Contribute.
Any individual who receives compensation for the performance of services, including earned income from self-employment, for a calendar year may contribute to his or her regular IRA for that year, up to (but not including) the year in which the individual reaches age 70 1/2. Contributions to a spousal IRA can be made up to (but not including) the year in which the spouse for whose benefit the IRA is maintained reaches age 70 1/2. Contributions to SEPs and rollover contributions can be made to an IRA regardless of the individual's age, but certain other restrictions apply. For example, the minimum distribution rules will apply, so that, with respect to a SEP, you might be required to have distributions as well as contributions after you reach age 70 1/2 or, with respect to a rollover, any amount you are required to receive may have to be distributed before the rollover contribution is made. An individual can contribute to an IRA even if he or she is an active participant in an employer plan, although being an active participant may affect the deductibility of the contribution.
2. Kind and Amount.
(a) Regular IRA. The maximum annual contribution you can make to a regular IRA is the lesser of $2,000 or 100% of your compensation for the year. If you are divorced, all taxable alimony you receive under a decree of divorce or separate maintenance will be treated as compensation. If you are married and both you and your spouse have compensation, each of you may establish your own regular IRA.
(b) Spousal IRA. Alternatively, if you and your spouse file a joint federal income tax return and your spouse elects to be treated as receiving no compensation for IRA purposes or has no compensation, you can contribute to your spouse's IRA ("spousal IRA"). However, the maximum combined contributions to the two IRAs in this case cannot exceed the lesser of $2,250 or 100% of your compensation, and no more than $2,000 can be contributed to either IRA. Therefore, if your spouse has more than $250 of compensation, the two of you can make a larger total IRA contribution if each contributes to his or her own IRA.
(c) SEP. Your employer may establish a Simplified Employee Pension Plan ("SEP"). If you have an IRA that is part of a SEP, your employer may contribute up to the lesser of 15% of your compensation or $30,000 on your behalf. If your employer makes SEP contributions to your IRA, you may still make a regular IRA contribution, as described above, although if you participate in a SEP you will be considered an active participant in an employer plan. Your employer's SEP contribution is excludible from your gross income.
(d) Rollover IRA. You may roll over qualifying distributions from
tax-qualified plans (such as pension, profit sharing, and 401(k) plans), Code
Section 403(a) annuity plans, or Code Section 403(b) tax-sheltered annuities or
custodial accounts into an IRA. The MFS IRA trustee will accept rollovers that
are transferred directly to it from such a plan's trustee or custodian, as long
as certain requirements are met. You may also roll over or transfer into an IRA
amounts held in another IRA. You may roll over the amounts held in your MFS IRA
into another IRA. However, rollovers from one IRA to another may only be made
once during any twelve month period. Qualifying distributions from certain
retirement plans can be rolled over into an IRA and can subsequently be rolled
over into another retirement plan of the same kind should you again participate
in one, but only if, among other things, no contributions other than such
rollover contributions have been made to the IRA. Therefore, if you wish to make
a rollover contribution to an IRA and if the assets to be rolled over are
attributable to a distribution from such a retirement plan, you should use a
separate IRA for this purpose and should not make any additional contributions
to that rollover IRA. There is no limit on the dollar amount of a rollover
contribution to an IRA. Rollover amounts are not includible in your income and
are not deductible as an IRA contribution. Strict limitations apply to
rollovers; although it is possible that the Trustee or MFS may provide you with
general information concerning rollovers, you should seek competent tax advice
from your own adviser in order to comply with all of the rules governing
rollovers.
3. Timing.
You may make a contribution to your IRA for any calendar year up to the due date for filing your federal income tax return (excluding extensions) for that year. If you do not specify the year for which your contribution is being made, it will be deemed to be made for the year in which it is actually made.
4. Nature and Investment.
Contributions other than rollover contributions must be made in cash. Rollover contributions can be made either in cash or in other assets held in the account from which the rollover is being made. However, an IRA cannot be invested in life insurance or collectibles, nor may IRA assets be commingled with other property except in a common trust fund or common investment fund. There are also several other restrictions on the use of IRA assets described in "OTHER TAX CONSIDERATIONS" below. The assets in your IRA will be invested as you direct in MFS Fund Shares available for investment from time to time under the terms of your MFS IRA. You should read all information (e.g., prospectuses) about the permissible investments that must be provided to you, so that you can make an informed investment decision. All fees and other charges that must be paid from IRA assets in connection with each investment and the method for computing and allocating earnings for each investment is described in such informational materials. Growth in the value of your account invested in MFS Fund Shares cannot be guaranteed or projected.
5. Nonforfeitability.
Your interest in your IRA is at all times nonforfeitable. Your IRA is established for the exclusive benefit of you and your beneficiaries.
6. Deductibility.
The total amount of your permissible IRA contribution will be deductible for federal income tax purposes if you are not an active participant in a retirement plan, as described below, or if neither you nor your spouse is an active participant if you file a joint federal income tax return. Even if you (or your spouse, if applicable) are an active participant, you may be able to deduct some or all of your IRA contributions, depending on your adjusted gross income (the total of your and your spouse's adjusted gross income if you are married filing jointly). The deductible amount if you (or your spouse) are an active participant is shown in the chart below (special rules apply if you are married filing separately):
MARRIED SINGLE
FILING JOINTLY
EITHER SPOUSE AN ACTIVE PARTICIPANT AN ACTIVE PARTICIPANT
Adjusted Deductibility Adjusted Deductibility
Gross Income (AGI) of Contribution Gross Income (AGI) of Contribution
- ------------------ --------------- ------------------ ---------------
Up to and including Fully deductible Up to and including Fully deductible
$40,000 $25,000
Between $40,000 Deductibility Between $25,000 Deductibility
and $50,000 decreases* as and $35,000 decreases** as
income rises income rises
$50,000 or over Not deductible; $35,000 or over Not deductible;
growth tax deferred growth tax deferred
- ------------------------------
* For every $50 of AGI over $40,000, the maximum IRA contribution deductible is reduced by $10 (rounded down to
the next lowest $10 increment) so that at an AGI of $50,000, no deduction is allowed. (NOTE: A $200 deduction is
allowed if AGI is between $49,000 and $49,999.)
** For every $50 of AGI over $25,000, the maximum IRA contribution deductible is reduced by $10 (rounded down to
the next lowest $10 increment) so that at an AGI of $35,000, no deduction is allowed. (NOTE: A $200 deduction is
allowed if AGI is between $34,000 and $34,999.)
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In general you will be an "active participant" for a year if any contributions or forfeitures are credited to your account (or, in the case of a defined benefit plan, you are eligible to participate) for that year in a tax-qualified pension, profit sharing or stock bonus plan, a Code Section 403(a) annuity plan, a Code Section 403(b) annuity contract or custodial account, certain governmental plans, a SEP, or a Code Section 501(c)(18) trust. If you contribute both to your own IRA and to a spousal IRA, the maximum aggregate amount of contributions that are deductible will be determined by substituting $2,250 for $2,000 as the maximum IRA contribution amount in the chart above; the maximum portion of that deductible amount which may be allocated to either IRA is the amount that would be deductible for one individual determined as described in the chart above. Even if some or all of your IRA contribution is not deductible, earnings on your total permissible contribution will be tax-deferred. You must designate on your federal income tax return the amount of your IRA contribution that is nondeductible, and provide certain additional information concerning nondeductible contributions. If you overstate the amount of nondeductible IRA contributions, a penalty of $100 will be assessed for each overstatement unless you can show the overstatement was due to reasonable cause.
DISTRIBUTIONS
1. Premature Distributions.
You may withdraw any or all of your IRA account at any time upon written application to the Trustee in suitable form. However, if you make withdrawals from your IRA before you reach age 59 1/2, a 10% excise tax will be imposed on the amount of the distribution includible in your gross income unless the distribution is (1) an exempt withdrawal of an excess contribution (discussed below), (2) rolled over in accordance with Code requirements, (3) on account of your death or disability, (4) is one of a series of substantially equal periodic payments paid not less frequently than annually for your life or life expectancy or for the joint lives of joint life expectancies of you and your beneficiary or (5) a transfer to another IRA pursuant to a decree of divorce or separate maintenance or a written instrument incident to such a decree.
2. Required Distributions.
(a) Form of Distribution. Subject to the rules discussed in paragraphs (b) and (c), you may elect to receive distributions from your IRA in the following forms: (1) A single lump-sum payment; (2) Monthly, quarterly, semiannual or annual payments over a specified period that does not extend beyond (i) your life expectancy or (ii) the joint life and last survivor expectancy of you and your designated beneficiary.
Even if you have begun receiving distributions in accordance with
(2) above, you can at any time direct that all or any portion of the balance of
your IRA be distributed to you.
(b) To the Individual. Generally, distribution of your IRA account balance must begin no later than April 1 immediately following the end of the calendar year in which you reach age 70 1/2 (the "required beginning date"). Distributions for subsequent calendar years must be made no later than December 31 of that year. The minimum amount required to be distributed once you reach your required beginning date is your IRA account balance as of December 31 of the calendar year immediately preceding the year for which the distribution is being made divided by your life expectancy or the joint life and last survivor expectancy of you and your beneficiary, as determined in accordance with applicable regulations and rulings. Life expectancy must be determined by using the expected return multiples specified in Treasury Regulation Section 1.72-9. The life expectancy of you and your spouse, if your spouse is your designated beneficiary, may be redetermined once annually. You must make an irrevocable written election to have life expectancy redetermined; if no election is made, life expectancy will not be redetermined. If life expectancy is not annually redetermined, the life expectancy used for the first year of distribution will be reduced by one for each year thereafter. If your spouse is not your designated beneficiary, the method of distribution used must ensure that the present value (determined at the time distribution commences) of payments to be made to you over your life expectancy (as determined under Treasury Regulation Section 1.72-9) equals at least 50% of the present value of the total payment to be made.
(c) On Death. If you die after your required beginning date, your entire remaining account balance must be distributed to your designated beneficiary at least as rapidly as under the method of distribution in effect on your date of death. If you die before your required beginning date, the general rule is that your entire account balance must be distributed in a lump sum or installments on or before December 31 of the calendar year during which the fifth anniversary of the date of your death occurs. However, if the balance of your IRA account is payable to your designated beneficiary, your designated beneficiary may elect that the amount be paid in substantially equal installments over a fixed period not exceeding the designated beneficiary's life expectancy (determined in accordance with the rules stated in paragraph (b) above) beginning no later than December 31 of the calendar year immediately following the calendar year in which you died; if your spouse is your designated beneficiary, such a distribution need not commence until December 31 of the calendar year during which you would have reached age 70 1/2 had you survived. Alternatively, if your designated beneficiary is your spouse, he or she may elect to treat your IRA as his or her own IRA. If your designated beneficiary makes no election, the five year rule described above shall be applied.
3. Minimum Distributions.
If the amount distributed from your IRA in any year is less than the minimum amount required to be distributed (see paragraph 2 above), you (or your beneficiary, if applicable) will be subject to a 50% excise tax on the difference between the amount required to be distributed and the amount actually distributed. It is the IRA holder's responsibility to seek assistance from a tax adviser, to calculate minimum distribution amounts, and to direct the Trustee, in writing, as to the amount and method of distribution desired.
4. Excess Distributions.
With certain exceptions, if the annual amount of your distributions from your IRA, when added to the amount of distributions from other tax-favored retirement plans (e.g., other IRAs, Code Section 403(a) annuity plans, Code Section 403(b) annuity contracts and pension, profit sharing, and stock bonus plans), exceeds $150,000 (or $112,500, as adjusted to reflect cost of living increases if higher), you may be subject to a 15% excise tax on the amount by which such distributions exceed the applicable dollar amount. If you think this excise tax on excess distributions may apply to you, you should consult with your tax adviser.
5. Taxation of Distributions.
Distributions from your IRA of amounts other than nondeductible contributions are taxable as ordinary income in the year they are received; IRA distributions do not qualify for capital gain treatment, and the special tax treatment of lump sum distributions from qualified employer retirement plans is not available. The portion of a distribution that is attributable to nondeductible contributions (but not earnings) is not taxable. The amount of any distribution that is attributable to nondeductible contributions for a taxable year is the portion of the distribution that bears the same ratio to the total distribution amount for the taxable year as your aggregate nondeductible IRA contributions under all IRAs bear to the aggregate balance of all your IRAs at the end of the year (plus the amount of any distributions made during the year). Other Tax Considerations
6. Excess Contributions.
If the amount of your IRA contributions for a year exceeds the maximum permissible contribution, the excess contribution amount will be subject to a 6% excise tax. However, the 6% excise tax will not be imposed if you withdraw the excess contribution and any earnings on it on or before the due date for filing your federal income tax return for the year (including extensions). The amount of the excess contribution withdrawn will not be considered a premature distribution nor taxed as ordinary income, but the earnings withdrawn will be taxable income to you. Alternatively, excess contributions for one year may be carried forward and treated as a contribution in the next year to the extent that the excess, when aggregated with your IRA contribution (if any) for the subsequent year, does not exceed the maximum contribution amount for that year. The 6% excise tax will be imposed on excess contributions in each year they are neither returned nor within the permitted contribution limit.
7. Prohibited Transactions.
If you or your beneficiary engage in any transaction prohibited by Code Section 4975 (such as any sale, exchange or leasing of any property or extension of credit between you and the account), the account will lose its tax exemption and the entire balance of the account will be treated as having been distributed to you as of the first day of the calendar year in which the transaction occurs. This distribution will be taxable as ordinary income and, if you are under age 59 1/2 at the time, will also be subject to the 10% excise tax on premature distributions.
If you or your beneficiary use all or any part of your IRA assets as security for a loan, the portion so used will be treated as having been distributed to you, and will be taxable as ordinary income and, if you are under age 59 1/2 at the time, will also be subject to the 10% excise tax on premature distributions.
8. Gift Tax.
If you elect during your lifetime to have all or any part of your IRA payable to a beneficiary upon your death, the election will not subject you to any gift tax liability.
9. Tax Withholding and Reporting.
Federal income tax will be withheld from distributions you receive from an IRA unless you elect not to have taxes withheld. Such an election must be in writing; election forms are available from MFS Service Center, Inc.
Contributions to an IRA must be reported on Form 1040 or 1040A for the year with respect to which the contribution is made. Non-deductible contributions must be reported on Form 8606. In addition, you must file Form 5329 for any year in which there is an excess contribution to, premature distribution from, or insufficient distribution from your IRA. Finally, you must report the amount of all distributions you received from your IRA and the aggregate account balance of all IRAs as of the end of each calendar year.
10. IRS Approval.
This IRA Account is based on the form of prototype IRA trust that was last approved by the Internal Revenue Service (IRS) in Opinion Letter Serial Number D189707a dated April 24, 1995.
11. Additional Information.
You may obtain further information concerning your IRA from any
district office of the Internal Revenue Service, or you may contact MFS at
- -800-637-1255.
NOTE: Although MFS may provide general information concerning your MFS IRA, MFS does not provide tax or other financial, legal or technical advice. You are urged to contact your own adviser for such guidance.
MFS(R) INDIVIDUAL RETIREMENT ACCOUNT
This AGREEMENT (the "Agreement"), entered into as of the date of the related Application, by and between the individual whose signature appears on that Application (the "Individual") and The First National Bank of Boston (the "Trustee").
WITNESSES THAT:
WHEREAS, the Individual desires to provide for retirement and for the support of beneficiaries upon death by establishing with the Trustee an individual retirement account described in Section 408(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, the Trustee accepts its appointment as Trustee of such individual retirement account trust (the "IRA Account");
NOW, THEREFORE, by executing the Application the Individual and the Trustee agree as follows:
ARTICLE 1. CREATION OF THE IRA ACCOUNT
The Trustee shall, in accordance with the terms of this Agreement, establish and maintain an IRA Account for the exclusive benefit of the Individual and the Individual's Beneficiary. The Individual's IRA Account will be established when (i) the Individual has completed and signed the Application and has mailed or delivered that Application and contribution to MFS Fund Distributors, Inc., or any successor thereto ("MFS Fund Distributors, Inc."), and (ii) the Trustee has accepted that Application and contribution. If that Application and contribution are accepted by the Trustee, the IRA Account will be effective as of the date they were mailed or, if otherwise delivered, the date delivered. (If the contribution and Application are sent separately, the IRA Account will be established as of the mailing or delivery date (as applicable) of the contribution or, if later, of the Application.) The Trustee shall hold in trust for the purposes hereinafter set forth, and shall manage and administer in accordance with the terms and conditions hereof, contributions to the IRA Account and any income or gain therefrom. The IRA Account is created and assets thereunder shall be held for the exclusive benefit of each Individual or Beneficiary.
ARTICLE 2. REGULAR CONTRIBUTIONS
2.1 Permitted Contributions. All regular contributions to the IRA Account shall be in cash, and may be made under this Paragraph 2.1:
(a) by the Individual or on behalf of the Individual by the Individual's employer if the Individual has compensation includible in gross income;
(b) by the Individual's spouse or by the employer of the Individual's spouse if the Individual has (or elects for IRA purposes to be treated as having) no such compensation;
(c) by the Individual if the Individual has compensation in the form of any amount includible in the Individual's gross income with respect to a divorce or separation instrument under Code Section 71; or
(d) by the Individual's employer under the provisions of a simplified employee pension plan as defined in Code Section 408(k).
In no event may contributions be made under Paragraph 2.1(a), (b) or (c) in the taxable year in which the Individual attains age 70 1/2 or any subsequent year. The maximum annual amount that may be contributed to any regular IRA Account described in Paragraph 2.1(a), (b) or (c) is the lesser of $2000 or 100% of the Individual's compensation (the spouse's compensation, for purposes of Paragraph 2.1(b)) for the year. The Trustee may, but is under no obligation to, refuse to accept annual IRA Account contributions that exceed $2000. Also, if this is an IRA described in Paragraph 2.1(b), the maximum combined amount that may be contributed to the IRA of both spouses is $2250.
In the event that contributions are made by the Individual's employer under Paragraph 2.1(d), the Trustee shall accept employer contributions on behalf of the Individual in any taxable year, including the year in which the Individual attains age 70 1/2 or any subsequent year. The maximum annual amount that may be contributed to any IRA described in Paragraph 2.1(d) is the lesser of $30,000 (as adjusted to reflect cost of living increases) or 15% of the Individual's compensation. The Trustee may, but is under no obligation to, refuse to accept annual IRA Account contributions pursuant to Paragraph 2.1(d) that exceed $30,000 (as adjusted).
2.2 Return of Excess. To the extent that any contributions to the IRA Account under Paragraph 2.1 for a year exceed the amount for which a deduction is allowed under Code Section 219 for that year, and the Individual does not or cannot elect to treat the excess as a nondeductible contribution, the Trustee shall pay such excess (together with any net income attributable thereto) to the Individual or the Individual's Beneficiary upon appropriate written request.
2.3 Nature of Contribution. Cash contributions may be made by wire order. However, in making a wire order contribution the Individual agrees to indemnify the Trustee, MFS Fund Distributors, Inc., and their affiliates and hold them harmless from all losses, claims, expenses and liabilities that may result from such wire order, the failure of such wire order to be received or the failure of the wire order to be received in a timely manner. In addition, the Individual understands and agrees that if a contribution is made by wire order at a time when the Individual has not established an MFS IRA, no IRA Account shall be established until the Application is both received and accepted by the Trustee.
ARTICLE 3. ROLLOVER CONTRIBUTIONS
In addition to contributions under Article 2, the Individual may
contribute to the IRA Account a rollover amount as defined in Code Sections
402(c), 403(a)(4), 403(b)(8), or 408(d)(3). Such a contribution may be in cash
or property or both, provided that the Trustee shall not accept as a rollover
amount any property other than cash unless it consists of (i) "marketable
securities" which in the opinion of the Trustee may be sold by it in accordance
with all applicable federal securities and other laws or which the Trustee
otherwise agrees to accept and retain; or (ii) an annuity contract (other than
an annuity contract including a life insurance element) or endowment contract
which in the opinion of the Trustee may be promptly surrendered by it to the
issuer for cash. A rollover may not include certain amounts, such as the amount
of any required minimum distributions. Any contribution by the Individual under
this Article 3 shall be accompanied by a written declaration from the Individual
that it is a valid rollover amount. The Trustee shall accept rollover
contributions that are transferred to it directly from another trustee or
custodian upon receipt of documentation satisfactory to the Trustee.
ARTICLE 4. NONFORFEITABILITY
The interest of the Individual in the balance of the IRA Account shall at all times be nonforfeitable within the meaning of Code Section 408(a)(4).
ARTICLE 5. INVESTMENT OF IRA ASSETS
5.1 Cash Contributions. The Trustee shall apply each cash contribution to the IRA Account to the purchase of MFS Fund Shares (including fractional shares carried to the third decimal place) in accordance with the Individual's written instructions.
5.2 Contributions in Property. The Trustee shall liquidate contributions of rollover amounts to the IRA Account that are in property other than cash, provided that if such property consists of or includes MFS Fund Shares the Trustee will, if so instructed by the Individual, hold such assets in the IRA Account. The Trustee shall invest the proceeds from such liquidation, after deduction for all expenses and charges, including fees of the Trustee, incurred in effecting such liquidation, in accordance with the provisions of Paragraph 5.1.
5.3 Dividends and Other Payments. Dividends, capital gain distributions and any other cash payments attributable to MFS Fund Shares held in the IRA Account shall be invested in the same shares to which such payments are attributable unless the Individual otherwise directs. If dividend or capital gain distributions are payable in MFS Fund Shares or cash, at the option of the holder, the Trustee shall elect payment in full and fractional shares.
5.4 Change in Investment. The Individual may direct the Trustee at any time and from time to time: (i) to exchange the MFS Fund Shares held in the IRA Account for other MFS Fund Shares in accordance with the then current prospectuses relating to such shares; and (ii) to liquidate any investments then held in the IRA Account and invest the net proceeds in any form of investment permitted under this Article 5.
5.5 Prohibited Investments. No part of the IRA Account assets shall be invested in life insurance contracts or in collectibles (within the meaning of Code Section 408(m) and the Regulations thereunder); nor may the assets of the IRA Account be commingled with other property except in a common trust fund or a common investment fund (within the meaning of Code Section 408(a)(5)).
ARTICLE 6. DISTRIBUTIONS
6.1 Early Distributions. The Individual may elect to withdraw all or any part of the assets held in the IRA Account at any time and from time to time, upon written notice to the Trustee, provided that such written notice shall include a declaration of the Individual's intention as to the proposed use of any distribution that occurs prior to his attainment of age 59 1/2 other than on account of death or disability (as defined in Code Section 72(m)(7)), and be accompanied by a written election with respect to federal income tax withholding.
6.2 Forms of Distribution. Subject to the required distribution rules discussed in Paragraph 6.3 below, the Individual may, by providing written distribution instructions and such other documentation as the Trustee may reasonably require, elect to receive distributions from the IRA Account in any of the following forms:
(a) a single payment;
(b) monthly, quarterly, semiannual or annual payments made over a period certain specified by the Individual which does not extend beyond (i) the Individual's life expectancy, or (ii) the joint life and last survivor expectancy of the Individual and his or her Beneficiary.
Whenever an Individual elects to receive a distribution, the Individual shall also specify in the distribution instructions whether the distribution is to be made in cash or in MFS Fund Shares.
Even if the Individual has begun to receive distributions pursuant to one of the above options, the Individual may at any time direct the Trustee to distribute all or any portion of the balance of the IRA Account.
6.3 Required Distributions. The distribution of the Individual's interest in the IRA Account shall be made in accordance with the minimum distribution requirements of Code Section 408(a)(6) and regulations thereunder, including the incidental death benefit provisions of Proposed Regulation Section 1.401(a)(9)-2, all of which are incorporated herein by this reference. If the Individual has more than one IRA, the Individual may elect to receive the total amount of the required minimum distributions under all of the IRAs from any one or more of the IRAs, as provided in Notice 88-38. Distribution instructions for the first required minimum distribution must be received, in writing, by the Trustee by March 1 in order to be processed by April 1.
(a) Distributions to the Individual. Generally, federal tax law requires that the Individual's entire interest in the IRA Account must be, or commence to be, distributed by the April 1 of the year following the year in which the Individual attains age 70 1/2 (the "required beginning date"). The minimum amount required to be distributed once the Individual reaches the required beginning date is the IRA Account balance as of December 31 of the calendar year immediately preceding the year for which the distribution is being made divided by the lesser of (i) the applicable life expectancy or (ii) if the Individual's spouse is not the designated Beneficiary, the applicable divisor determined from the table set forth in Q&A-4 or Q&A-5, as applicable, of Proposed Regulation Section 1.401(a)(9)-2. Distributions after the death of the Individual shall be distributed using the applicable life expectancy as the relevant divisor without regard to Proposed Regulation Section 1.401(a)(9)-2. Distributions for subsequent calendar years must be made no later than December 31 of that year. Any monthly, quarterly or semiannual payment shall be one-twelfth, one-fourth or one-half, respectively, of the relevant annual payment.
(b) Distributions on Death. If the Individual dies after distributions have been made on account of the Individual reaching his or her required beginning date, the Individual's entire remaining IRA Account balance must be distributed to the Individual's designated Beneficiary at least as rapidly as under the method of distribution in effect on the Individual's date of death. If the Individual dies before distributions have been made on account of the Individual reaching his or her required beginning date (even if the Individual actually received distributions prior to his or her required beginning date), the general rule is that the Individual's entire remaining IRA Account balance must be distributed in a lump sum or installments on or before December 31 of the calendar year during which the fifth anniversary of the date of the Individual's death occurs. However, if the balance of the Individual's IRA Account is payable to a designated Beneficiary, the designated Beneficiary may elect that the amount be paid in substantially equal installments over a fixed period not exceeding the designated Beneficiary's life expectancy beginning no later than December 31 of the calendar year immediately following the calendar year in which the Individual dies. However, if the Individual's spouse is the designated Beneficiary, such a distribution need not commence until December 31 of the calendar year during which the Individual would have reached age 70 1/2 had the Individual survived. Alternatively, if the Individual's designated Beneficiary is his or her spouse, the spouse may elect to treat the IRA as his or her own IRA. If the Individual's designated Beneficiary makes no election, the five year rule described above shall be applied.
(c) Life Expectancy. Life expectancy must be determined by using the expected return multiples specified in Tables V and VI of Treasury Regulation Section 1.72-9. Such multiples shall be applied by using the Individual's or the Beneficiary's age at the nearest birthday or if determination is made as of age 70 1/2, by using age 70. The life expectancy of the Individual, and/or the Individual's spouse if the spouse is the designated Beneficiary, may be redetermined once annually. The Individual (or, if applicable, the surviving spouse) must make an irrevocable written election to have life expectancy redetermined; if no election is made, life expectancy will not be redetermined. The life expectancy of a non-spouse Beneficiary shall not be redetermined. If life expectancy is not annually redetermined, the life expectancy used for the first year of distribution will be reduced by one for each year thereafter.
6.4 Return of Excess. Notwithstanding anything to the contrary contained in this Agreement, upon notification and request, both in writing, from the Individual that an excess contribution (as defined in Code Section 4973) has been made in any year, any excess contribution, together with any net income allocable thereto, shall be distributed to the Individual.
ARTICLE 7. AMENDMENT AND TERMINATION
7.1 Amendment. This Agreement may be amended by written instrument signed by the Trustee and by the Individual, or by the Trustee and the Beneficiary of the Individual if such Beneficiary is then receiving benefits under Paragraph 6.3. In addition, the Individual hereby delegates to MFS Fund Distributors, Inc. the power to amend this Agreement on behalf of the Individual or Beneficiary. MFS Fund Distributors, Inc. shall notify the Individual or Beneficiary of any such amendment. The Individual or Beneficiary shall be deemed to have consented to any such amendment if he or she fails to object thereto within 30 calendar days from the date such notice is mailed.
7.2 Termination. This Agreement shall terminate upon the complete
distribution of the assets held in the IRA Account or in the event that a
determination is made by the Internal Revenue Service that the IRA Account does
not qualify as an individual retirement account within the meaning of Code
Section 408(a). In the event the IRA Account is terminated, the balance in the
IRA Account shall be distributed to the Individual or to the Beneficiary, as the
case may be.
ARTICLE 8. TRUSTEE
8.1 Communications to Trustee. All notices, requests, directions, instructions and other communications to the Trustee shall be in writing, and in such form as the Trustee may from time to time prescribe; the Trustee shall be entitled to rely on any such communication believed by it to be genuine or properly given and shall have no duty of inquiry with respect to any of the matters stated therein or the consequences to the Individual or Beneficiary thereof, and shall be fully protected in acting or omitting to take any action in reliance upon any such communication.
8.2 Voting. MFS Fund Shares held in the IRA Account shall be voted by, or in accordance with the instructions of, the Individual or Beneficiary. The Trustee shall deliver, or cause to be delivered, to the Individual or to the Beneficiary if the Beneficiary is then receiving benefits under Paragraph 6.3, all notices, financial statements, prospectuses, contracts, proxies and proxy materials relating to the MFS Fund Shares in the IRA Account. The Trustee shall vote MFS Fund Shares held in the IRA Account in accordance with proper voting instructions from the Individual or Beneficiary. Absent such instructions the Trustee is hereby directed to and shall vote such MFS Fund Shares for or against any proposition in the same proportion as all MFS Fund Shares of the relevant MFS Fund for which instructions have been received.
8.3 Powers of Trustee. Except as otherwise limited under the terms of this Agreement, the Trustee shall have the power and authority in the administration of the IRA Account to do all acts, to execute and deliver all instruments and to exercise for the sole benefit of the Individual and his Beneficiary any and all powers which would be lawful were it in its own right the actual owner of the property held, including by way of illustration, but not in limitation of the powers conferred by law, the following:
(a) To sell or exchange any part of the assets of the IRA Account;
(b) To register any asset held by the Trustee in its own name, or in nominee or bearer form that will pass by delivery;
(c) To consent to or participate in dissolutions, reorganization, mergers, sales, transfers or other changes in securities held by the Trustee, and in such connection to delegate the Trustee's powers and to pay assessments, subscriptions, and other charges;
(d) To make distributions from the IRA Account in cash or in kind pursuant to the provisions of the Agreement; and
(e) To invest and reinvest all or a part of the contributions made to the IRA Account and dividends, capital gain distributions or any other income thereon in MFS Fund Shares (including fractional shares carried to the third decimal place) and to retain such Shares without any duty of further diversification.
8.4 Compensation and Expenses. The Trustee shall receive such compensation for its services hereunder as may be agreed upon from time to time by the Trustee and the Individual, or by the Trustee and the Beneficiary of the Individual if the Beneficiary is then receiving benefits under Paragraph 6.3. The Application contains a statement of the Trustee's compensation. MFS Fund Distributors, Inc. is hereby delegated the power to agree to such compensation on behalf of the Individual or Beneficiary, provided that after at least 30 days' notice to the Individual or Beneficiary of any increase in compensation, no objection shall have been made thereto. Any compensation of the Trustee, and any expenses, liabilities or other charges incurred by the Trustee in the administration of the IRA Account, shall be paid from the IRA Account unless paid by the Individual. In addition, the Trustee may, upon such terms and conditions (including without limitation receipt of such documentation) as the Trustee deems necessary, agree to pay directly from the IRA Account certain advisory or other similar fees at the written direction of the Individual or Beneficiary, or his or her designee.
8.5 Resignation and Removal. The Trustee may resign at any time upon notice in writing to MFS Fund Distributors, Inc. and may be removed by MFS Fund Distributors, Inc. at any time upon notice in writing to the Trustee. Any such notice of resignation or removal shall take effect on the date specified therein, which shall not be less than 30 days after the delivery thereof, unless such notice shall be waived by the party entitled to the notice. Upon such resignation or removal, MFS Fund Distributors, Inc. shall appoint a successor trustee, which successor shall be a "bank" (as defined in Code Section 408(n)) or such other person who has demonstrated to the satisfaction of the Commissioner of Internal Revenue that he will administer the trust in a manner consistent with the law. In the event that MFS Fund Distributors, Inc. exercises this power, the Individual or Beneficiary, if such Beneficiary is then receiving benefits under Paragraph 6.3, shall be deemed to have consented to such change of Trustee if no objection is received by MFS Fund Distributors, Inc. within 30 days after the Individual or Beneficiary receives written notice of the change. If within 30 days after the Trustee's resignation or removal MFS Fund Distributors, Inc. has not appointed a successor trustee that has accepted such appointment, the Trustee may apply to a court of competent jurisdiction for appointment of a successor trustee.
Upon receipt by the Trustee of written acceptance of appointment by the successor trustee, the Trustee shall transfer and pay over to such successor the assets of the IRA Account and all records pertaining thereto. The Trustee is authorized, however, to reserve such sum of money as it may deem advisable for payment of all its fees, compensation, costs and expenses, or for payment of any other liabilities constituting a charge on or against the assets of the IRA Account or on or against the Trustee. Any balance remaining after payment of such items shall be paid over to the successor trustee. The successor trustee shall thereafter be deemed to be the Trustee under this Agreement.
If a new sponsor is used as a successor trustee, then the new sponsor cannot rely upon the opinion letter issued to MFS Fund Distributors, Inc.
8.6 Failure to Consent. If the Individual or Beneficiary does not consent to an appointment of a successor trustee, a change in the Trustee's compensation, or an amendment to this Agreement made or agreed to by MFS Fund Distributors, Inc., this Agreement shall be deemed amended by the Individual or Beneficiary, with the result that MFS Fund Distributors, Inc. shall cease to be the sponsor of this Agreement and there will be no further reliance on the opinion letter issued by the Internal Revenue Service to MFS Fund Distributors, Inc. Further, the Trustee shall notify the Individual or Beneficiary as soon as possible following such objection of its resignation as trustee of this IRA Account as of the thirtieth day following the date of such notice. If within thirty (30) days from the date of such notice the Individual or Beneficiary fails to appoint a new trustee or take other appropriate action with respect to the IRA Account, the Individual or Beneficiary directs the Trustee to distribute all assets held under the IRA Account in a lump sum as soon as administratively reasonable after the close of said thirty day period.
ARTICLE 9. RETURN AND REPORTS
9.1 Annual Accounting. The Trustee and/or its nominee shall mail to the Individual, or to the Beneficiary if such Beneficiary is then receiving benefits under Paragraph 6.3, at least once during each calendar year, a report concerning the status of an Individual's IRA Account including statements of all transactions in the IRA Account during the preceding calendar year, and statements showing the value of each asset held in the IRA Account as of December 31 of such preceding year. The Individual or Beneficiary should give the Trustee written notice of any exception or objection to the annual accounting within 60 days after it is so mailed.
9.2 Notice. The annual accounting referred to in Paragraph 9.1 hereof, and all other notices from the Trustee hereunder shall be mailed to the Individual's address appearing on the Application or to such other address as the Individual, or the Individual's Beneficiary if such Beneficiary is then receiving benefits under Paragraph 6.3, has notified the Trustee in writing for this purpose.
9.3 Filing of Returns and Reports. The Trustee shall file such returns
or reports with respect to the IRA Account as are required to be filed by it
under the Code and regulations thereunder, including reports required under Code
Section 408(i), or by the Department of Labor or the Department of Treasury, and
the Individual or Beneficiary shall provide the Trustee with such information as
it may require to file such reports.
ARTICLE 10. ADDITIONAL DEFINITIONS
AAs used herein:
(a) "Beneficiary" shall mean the person or persons currently designated by the Individual (including the individuals, trusts, estates, partnerships, corporations, associations, charitable or educational organizations, or similar entities), or by his Beneficiary if such Beneficiary is then receiving benefits under Paragraph 6.3, as the Beneficiary or Beneficiaries on the form provided for this purpose by the Trustee or, if no such Beneficiary has been designated or is alive at the time of distribution, the executor or other legal representative of the Individual (or his Beneficiary). The initial Beneficiary shall be the person or persons designated as such on the Application. Where there is more than one Beneficiary designated, distributions from the IRA Account shall be made pro rata among those Beneficiaries who are alive at the time of the distribution, unless specified otherwise in the designation form.
(b) "MFS Fund Shares" means shares of any regulated investment company or companies within the meaning of Code Section 851(a) as may be designated by MFS Fund Distributors, Inc.
(c) "Marketable Securities" shall mean: (i) shares of regulated investment companies registered under the Investment Company Act of 1940, as amended; (ii) securities that are traded on a national securities exchange or listed for trading on a national quotation service; and (iii) such other securities as the Trustee, in its discretion, deems to be marketable securities.
Masculine words will be read and construed in the feminine where required by the context.
ARTICLE 11. MISCELLANEOUS
Notwithstanding any other provision in this Agreement, if the Individual has entered into any Spectrum or Select contract(s) relating to this IRA Account, the provisions of said contract(s) shall continue to apply to this IRA Account to the extent applicable.
This IRA Account is established with the intent that it qualify as an "individual retirement account" under Code Section 408(a), and the provisions hereof shall be construed in accordance with such intent. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts, to the extent not superseded by federal law.
This IRA Account is based on the form of prototype IRA trust that was last approved by the Internal Revenue Service (IRS) in Opinion Letter Serial Number D189707a dated April 24, 1995.
EXHIBIT NO. 99.14(b)
MFS 403(B) MUTUAL FUND CUSTODIAL AGREEMENT --JANUARY 1, 1995
(SALARY REDUCTION ONLY)
ARTICLE 1 -- DEFINITIONS
1.1 "ACCOUNT" means the separate account(s) established and maintained pursuant to this Agreement to hold and manage the Contributions made hereunder for the benefit of an Employee.
1.2 "AGREEMENT" means this custodial agreement, which may constitute an amendment and restatement of the MFS 403(b) custodial agreement in effect immediately prior to this custodial agreement (the "Former Agreement"), and the Application executed to establish the Employee's Account, which Application is incorporated into and made a part of this Agreement.
1.3 "APPLICATION" means the properly executed MFS 403(b) Mutual Fund Application and, if applicable, such other or additional documents as may have been or may be required, the execution of which establishes the Employee's Account.
1.4 "BENEFICIARY" means, subject to Section 6.4, if applicable, the person or persons (including trusts or other entities) designated by the Employee as entitled to receive the Employee's Account balance, if any, upon the Employee's death or, if no such designated beneficiary is in existence at the time of the Employee's death, the Employee's estate.
1.5 "CODE" means the Internal Revenue Code of 1986, as amended, and regulations issued thereunder.
1.6 "CONTRIBUTION" means any salary reduction contribution amount transmitted by the Employer to the Custodian, and any rollover or transfer contribution, to be credited to the Employee's Account in accordance with Articles 3 and 5.
1.7 "CUSTODIAN" means The First National Bank of Boston, and any successor entity that satisfies the requirements of Code Section 401(f)(2), designated as the custodian to hold assets under this Agreement.
1.8 "DISTRIBUTOR" means MFS Fund Distributors, Inc., and any successor entity.
1.9 "EMPLOYEE" means an individual employed by the Employer who has obtained such Employer's consent to participate under this Agreement and who has properly executed the Application.
1.10 "EMPLOYER" means the employer named in the Application, provided that such employer is an entity described in Code Section 403(b)(1)(A).
1.11 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and regulations issued thereunder.
1.12 "FUNDS" means the regulated investment companies for which Massachusetts Financial Services Company, and any successor thereto, or affiliate thereof, acts as investment adviser, which Funds have been designated by the Distributor for investment under this Agreement.
ARTICLE 2 -- ESTABLISHMENT OF ACCOUNT
The Custodian shall, in accordance with the terms of this Agreement, establish and maintain an Account for the exclusive benefit of each Employee who has properly become a party to this Agreement and the Employee's Beneficiary. An Account will be established for the benefit of an Employee when (i) the Employer and/or Employee has completed and signed the Application and has mailed or delivered the Application to the Distributor, (ii) the Custodian has accepted the Application, and (iii) if and to the extent the Custodian requires, the Employer consents to the Employee's participation hereunder. To the extent that the Employer's consent is required for the establishment of the Account, the Employer shall be deemed to have consented to the Employee's participation hereunder upon the Employer's payment to the Custodian of any contribution made in accordance with Article 3. The Account shall become effective on the date the Custodian, or its agent, accepts the Application by issuing an investment confirmation to the Employee, provided that the Custodian, or its agent, does not notify the Employee to the contrary within 30 days thereafter.
ARTICLE 3 -- CONTRIBUTIONS
3.1 Regular Contributions. The Employer may make contributions for the
Employee's benefit in accordance with this Article 3, which contributions the
Custodian shall credit to the Employee's Account. The Employer must specify in
writing the amount of each Contribution to be credited to each Employee's
Account. Contributions will be invested only in accordance with Article 4.
Employer Contributions shall be made only pursuant to a written salary reduction
agreement between the Employer and the Employee. Any salary reduction agreement
shall be effective only with respect to amounts the Employee earns after the
agreement becomes effective and may be modified no more than once in any
calendar year. A salary reduction agreement may be terminated at any time, but
only with respect to amounts the Employee earns after such termination. The
Employee shall have sole responsibility for determining (i) that the aggregate
salary reduction Contributions made to the Employee's Account for any taxable
year, when aggregated with any other "elective deferrals" (within the meaning of
Code Section 402(g)) of the Employee for such year, do not exceed the limit on
such elective deferrals prescribed in Code Section 402(g) and (ii) that the
aggregate Employer Contributions made to the Employee's Account for any taxable
year do not exceed the Employee's exclusion allowance as defined in Code Section
403(b)(2) or the applicable limitations on contributions under Code Section
415(c). The Employee shall have sole responsibility for determining whether any
portion of the Employer's Contribution to the Employee's Account for any taxable
year constitutes an excess contribution (within the meaning of Code Section 4973
or Code Section 4979, if applicable), the amount thereof, and the amount of any
income attributable thereto. If, no later than the March 1 immediately following
the close of the calendar year for which there is an excess contribution, the
Employee provides a written notice to the Custodian that the Employee's Account
holds excess contributions, the Custodian shall, no later than the immediately
following April 15, pay to the Employee from his Account the amount of such
excess contribution, and any income attributable thereto. Such notice must
specify the amount of the excess contribution and of any income attributable
thereto and request that the excess contribution be distributed.
3.2 Nature of Contributions. All Contributions made pursuant to this Agreement shall be in cash. The Employee shall at all times have a 100% nonforfeitable right to all amounts credited to his or her Account.
3.3 Nondiscrimination. For years beginning after December 31, 1988, the Employer must permit each individual employed by the Employer who is not an "excluded individual," as defined below, to make a Contribution of more than $200 pursuant to a salary reduction agreement. An "excluded individual" is any employee of the Employer who: (i) is a participant in an eligible deferred compensation plan as described in Code Section 457, a qualified cash or deferred arrangement as described in Code Section 401(k), or another 403(b) annuity contract or custodial account, (ii) is a nonresident alien who receives no earned income (within the meaning of Code Section 911(d)(2)) from the Employer that constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)), or (iii) is a student performing services described in Code Section 3121(b)(10) or an employee who normally works less than 20 hours per week.
ARTICLE 4 -- INVESTMENT OF ACCOUNTS
4.1 Direction of Investment. Amounts credited to the Employee's Account under this Agreement shall be invested only in shares of one or more Funds. The Employee (or the Employee's Beneficiary, if applicable) shall direct the Custodian, in such manner as the Custodian deems appropriate, to invest the Employee's Account in the shares of one or more Funds. For purposes of this Article 4, the Employee (or Beneficiary) may appoint an agent or designee to act on his or her behalf to direct the Custodian as to the investment and reinvestment of the Employee's Account, whose directions the Custodian shall follow upon the Custodian's receipt of notice satisfactory to the Custodian of such agent's or designee's authority. By giving such investment direction (either directly or through such agent or designee), the Employee shall be deemed to have acknowledged receipt of the then current prospectus of each such Fund. The Custodian shall invest the amounts credited to the Employee's Account only in accordance with such direction, subject to any minimum investment limitations or other limitations contained in the prospectus for the applicable Fund or imposed by law. The Custodian shall have no duty to invest Account assets other than pursuant to such properly given directions or to advise the Employee in any way as to the investment of Account assets, nor shall the Custodian, its agents, or the Distributor be liable for any loss resulting from the investment of Account assets in accordance with such investment directions. In the absence of proper investment directions, the Custodian may hold Contributions in cash, and shall not be liable for payment of interest thereon, for such period as the Custodian shall determine in accordance with applicable law. If the Custodian has received no such instructions by the end of any such period, the Custodian shall return such Contributions, without interest, to the Employer.
4.2 Change of Investment. Subject to and otherwise in accordance with
Section 4.1, the Employee (or the Employee's Beneficiary, if applicable) may
direct the Custodian, in such manner as the Custodian deems appropriate, to
change the investment of all or any portion of the Employee's Account from one
or more Funds to one or more other Funds.
4.3 Reinvestment of Assets. All cash dividends and capital gains distributions received with respect to shares of a Fund credited to the Employee's Account shall be reinvested in shares of that Fund unless the Employee (or the Employee's Beneficiary, if applicable) otherwise directs. The Custodian shall elect to take in kind any dividend or other distribution payable either in cash or in kind.
4.4 Registration and Voting of Fund Shares. All Fund shares credited to the Employee's Account shall be registered in the name of the Custodian or its nominee. The Custodian or its agent shall deliver or cause to be delivered to the Employee (or the Employee's Beneficiary, if applicable) all notices, financial statements, prospectuses, contracts, proxies and proxy materials relating to the Fund shares held in the Employee's Account. The Custodian shall vote all Fund shares held in the Employee's Account in accordance with proper voting instructions from the Employee (or the Employee's Beneficiary, if applicable). Absent such instructions the Custodian is hereby directed to and shall vote such Fund shares for or against any proposition in the same proportion as all Fund shares of the relevant Fund for which instructions have been received.
ARTICLE 5 -- ROLLOVERS AND TRANSFERS
5.1 Contributions to Account. The Custodian shall accept rollover
Contributions (including rollover amounts transferred directly by the former
custodian, trustee or insurer) and transfers of assets from an existing Code
Section 403(b) annuity contract or custodial account or Code Section 408
individual retirement account or annuity ("IRA"), the assets of which are
attributable solely to a previous rollover contribution from such an annuity
contract or custodial account, with respect to which this Agreement is eligible
to receive such Contributions. However, the Custodian shall accept such
rollovers or transfers only upon receipt of such certification as the Custodian
may deem necessary from time to time that such Contribution satisfies the
applicable Code provisions for such a rollover Contribution or transfer of
assets.
5.2 Transfers and Rollovers From Account Generally. In addition, the Employee may direct that all or such portion of the assets credited to the Employee's Account as the Employee specifies in writing be rolled over (including a rollover by direct transfer) or transferred to such Code Section 403(b) annuity contract or custodial account or IRA as the Employee specifies in writing, provided that the Employee provides to the Custodian such other written instructions, if any, as the Custodian may reasonably require and a written acceptance of the successor custodian, trustee or insurance company.
5.3 Direct Rollovers From Account.
(a) Effectiveness. This Paragraph 5.3 generally will apply to distributions from the Account made after December 31, 1992. However, if the Employer is a state, a political subdivision thereof, or an agency or instrumentality of either, and as of July 1, 1992 an applicable state law prohibits a direct rollover from a Code Section 403(b) custodial account, this Paragraph 5.3 will apply to distributions from the Account made on or after the earlier of (i) January 1, 1994 or (ii) 90 days after the first day after July 1, 1992 on which a direct rollover is allowed under state law.
(b) Direct Rollover Procedure. If one or more distributions from the Account, to be made in accordance with Section 6.1, constitute "eligible rollover distributions," as defined below, the "distributee," as defined below, shall be given a written explanation concerning the direct rollover of such distributions in accordance with Code Section 402(f). The distributee shall be given a period of thirty days following the date such explanation was provided to him to elect to have all or a portion of the distribution paid directly to an IRA or another Code Section 403(b) custodial account or annuity. If the distributee affirmatively elects to make or not to make a direct rollover within said thirty day period, the Custodian shall make payment of such distribution as soon as reasonable after receipt from the distributee of such election. If the distributee elects a direct rollover, such election must provide the name of the retirement plan to which such payment is to be made, a representation that the retirement plan is an IRA or a Code Section 403(b) account or annuity, and such other information and/or documentation as the Custodian may reasonably require to make such payment. The distributee's election to make or not to make a direct rollover with respect to one distribution that is part of a series of payments will apply to all future distributions until the distributee subsequently changes the election. If the distributee fails to elect whether or not a distribution is to be paid in a direct rollover within said thirty day period, the distributee will be deemed to have elected not to have any portion of the distribution paid in a direct rollover.
(c) Eligible Rollover Distribution Defined. "Eligible rollover
distribution" means any distribution to a distributee of all or any portion of
the distributee's Account, as described in Code Section 402(c)(2) and (4) and
regulations thereunder (except that the distribution is from a Code Section
403(b) account rather than from a qualified plan); an "eligible rollover
distribution" does not include any distribution: (i) that is for a specified
period of ten years or more; (ii) to the extent it is required under Code
Section 401(a)(9); (iii) that is one of a series of substantially equal annual
or more frequent payments made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the distributee
and the distributee's Beneficiary; or (iv) to the extent it is not includible in
gross income.
(d) Distributee Defined. A distributee includes an Employee and a
former Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse who is an
alternate payee under a qualified domestic relations order, as defined in Code
Section 414(p), are distributees with respect to the interest of the spouse or
former spouse.
5.4 In General. A rollover of all or any portion of the Employee's Account may be made only of amounts distributed from the Employee's Account in accordance with Section 6.1. It is the Employee's sole responsibility to determine that no assets transferred to or from the Account are subject after the transfer to less stringent distribution restrictions than those applicable to the account or contract from which the assets are being transferred. Neither the Custodian, or its agents, nor the Distributor shall have any responsibility for the tax treatment to the Employee of any rollover or transfer of assets. If the Employer's Code Section 403(b) plan is governed by a written document separate from this Agreement, any additional or inconsistent provisions of that document shall take precedence over this paragraph, to the extent they are in compliance with applicable laws.
ARTICLE 6 -- DISTRIBUTIONS
6.1 Distribution Events. Subject to Section 7.2(3) and Section 6.5, the Custodian shall make or commence distribution of assets from the Employee's Account only upon receipt of the Employee's request for such distribution and of evidence satisfactory to the Custodian that one of the following events has occurred:
(a) The Employee has separated from service with the Employer;
(b) The Employee has become disabled within the meaning of Code
Section 72(m)(7) (e.g., an inability to engage in any substantial gainful
activity because of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long-continued or
indefinite duration);
(c) The Employee has died;
(d) The Employee has attained age 59 1/2; or
(e) The Employee has encountered financial hardship within the meaning of Code Section 403(b)(7)(A)(ii), but only with respect to salary reduction contributions (but not earnings thereon) for years beginning after December 31, 1988. The Custodian shall make a distribution on account of financial hardship upon receipt of a written certification of such financial hardship. In addition, the Employee must certify that the distribution amount is only of salary reduction contributions and not earnings thereon.
All distributions shall also be subject to the Custodian's right to obtain proper federal income tax withholding election forms and/or to withhold any income or other taxes it is required to withhold by federal law.
6.2 Methods of Distribution. Subject to Sections 6.3 and 6.4 below, the Employee (or Beneficiary, if applicable) shall elect to receive distributions from the Employee's Account in any one or more of the following forms:
(a) A single sum payment in cash or Fund shares;
(b) Substantially equal monthly, quarterly, semiannual, or annual payments in cash or in Fund shares over a period certain not to exceed the life expectancy of the Employee or the joint and last survivor life expectancy of the Employee and the Employee's Beneficiary; or
(c) A nontransferable fixed or variable annuity contract, purchased from an insurance company and delivered to the Employee, that provides substantially equal monthly, quarterly, semiannual, or annual payments over the life of the Employee or over the joint lives of the Employee and his or her Beneficiary with a survivor annuity for the life of the survivor in an amount equal to not less than 50% nor more than 100% of the amount payable during the joint lives of the Employee and Beneficiary, and that otherwise satisfies applicable regulations and rulings under Code Sections 403(b) and 401(a)(9).
Subject to Section 6.4, the Employee's Beneficiary shall be entitled to elect the method of distribution of all assets in the Employee's Account remaining at the death of the Employee unless the Employee has elected to receive distribution under (3) above or has specified the form of distribution to be made to the Beneficiary.
Subject to Section 6.4 and Section 7.2(3), if the Employee or Beneficiary fails to elect a method of distribution, he or she shall be deemed to have elected a single sum distribution in cash.
6.3 Required Distributions. In general, distributions from the
Employee's Account must be made as required pursuant to the minimum distribution
rules under Code Section 403(b)(10), Proposed Regulation 1.403(b)-2, Code
Section 401(a)(9) and Proposed Regulation Section 1.401(a)(9)-1 (the "minimum
distribution rules"), as described in this Section 6.3. The minimum distribution
rules permit calculation of minimum required distributions by excluding the
Employee's Account balance valued as of December 31, 1986 but including all
earnings (whether on contributions made before or after January 1, 1987) and
contributions after December 31, 1986; the amount attributed to the pre-1987
account balance must be reduced under this method by the amount of any
distributions from the Account after December 31, 1986 that are not required
under the minimum distribution rules. This required minimum distribution
calculation method is permitted only if records of the Account have been kept
that are sufficient to enable identification and maintenance of the pre-1987
account balance amount. Alternatively, the minimum distribution rules can be
applied to the Employee's entire Account balance; this is the only method of
calculation available if the pre-1987 account balance amount either cannot be,
or is not, calculated. The incidental death benefit provisions of Code Section
403(b)(10), Proposed Regulation 1.403(b)-2 Q&A-3, and Proposed Regulation
Section 1.401(a)(9)-2 (the "incidental death benefit rule") shall also apply to
the Employee's account to the extent required thereunder. The minimum
distribution rules, the incidental death benefit rule, and any other regulations
or rulings then in effect thereunder, are incorporated herein by this reference,
and shall be deemed to modify the provisions in this Section to the extent such
provisions are inconsistent with said rules. If the Employee has more than one
Code Section 403(b) custodial account or annuity ("403(b)"), the Employee may
elect to receive the total amount of the required minimum distributions under
all of the 403(b)s from any one or more of the 403(b)s, as provided in Notice
88-38. Distribution instructions for the first required minimum distribution
must be received, in writing, by the Custodian by March 1 in order to be
processed by April 1.
(a) Distributions to the Employee. Federal tax law requires that the applicable Account balance of an Employee born after June 30, 1917 must be, or commence to be, distributed by the April 1 of the calendar year following the year in which the Employee attains age 70 1/2; the applicable Account balance of an Employee born on or before June 30, 1917 must be, or commence to be, distributed by the April 1 of the calendar year next following the later of the calendar year in which the Employee attains age 70 1/2 or the calendar year in which he retires (the "required beginning date"). The minimum amount required to be distributed once the Individual reaches the required beginning date is the Employee's applicable Account balance as of December 31 of the calendar year immediately preceding the year for which the distribution is being made divided by the Employee's life expectancy or the joint life and last survivor expectancy of the Employee and his or her Beneficiary, determined in accordance with applicable regulations and rulings (as discussed in Paragraph 6.3(c) below). Distributions for subsequent calendar years must be made no later than December 31 of that year. Any monthly, quarterly, or semiannual payment shall be one-twelfth, one-fourth, or one-half, respectively, of the relevant annual payment.
(b) Distributions on Death. If the Employee dies after distributions have been made on account of the Employee reaching his or her required beginning date, the Employee's entire remaining applicable Account balance must be distributed to the Employee's designated Beneficiary at least as rapidly as under the method of distribution in effect on the Employee's date of death. If the Employee dies before distributions have been made on account of the Employee reaching his or her required beginning date (even if the Employee actually received distributions prior to his or her required beginning date), the general rule is that the Employee's entire remaining applicable Account balance must be distributed in a lump sum or installments on or before December 31 of the calendar year during which the fifth anniversary of the date of the Employee's death occurs. However, if the Employee's entire remaining applicable Account balance is payable to a designated Beneficiary, the designated Beneficiary may elect that the amount be paid in substantially equal installments over a fixed period not exceeding the designated Beneficiary's life expectancy beginning no later than December 31 of the calendar year immediately following the calendar year in which the Employee dies. However, if the Employee's spouse is the designated Beneficiary, such a distribution need not commence until December 31 of the calendar year during which the Employee would have reached age 70 1/2 had the Employee survived. If the Employee's designated Beneficiary makes no election, the five year rule described above shall be applied.
(c) Life Expectancy; Incidental Death Benefits. Life expectancy must be determined by using the expected return multiples specified in Tables V and VI of Treasury Regulation Section 1.72-9. Such multiples shall be applied by using the Employee's or the Beneficiary's age at the nearest birthday or if determination is made as of age 70 1/2, by using age 70. The life expectancy of the Employee, and/or the Employee's spouse if the spouse is the designated Beneficiary, may be redetermined once annually. The Employee (or, if applicable, the surviving spouse) must make an irrevocable written election to have life expectancy redetermined; if no election is made, life expectancy will not be redetermined. The life expectancy of a non-spouse Beneficiary shall not be redetermined. If life expectancy is not annually redetermined, the life expectancy used for the first year of distribution will be reduced by one for each year thereafter. If the Employee's spouse is not the designated Beneficiary, the method of distribution used must ensure that the present value (determined at the time distribution commences) of payments of the Employee's total applicable Account to be made to the Employee over his or her life expectancy (as determined under Treasury Regulation Section 1.72-9) equals at least 50% of the present value of the total payment to be made, in accordance with Proposed Regulation Section 1.401(a)(9)-2 Q&A-2, as applied by Proposed Regulation Section 1.403(b)-2. For calendar years beginning after December 31, 1988, the minimum distribution incidental death benefit requirements of Proposed Regulation Section 1.401(a)(9)-2 Q&A-3 through Q&A-7, as applied by Proposed Regulation Section 1.403(b)-2, shall apply to the applicable Account balance.
6.4 Special Rule for Agreements Subject to ERISA. If this Agreement is subject to ERISA by reason of the Employer's involvement in activities related to the Agreement or otherwise, as determined under ERISA Section 3(2) and regulations and rulings thereunder, the following rules shall apply.
(a) Plan Administrator. If the Employer determines that this Agreement is subject to ERISA, the Employer shall so notify the Custodian in writing as soon as practicable. The plan administrator of this Agreement shall be the Employer, except to the extent that the Employer designates one or more other persons in writing and such person(s) agree in writing to serve as such; the plan administrator shall be the "named fiduciary" for purposes of ERISA.
(b) Spousal Consent; Form of Benefit. Unless an Employee otherwise elects as provided below, distribution to the Employee shall be made in the form of an annuity for his or her life or, if the Employee is married, in the form of a joint and survivor spousal annuity. An unmarried Employee may elect to waive the single life annuity form of benefit by electing during the applicable election period prescribed in ERISA Section 205 an alternative form of benefit and certifying in writing that he or she has no spouse. A married Employee may elect to waive the joint and survivor spousal annuity form of benefit and/or to designate a Beneficiary other than or in addition to his or her spouse during the applicable election period prescribed in ERISA Section 205 only by obtaining the spouse's consent in writing to the election, which consent must acknowledge the effect of the election and be witnessed by a notary public. In the event of the death of a married Employee before distribution to him or her has begun, the portion of the Employee's Account required to be distributed as a "qualified preretirement survivor annuity", as defined in ERISA Section 205(e), shall be distributed to the Employee's spouse, unless the Employee's spouse has consented (during the applicable election period prescribed in ERISA Section 205 and in the manner described above) to the Employee's designation of a Beneficiary other than or in addition to the spouse. Upon receipt of notification that a distribution event, as described in Section 6.1 above, has occurred, the plan administrator shall provide to the Employee a written explanation of the terms and conditions of the single life annuity or joint and survivor spousal annuity, as applicable; the Employee's right to make, and the effect of, an election to receive distributions in a form other than such an annuity; the right of the Employee's spouse, if any, to withhold consent to such an election; and the Employee's right to revoke an election prior to commencement of distributions.
(c) Nonalienation. In addition, if this Agreement is subject to ERISA, an Employee's Account cannot be assigned or alienated, except in accordance with the terms of a "qualified domestic relations order," as provided under ERISA Section 206(d).
6.5 Qualified Domestic Relations Orders.
(a) Right to Benefit. The right to receive benefits payable
hereunder may be assigned to the Employee's spouse, former spouse, child, or
other dependent ("alternate payee") pursuant to the terms of a domestic
relations order if the order is determined to be a qualified domestic relations
order within the meaning of Code Section 414(p) and ERISA Section 206 ("QDRO").
The existence and validity of a QDRO shall be determined by the Employer or
other person designated by the plan administrator. Any distribution pursuant to
a QDRO shall be effected only at the written direction of the Employer or other
plan administrator, accompanied by such other information as the Custodian may
reasonably require including, without limitation, a statement that the
distribution is subject to and in accordance with Code Section 414(p) and ERISA
Section 206.
(b) Distribution Pursuant to Order. Any benefit payable from the Employee's Account to an alternate payee pursuant to the terms of a QDRO shall be payable as soon as administratively reasonable after the order is determined to be a QDRO, without regard to whether the Employee has reached his "earliest retirement age" as defined in Code Section 414(p) and ERISA Section 206(d). The actual time and manner of such payment shall be as provided under the QDRO consistent with applicable law and the distribution provisions of this Agreement.
ARTICLE 7 -- THE CUSTODIAN
7.1 Duties of the Custodian. The Custodian shall:
(a) Receive Contributions transmitted to it in accordance with this Agreement;
(b) Invest and reinvest Account assets in Fund shares in accordance with this Agreement;
(c) Make distributions from the Account in accordance with this Agreement;
(d) Maintain accurate and detailed records of all the transactions in the Account
(e) File with the Internal Revenue Service and/or any other governmental agency such returns, reports, forms and other information as may be required of it as Custodian;
(f) Provide to the Employee at least one time each calendar year a statement of all transactions in the Employee's Account during the preceding year and a statement showing the value of assets held in the Account as of the end of such year. To the extent permitted by law, 30 days after providing the Employee with the statements described above, the Custodian shall be released and discharged from all liability to the Employee or any third party as to the matters contained in such statement unless the Employee files written objections thereto with the Custodian within such 30-day period; and
(g) Perform all other duties and services consistent with the purposes and intentions of this Agreement. The Custodian may perform any of its administrative duties through other persons designated by the Custodian from time to time.
7.2 Limitations on Duties and Liabilities. As used in this Section 7.2, the terms "Custodian" and "Distributor" shall include their agents, affiliates, successors, assigns, officers, directors and employees.
(a) The Custodian shall be fully protected in acting or omitting to take any action in reliance upon any direction, instruction or other document or order believed by the Custodian to be genuine or properly given; the Custodian shall also be fully protected in acting or omitting to take any action in reliance on its belief that any such direction, instruction, document or other order either is not genuine or is not properly given. The Custodian shall not be required to carry out any instructions not given in accordance with this Agreement and neither the Custodian nor the Distributor shall be liable for loss of income or for appreciation or depreciation in Fund Share value that shall result from the Custodian's failure to follow instructions not given in accordance with this Agreement. If instructions are received that, in the opinion of the Custodian, are unclear, neither the Custodian nor the Distributor shall be liable for loss of income or for appreciation or depreciation in Fund Share value during the period preceding Custodian's receipt of written clarification of the instructions.
(b) Neither the Custodian nor the Distributor shall have any responsibility with regard to the initial or continued qualification of the Account under Code Section 403(b)(7).
(c) Neither the Custodian nor the Distributor shall be held responsible for determining the amount, character or timing of any distribution to the Employee or for determining whether the Agreement is subject to ERISA. The Custodian shall have no responsibility to make any distribution to or process any withdrawal by the Employee or Beneficiary unless and until it receives the requisite written instructions given in accordance with this Agreement and any and all applications, certificates, tax waivers, signature guarantees and other documents deemed necessary or advisable by the Custodian.
(d) The Custodian shall neither assume nor have any duty to inquire about any matter arising under the Agreement.
(e) To the extent permitted by law, the Employee shall fully indemnify the Custodian and the Distributor and hold them harmless from any and all liability whatsoever which may arise either (i) in connection with this Agreement and matters which it contemplates (except that which arises due to the indemnitee's negligence or willful misconduct) or (ii) with respect to making or failing to make any distribution other than for failure to make distribution in accordance with instructions therefor which are in full compliance with the provisions of this Agreement.
(f) Except as required by law, neither the Custodian nor the Distributor shall be obligated or expected to commence or defend a legal action or proceeding in connection with this Agreement, unless the Custodian or Distributor and the Employee or Beneficiary agree that the Custodian or Distributor, as applicable, will defend a given legal action and the Custodian or Distributor, as applicable, is fully indemnified for so doing to its satisfaction.
7.3 Compensation. In consideration for its services hereunder, the Custodian shall be entitled to receive the applicable fees specified in its fee schedule at the time the Employee completes the Application, or in accordance with any fee schedule subsequently adopted by the Custodian, upon 30 days' written notice to the Employee. The Employee may pay the Custodian's fee directly; if not so paid, said fee shall be payable from the Employee's Account.
7.4 Expenses. The Custodian shall have a right to pay out of the Employee's Account all expenses, fees and administrative costs incurred by the Custodian in the performance of its duties as Custodian (including fees for legal services rendered to the Custodian) or taxes levied or assessed upon or in respect of the Account. The Custodian is authorized either to redeem Fund Shares and use the proceeds of redemption to pay the foregoing expenses, fees, administrative costs, or taxes, or to charge the Employee directly therefor. In addition, the Custodian may, upon such terms and conditions (including without limitation receipt of such documentation) as the Custodian deems necessary, agree to pay directly from the Account certain advisory or other similar fees at the written direction of the Employee or Beneficiary or his or her designee.
7.5 Resignation and Removal of Custodian. The Employee delegates to the Distributor the power and authority to remove the Custodian. The Distributor may remove the Custodian hereunder by giving at least 30 days' written notice to the Custodian. The Custodian may resign by giving at least 30 days' written notice to the Distributor. Upon such resignation or removal the Distributor shall designate a successor custodian qualified pursuant to Section 1.7 of this Agreement, which successor custodian shall accept such appointment in writing. Upon receipt by the Custodian of the written acceptance of appointment by the successor custodian, the Custodian shall transfer to the successor custodian the assets and records (or copies thereof) of the Account; provided, however, that the Custodian may retain whatever assets it reasonably deems necessary for payment of its fees, costs, expenses, compensation and any other liabilities which constitute a charge on or against the assets of the Account or on or against the Custodian.
ARTICLE 8 -- AMENDMENT AND TERMINATION
8.1 Amendment. The Employee and Custodian delegate to the Distributor the power to amend this Agreement (including retroactive amendments) in whole or in part at any time. The Distributor shall provide prompt written notice and a copy of any such amendment to the Employee and Custodian. The Employee shall be deemed to have accepted such amendment unless the Employee objects thereto in writing submitted to the Distributor within 30 days after the Distributor provides notice of such amendment. The Employee may amend the Agreement by amendment of the Application, which amended Application must be completed and submitted in accordance with Article 2 to be effective.
However, no amendment shall be made that: (i) would impose any additional duties on the Custodian without its written consent; (ii) would cause or permit any part of the Account to be used for, or diverted to, any purpose other than for the exclusive benefit of the Employee or Beneficiary, except to the extent required by law, or cause or permit any portion of such assets to revert to or become the property of the Employer; or (iii) would retroactively deprive any Employee or Beneficiary of any benefit to which he or she is entitled under the Agreement, unless such amendment is necessary to conform the Agreement to or satisfy the conditions of any law, governmental regulation or ruling.
8.2 Termination. The Account of an Employee shall automatically
terminate when all assets held in the Account have been distributed. The Account
of an Employee shall also terminate upon a determination by the Internal Revenue
Service that the Employee's Account does not qualify under Code Section
403(b)(7); upon such termination, the Custodian shall distribute all assets in
the Account to the Employee or the Employee's Beneficiary in accordance with
Article 6.
ARTICLE 9 -- MISCELLANEOUS
9.1 Nonalienability. No interest of the Employee or Beneficiary in the
Account shall be subject in any manner to anticipation, alienation, sale,
transfer, pledge, incumbrance, trustee process, garnishment, attachment,
execution or levy of any kind, except with regard to payments pursuant to
Section 6.5 and payments of the expenses of the Custodian or its agents as
authorized under this Agreement and except to the extent required by law.
9.2 Applicable Law. This Agreement shall be construed and administered in accordance with the internal laws of the Commonwealth of Massachusetts, to the extent that such laws are not preempted by the laws of the United States.
9.3 Successors. This Agreement shall be binding upon and inure to the benefit of the successors in interest of the parties hereto.
9.4 Construction. It is intended that this Agreement qualify as a custodial account under Code Section 403(b)(7); pursuant to that intent, this Agreement shall be construed and administered in accordance with, and limited by, all applicable laws.
9.5 Separability. If any provision of this Agreement shall be held invalid or illegal for any reason, the Agreement shall be construed and enforced as if such invalid or illegal provision had never been included in this Agreement, and such determination shall not affect any remaining provisions of this Agreement.
EXHIBIT NO. 99.14(c)
MFS
PROTOTYPE PAIRED DEFINED
CONTRIBUTION PLANS FOR
CORPORATIONS, ASSOCIATIONS AND
SELF-EMPLOYED INDIVIDUALS
NOVEMBER, 1994
BASIC PLAN DOCUMENT NUMBER 01
MFS PROFIT SHARING RETIREMENT PLAN AND TRUST
MFS 401(K) CASH-OR-DEFERRED PROFIT SHARING
RETIREMENT PLAN AND TRUST
MFS MONEY PURCHASE PENSION PLAN AND TRUST
THIS PLAN AND TRUST AGREEMENT entered into by and between the Employer and the Trustees specified in Items 1 and 10 of the Adoption Agreement, which is attached hereto and made a part hereof, is adopted by the Employer on the execution of the Adoption Agreement by the Employer and the Trustees and includes the provisions specified by the Employer in the Adoption Agreement.
The purpose of this Plan (hereinafter referred to as the "Plan" or "Trust") is to provide retirement benefits and other related benefits for the exclusive benefit of Employees of the Employer who qualify as Participants under the terms and conditions set forth herein, and their Beneficiaries.
TABLE OF CONTENTS
ARTICLE DESCRIPTION PAGE NO.
I Purpose and Qualification 1
II Definitions 1
III Eligibility and Participation 12
IV Cash or Deferred Contributions and Allocations 13
V Profit Sharing and Money Purchase Contributions
and Allocations 22
VI Participant Contributions and Rollovers 24
VII Provisions Relating to Top Heavy Plans 25
VIII Limitations on Allocations 30
IX Retirement Benefits 37
X Rights to Benefits on Termination of Employment 43
XI Death Benefits 45
XII Distribution of Benefits 47
XIII Amendment, Termination and Merger of Plan and Trust 56
XIV Provisions Relating to the Trustees 58
XV Provisions Relating to Policies 65
XVI Administrative Provisions 68
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This document and its Adoption Agreements incorporate provisions reflecting changes made by the Tax Reform Act of 1986 and by the Omnibus Budget Reconciliation Act of 1993 ("OBRA'93"), and is available to plans adopted by corporations, self-employed individuals, and partnerships. Please be advised that the Prototype Sponsoring Organization, MFS Investor Services, Inc., changed its name to MFS Fund Distributors, Inc., effective January 1, 1995.
ARTICLE I -- PURPOSE AND QUALIFICATION
1.1 It is the sole responsibility of an Employer that executes a non-standardized Adoption Agreement to secure a determination that the Plan meets the requirements for qualification under the Internal Revenue Code and it is the responsibility of an Employer who adopts a standardized or nonstandardized Adoption Agreement together with the Trustee and Plan Administrator to make such reports and furnish such information as shall be required by the Internal Revenue Code and regulations thereunder.
1.2 All Employers that execute a nonstandardized Adoption Agreement intend that this Plan and Trust be approved by the Internal Revenue Service as a tax exempt, qualified employees' cash-or-deferred profit sharing retirement plan and trust and that contributions to the Trust be deductible for federal income tax purposes. In the event that the Trust is not initially approved by the Internal Revenue Service, the following procedure may be followed:
(a) The Employer may terminate the Trust, in which event no Participant or Beneficiary shall have any right or claim to any assets of the Trust other than Employee contributions and elective deferrals;
(b) If the Trust is terminated pursuant to Section 1.2(a) above, the Employer shall direct the Trustees to make whatever arrangements may be feasible to liquidate invested trust funds; and
(c) On such termination, the Trustees are entitled to deduct any amounts which may be due to them from the Employer for expenses or otherwise from amounts recovered upon a complete liquidation of trust investments and from any other amount held by them, and the Trustees shall pay over any remaining trust funds to the Employer; provided, however, that any such remaining trust funds must be returned to the Employer within 1 year after the date the initial qualification is denied, but only if the application for the qualification is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe.
ARTICLE II -- DEFINITIONS
The following words and phrases used in this Plan and Trust Agreement shall have the meanings set forth below:
2.1 "ACCRUED BENEFIT" means the sum of (a) the balance of a Participant's
Account as of the last day of the Plan Year coinciding with or next preceding
the date the calculation is required, or the current value attributable thereto,
if applicable pursuant to Section 14.8 herein; plus (b) any Employer
contributions due in respect of the Participant for the current Plan Year; plus
(c) any Employee Contributions (including rollovers) made by the Participant
which were not applied to annuity contracts but have not yet been credited to
the Participant's Account, or the current value attributable to any such
contributions, if applicable.
2.2 "ACTUAL DEFERRAL PERCENTAGE" or "ADP" means, for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each participant in such group) of (1) the amount of Employer contributions actually paid over to the Trust on behalf of such Participant for the Plan Year to (2) the Participant's Compensation for such Plan Year (whether or not the Employee was a Participant for the entire Plan Year provided, however, that the Employer may limit the amount of Compensation taken into account to Compensation received while the Employee is an Employee eligible to participate in the Plan if this limit is applied uniformly to all eligible Employees under the Plan). Employer contributions on behalf of any Participant shall include: (1) any Elective Deferrals made pursuant to the Participant's deferral election, including Excess Elective Deferrals (including Excess Elective Deferrals of Highly Compensated Employees), but excluding (a) Excess Elective Deferrals of Non-highly Compensated Employees that arise solely from Elective Deferrals made under the Plan or plans of this Employer and (b) Elective Deferrals that are taken into account in the ACP test set forth in Section 4.6 (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals); and (2) subject to such requirements as may be prescribed by the Secretary of the Treasury and at the election of the Employer, all or a portion of Qualified Nonelective Contributions and Qualified Matching Contributions. For purposes of computing Actual Deferral Percentages, an employee who would be a Participant but for the failure to make Elective Deferrals shall be treated as a Participant on whose behalf no Elective Deferrals are made. "ADP TEST" means the requirement set forth in Subsection 4.2(a) of the Plan.
2.3 "ADOPTION AGREEMENT" means the document which the Employer executes in order to adopt this Plan and Trust.
2.4 "AFFILIATED EMPLOYER" means any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Employer, any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to regulations under Section 414(o) of the Code.
2.5 "AGE" means actual attained age.
2.6 "ANNIVERSARY DATE" means the first day of each Plan Year.
2.7 "ANNUITY STARTING DATE" means the first day of the first period for which an amount is paid as an annuity or any other form.
2.8 "AVERAGE CONTRIBUTION PERCENTAGE" or "ACP" means the average (expressed as a percentage) of the Contribution Percentages of the Eligible Participants in a group. "ELIGIBLE PARTICIPANT" means any Employee who is eligible to make an Employee Contribution, or an Elective Deferral (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or to receive a Matching Contribution (including forfeitures) or a Qualified Matching Contribution. If an Employee Contribution is required as a condition of participation in the Plan, any Employee who would be a Participant in the Plan if such Employee made such a contribution shall be treated as an ELIGIBLE PARTICIPANT on behalf of whom no Employee Contributions are made. "ACP TEST" means the requirement set forth in Section 4.6 of the Plan.
2.9 "BENEFICIARY" means any person(s) or legal entity entitled to receive, in accordance with the provisions of this Trust, the benefits payable on the death of a Participant.
2.10 "BREAK IN SERVICE" means a Plan Year during which a Participant does not complete more than 500 Hours of Service with the Employer. Solely for purposes of determining whether a Break in Service, for participation and vesting purposes has occurred in a computation period, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 hours of service per day for such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period, or (2) in all other cases, in the following computation period.
2.11 "CODE" means the Internal Revenue Code of 1986, as amended from time to time.
2.12 "COMPENSATION" for purposes of Item 4 and Item 5 of the Adoption
Agreement, means, subject to the provisions and elections in Item 4.(b), Item
5.(b) or (c) of the Adoption Agreement, wages as defined in Section 3401(a) and
all other payments of compensation to an Employee by the Employer (in the course
of the Employer's trade or business) for which the Employer is required to
furnish the Employee a written statement under Sections 6041(d), 6051(a)(3) and
6052 of the Code. Compensation must be determined without regard to any rules
under Section 3401(a) that limit the remuneration included in wages based on the
nature or location of the employment or the services performed (such as the
exception for agricultural labor in Section 3401(a)(2)). For purposes of
determining the Actual Deferral Percentage and the Contribution Percentage under
Article IV herein, "COMPENSATION" means the amount determined under the
preceding sentence or, if elected by the Employer from year to year on a
reasonable and consistent basis, such other amount of "Compensation" as is
defined under Section 414(s) of the Code and the regulations thereunder. For
purposes of Articles VII and VIII, "COMPENSATION" shall be as determined in
accordance with Section 8.2. Compensation shall include only that Compensation
which is actually paid to the Participant during the Plan Year. Notwithstanding
the above, if specified in the Adoption Agreement or elected by the Employer in
the Adoption Agreement, Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction agreement and which
is not includible in the gross income of the Employee under Sections 125,
402(a)(8), 402(h) or 403(b) of the Code.
The annual Compensation for each Participant taken into account under the Plan for any Plan Year shall not exceed $200,000, as adjusted by the Secretary at the same time and in the same manner as under Section 415(d) of the Code. In determining the Compensation of a Participant for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then (except for purposes of determining the portion of Compensation up to the integration level if this plan provides for permitted disparity), the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this Section prior to the application of this limitation.
For any self-employed individual Compensation will mean Earned Income. Earned Income means the net earnings from self-employment in the trade or business with respect to which the Plan is established, for which personal services of the individual are a material income-producing factor. Net earnings will be determined without regard to items not included in gross income and the deductions allocable to such items. Net earnings are reduced by contributions by the Employer to a qualified plan to the extent deductible under Section 404 of the Code. Net earnings shall be determined with regard to the deduction allowed to the employer by Section 164(f) of the Code for taxable years beginning after December 31, 1989.
Except as otherwise provided herein, if Multiple Entry Dates are selected in Item 3(c) of the Adoption Agreement, a Participant's Compensation for the Plan Year of initial participation or resumption of participation shall be Compensation for the Plan Year as determined above multiplied by a fraction, the numerator of which is the number of months during the Plan Year in which the Participant was an active Participant, and the denominator of which is 12.
2.13 "CONTRIBUTION PERCENTAGE" of a Participant means the ratio (expressed as a percentage) of the Participant's Contribution Percentage Amounts to the Participant's Compensation for the Plan Year (whether or not the Employee was a Participant for the entire Plan Year provided, however, that the Employer may limit the amount of Compensation taken into account to Compensation received while the Employee is an Employee eligible to participate in the Plan if this limit is applied uniformly to all eligible Employees under the Plan. "Contribution Percentage Amounts" shall mean the sum of the Employee Contributions, Matching Contributions, and Qualified Matching Contributions (to the extent not taken into account for purposes of the ADP Test) made under the plan on behalf of the Participant for the Plan Year. Such Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions. If so elected, the Employer may include all or a portion of Qualified Nonelective Contributions in the Contribution Percentage Amounts. The Employer also may elect to use all or a portion of Elective Deferrals in the Contribution Percentage Amounts so long as the ADP test is met before the Elective Deferrals are used in the ACP Test and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP Test. Inclusion of Qualified Nonelective Contributions and Elective Deferrals in the Contribution Percentage Amounts shall be subject to such requirements as may be prescribed by the Secretary of the Treasury.
2.14 "DISABILITY RETIREMENT DATE" means the first day of the month coinciding with or next following the day on which a Participant is certified in writing by a qualified physician to be Disabled.
2.15 "DISABLED" means to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of such impairment shall be supported by medical evidence. Disability means the condition of being Disabled.
2.16 "EARLY RETIREMENT DATE" means the first day of the month coinciding with or next following the day on which a Participant retires before his Normal Retirement Date provided that the Employer has elected to permit early retirement in Item 8(b)(2) of the Adoption Agreement and the Participant meets the requirements set forth therein.
2.17 "EFFECTIVE DATE" means the effective date of the Plan specified in Item 2(e) of the Adoption Agreement; provided, however, that the provisions of this Plan shall be effective at such date as may be required to maintain the Plan as a qualified plan under the Code and regulations thereunder or to avoid any adverse tax consequences to the Employer and/or Participants.
2.18 "ELECTIVE DEFERRALS" means contributions made to the Plan during the
Plan Year by the Employer, at the election of the Participant, in lieu of cash
compensation and shall include contributions that are made pursuant to a salary
reduction agreement or other deferral mechanism. With respect to any taxable
year, a Participant's Elective Deferral is the sum of all employer contributions
made on behalf of such Participant pursuant to an election to defer under any
qualified cash or deferred arrangement ("CODA") as described in Section 401(k)
of the Code, any simplified employee pension cash or deferred arrangement as
described in Section 402(h)(1)(B), any eligible deferred compensation plan under
Section 457, any plan as described under Section 501(c)(18), and any employer
contributions made on the behalf of a Participant for the purchase of an annuity
contract under Section 403(b) pursuant to a salary reduction agreement. Such
contributions must be nonforfeitable when made and distributable only as
specified in Section 12.11 herein. Elective Deferrals shall not include any
deferrals properly distributed as excess annual additions.
2.19 "ELIGIBILITY COMPUTATION PERIOD" in determining Years of Service and Breaks in Service for purposes of eligibility, the initial eligibility computation period shall be a 12-consecutive month period beginning on the date the employee first performs an Hour of Service for the Employer (employment commencement date). The succeeding eligibility computation period shall be the Plan Year, beginning with the first Plan Year which commences prior to the first anniversary of the Employee's employment commencement date regardless of whether the Employee is entitled to be credited with 1,000 Hours of Service during the initial eligibility computation period. Years of Service and Breaks in Service will be measured on the same Eligibility Computation Period.
2.20 "EMPLOYEE" means employees of the Employer and shall include leased employees. Employee shall also mean an employee of an Affiliated Employer provided, however, employees of Affiliated Employers are eligible to participate in the plan only if the plan is a Standardized Plan or, in the case of a Nonstandardized Plan, if the Affiliated Employer has adopted the Plan and assumed the responsibilities thereunder. The term "leased employee" means any person (other than an employee of the recipient employer) who pursuant to an agreement between the recipient Employer and any other person ("leasing organization") has performed services for the recipient Employer (or for the recipient Employer and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by employees in the business field of the recipient Employer. Contributions or benefits provided a leased employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer.
A leased employee shall not be considered an Employee of the recipient if:
(i) such employee is covered by a money purchase pension plan providing: (1) a
nonintegrated employer contribution rate of at least 10 percent of compensation,
as defined in Section 415(c)(3) of the Code, but including amounts contributed
pursuant to a salary reduction agreement which are excludable from the
employee's gross income under Section 125, Section 402(a)(8), Section 402(h) or
Section 403(b) of the Code, (2) immediate participation, and (3) full and
immediate vesting; and (ii) leased employees do not constitute more than 20
percent of the recipient Employer's Non-highly Compensated workforce.
2.21 "EMPLOYEE CONTRIBUTIONS" means contributions to the plan made by a Participant or on behalf of a Participant that is included in the Participant's gross income in the year in which made and that is maintained under a separate account to which earnings and losses are allocated.
2.22 "EMPLOYER" means the business organization specified in Item 1 of the Adoption Agreement, any successor business organization, by merger, purchase, or otherwise, or any predecessor business organization which has maintained this Plan.
2.23 "ENTRY DATE" means the date, or dates, selected in Item 3(c) of the Adoption Agreement and subsequent anniversaries of such dates.
2.24 "ERISA" means Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time.
2.25 "EXCESS AGGREGATE CONTRIBUTIONS" means with respect to any Plan Year, the excess of:
(a) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the ACP Test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages).
2.26 "EXCESS CONTRIBUTIONS" means, with respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP Test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of the ADPs, beginning with the highest of such percentages).
2.27 "EXCESS ELECTIVE DEFERRALS" means those Elective Deferrals that are includible in a Participant's gross income under Section 402(g) of the Code to the extent such Participant's Elective Deferrals for a taxable year exceed the dollar limitation under such Code section. Excess Elective Deferrals shall be treated as annual additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year.
2.28 "FAMILY MEMBER" means an individual described in Section 414(q)(6)(B) of the Code and includes the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants.
2.29 "FORMER PARTICIPANT" means a Participant who is no longer an Employee but who has a nonforfeitable right to a portion of his Accrued Benefit attributable to Employer Contributions which has not been paid in full.
2.30 "HIGHLY COMPENSATED EMPLOYEE" means an Employee described in Section 414(q) of the Code and shall include highly compensated active Employees and highly compensated former Employees.
(a) A highly compensated active Employee includes any Employee who performs service for the Employer during the determination year and who, during the look-back year:
(i) received compensation from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code);
(ii) received compensation from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a member of the top-paid group for such year; or
(iii) was an officer of the Employer and received compensation during such year that is greater than 50 percent of the dollar limitation in effect under Section 415(b)(1)(A) of the Code. The term "Highly Compensated Employee" also includes: (i) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who received the most compensation from the employer during the determination year; and (ii) Employees who are 5 percent owners at any time during the look-back year or determination year.
(b) If no officer has satisfied the compensation requirement of (iii) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a highly compensated employee.
(c) For this purpose, the determination year shall be the Plan Year. The look-back year shall be the twelve-month period immediately preceding the determination year.
(d) A highly compensated former Employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a highly compensated active Employee for either the separation year or any determination year ending on or after the Employee's 55th birthday.
(e) If an Employee is, during a determination year or look-back year, a Family Member of either a 5 percent owner who is an active or former Employee or a Highly Compensated Employee who is one of the 10 most highly compensated employees ranked on the basis of compensation paid by the employer during such year, then the Family Member and the 5 percent owner or top-ten highly Compensated Employee shall be aggregated. In such case, the Family Member and 5 percent owner or top-ten Highly Compensated Employee shall be treated as a single Employee receiving compensation and plan contributions or benefits equal to the sum of such compensation and contributions or benefits of the Family Member and 5 percent owner or top-ten Highly Compensated Employee.
(f) The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top 100 employees, the number of Employees treated as officers and the compensation that is considered, will be made in accordance with Section 414(q) of the Code and the regulations thereunder.
2.31 "HOURS OF SERVICE" means:
(1) Each hour for which an Employee is paid or entitled to payment, for the performance of duties for the Employer. These hours shall be credited to the Employee for the computation period in which the duties are performed; and
(2) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 hours of service shall be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by reference; and
(3) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same hours of service shall not be credited both under paragraph (1) or paragraph (2), as the case may be, and under this paragraph (3). These hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made.
(4) Hours of Service shall, for purposes of determining eligibility to participate herein, be credited on the basis specified in Item 3(d), of the Adoption Agreement, whichever was selected.
(5) Where the Employer maintains the plan of a predecessor employer, service for such predecessor employer shall be treated as service for the Employer.
(6) Hours of service will be credited for employment with other members of an affiliated service group (under Code Section 414(m)), a controlled group of corporations (under Section 414(b)), or a group of trades or businesses under common control (under Section 414(c)), of which the adopting employer is a member, and any other entity required to be aggregated with the Employer pursuant to Section 414(o) and the regulations thereunder.
(7) Hours of service will also be credited for any individual
considered an employee for purposes of this plan under Code Section 414(n), or
Section 414(o) and the regulations thereunder.
2.32 "LATE RETIREMENT DATE" means the first day of the month coinciding with or next following the last day of employment of a Participant whose employment is continued beyond his Normal Retirement Date.
2.33 "LIMITATION YEAR" means the Plan Year, unless another year is specified by the Employer in Section 2(d) of the Adoption Agreement. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made.
2.34 "MATCHING CONTRIBUTION" means any contribution to the Plan (or any other defined contribution plan) made by the Employer for the Plan Year and allocated to a Participant's account by reason of the Participant's Elective Deferrals. Matching Contributions are subject to the distribution provisions applicable to Employer contributions in the Plan.
2.35 "NON-HIGHLY COMPENSATED EMPLOYEE" means an Employee of the Employer who is neither a Highly Compensated Employee nor a Family Member.
2.36 "NORMAL RETIREMENT DATE" means the date selected in Item 8(b)(1) of the Adoption Agreement.
2.37 "NORMAL RETIREMENT AGE" means a Participant's age as of the earlier of
(i) his Normal Retirement Date or (ii) the later of (a) the date the Participant
attains age 65 or (b) the 5th anniversary of the time the Participant commenced
participation in the Plan. The participation commencement time is the first day
of the first Plan Year in which the Participant commenced participation in the
Plan. The Normal Retirement Age cannot exceed any mandatory retirement age
legally enforced by the Employer.
2.38 "OWNER-EMPLOYEE" means a Self-Employed Individual who, if the Employer is an unincorporated trade or business other than a partnership, owns the entire interest in the Employer or a Self-Employed Individual who, if the Employer is a partnership, is a partner who owns more than ten percent (10%) of either the capital interest or the profits interest in the Employer.
2.39 "PARTICIPANT" means an Employee participating in the Plan who has met the eligibility and participation requirements set forth in Article III of the Plan and Item 3 of the Adoption Agreement.
2.40 "PARTICIPANT'S ACCOUNT" means the account or accounts established on behalf of each Participant by the Plan Administrator in accordance with Section 14.7 hereof.
2.41 "PLAN ADMINISTRATOR" means the person(s) and/or organization specified in Item 2(b) of the Adoption Agreement or, if none is specified, the Employer. The Plan Administrator shall be the named fiduciary of this Plan and Trust.
2.42 "PLAN" OR "TRUST" means the Plan and Trust for Employees of the Employer (including the Adoption Agreement), adopted and established by the Employer on the execution of the Adoption Agreement by the Employer and the Trustees, as amended from time to time.
2.43 "PLAN YEAR" means a twelve consecutive month period specified in Item 2(c) of the Adoption Agreement and shall include any shorter period caused by the election of a short initial Plan Year or by a subsequent amendment of the Anniversary Date resulting in a short Plan Year.
2.44 "PROTOTYPE SPONSORING ORGANIZATION" means MFS Fund Distributors, Inc. and any of its affiliates.
2.45 "QUALIFIED JOINT AND SURVIVOR ANNUITY" means an immediate annuity for the life of the Participant, with a survivor annuity for the life of the Participant's spouse which is not less than one-half, nor greater than, the amount of the annuity payable during the joint lives of the Participant and the Participant's spouse. The joint and survivor annuity will be the amount of benefit which can be purchased with the Participant's vested Accrued Benefit. The percentage of the survivor annuity will be as elected by the Participant. If no election has been made the percentage will be 66 2/3%.
2.46 "QUALIFIED NONELECTIVE CONTRIBUTIONS" means contributions (other than Matching Contributions and Qualified Matching Contributions) made by the Employer and allocated to Participants' accounts that the Participants may not elect to receive in cash until distributed from the Plan; that are nonforfeitable when made, and that are distributed only as specified in Section 12.11.
2.47 "QUALIFIED MATCHING CONTRIBUTIONS" means Matching Contributions to the Plan made by the Employer for the Plan Year and allocated to a Participant's account by reason of Elective Deferrals, that are nonforfeitable when made, and that are distributable only as specified in Section 12.11.
2.48 "SELF-EMPLOYED INDIVIDUAL" means an individual who has earned income for the Taxable Year from the trade or business with respect to which this Plan is established and any individual who would have had earned income but for the fact that the trade or business had no net profits for the Taxable Year.
2.49 "SHAREHOLDER-EMPLOYEE" means an Employee (including officers) who, if the Employer is an S corporation, owns (or is considered as owning within the meaning of Section 318(a)(1) of the Code) more than five percent (5%) of the outstanding stock of the Employer on any day during the taxable year of the Employer.
2.50 "TAXABLE YEAR" means the twelve month period utilized by the Employer in computing its income for federal income tax purposes. Such twelve month period ends on the date specified in Item 1 of the Adoption Agreement as the date on which the fiscal year ends.
2.51 "TRUSTEES" means the person(s) or corporation specified in the Adoption Agreement and any successor Trustee(s).
2.52 "YEAR OF SERVICE" means a twelve consecutive month period during which an Employee completes at least 1,000 Hours of Service. All Years of Service with the Employer and with Affiliated Employers shall be credited for purposes of determining an Employee's eligibility to participate and for purposes of determining the non-forfeitable percentage of a Participant's Accrued Benefit. In determining Years of Service and Breaks in Service for purposes of computing an Employee's nonforfeitable right to his Accrued Benefit all such twelve month periods shall be a Plan Year and periods of employment prior to the Effective Date will be included if not specifically excluded in Item 7 of the Adoption Agreement.
If this Plan is maintained by the Employer as the plan of a predecessor employer, service for such predecessor employer shall be treated as service for the Employer for purposes of computing Years of Service. Additionally, if the Employer completes Item 3(e) of the Adoption Agreement, service with the Employer(s) specified therein shall be treated as service for the Employer for purposes of computing Years of Service.
If service is to include employment with a predecessor employer, either because the Employer maintains the plan of a predecessor employer or because the Employer has elected in Item 3(e) of the Adoption Agreement to count such service, service as a Self-Employed Individual with such a predecessor employer which was an unincorporated business shall be treated as service for the Employer for purposes of computing Years of Service.
ARTICLE III -- ELIGIBILITY AND PARTICIPATION
3.1 Upon completion of the requirements set forth in Item 3 of the Adoption Agreement and this Article III, each Employee of the Employer shall be eligible to become a Participant on the Entry Date specified in Item 3(c) of the Adoption Agreement.
3.2 As a condition of participation under this Plan, each Employee shall execute and complete such applications or other forms required by the Plan Administrator or Trustee.
3.3 If, for any reason, the employment of any Participant or Employee who has satisfied the eligibility requirements in Item 3(b) of the Adoption Agreement is terminated prior to his Normal Retirement Date and he is subsequently re-employed, such former Participant shall participate immediately upon re-employment provided he is within the class of Employees eligible to participate as set forth in Item 3(a) of the Adoption Agreement.
3.4 If for any reason the employment of any Employee is terminated before the Employee satisfies the eligibility requirements set forth in Item 3(b) of the Adoption Agreement and such Employee is later reemployed, the calculation of the Employee's Years of Service shall resume upon performance of an Hour of Service after re-employment unless the Participant incurred a Break in Service, in which case the Eligibility Computation Period shall commence on the date the Employee is credited with an Hour of Service for the performance of duties after the first Eligibility Computation Period in which the Employee incurs a Break in Service. Such Employee shall be eligible to become a Participant on the next Entry Date coinciding with or next following the date on which such Employee satisfies the eligibility requirements set forth in Item 3(b) of the Adoption Agreement.
3.5 If a Participant becomes ineligible to participate because he is no longer a member of an eligible class of Employees, but has not incurred a Break in Service, such Employee shall become eligible to participate immediately upon returning to an eligible class of Employees.
3.6 If an Employee is not a member of the eligible class of Employees and subsequently becomes a member, such Employee shall become eligible to participate immediately upon becoming a member of the eligible class if on such date, the Employee satisfies the requirements set forth in Item 3(b) of the Adoption Agreement and would have previously become a Participant if such Employee had been a member of the eligible class; otherwise such Employee shall become eligible to participate in accordance with Section 3.1.
3.7 If an Employee fails or refuses to participate on any date on which the Employee is eligible to participate, no further contributions will be made on behalf of such Employee. Credited Service shall not be counted unless and until the Employee fulfills the requirements of this Article III.
3.8 If a Participant does not complete a Year of Service whether or not the Participant remains an Employee, no Contributions under Article V will be made on behalf of such Employee unless and until the Participant again completes a Year of Service. In the case of a Standardized Plan, this section shall not apply to Plan Years commencing after December 31, 1989.
3.9 Except for Elective Deferrals, no contribution shall be made for a Plan Year under any provision of the Plan to a Participant who would not be entitled under the terms of the Plan and Adoption Agreement to receive a contribution under Article V of the Plan (assuming such contribution were permitted under the Plan and were actually made for the Plan Year). Employers who have elected not to make Employer Profit Sharing contributions under Item 5(a) of the Adoption Agreement and have not completed Item 5(c) of the Adoption Agreement may elect one of the options in Item 5(c) to apply to matching contributions by completing Item 5(c) of the Adoption Agreement.
ARTICLE IV -- CASH-OR-DEFERRED CONTRIBUTIONS AND ALLOCATIONS
(This Article applies only if the Employer adopts a 401(k) Cash-Or-Deferred Profit Sharing Retirement Plan and Trust or to the extent applicable, a Plan and Trust that permits or requires Participant contributions).
4.1 Elective Deferrals.
(a) To the extent provided in Item 4(a) of the Adoption Agreement, a Participant may elect to make Elective Deferrals under this Plan. Elective Deferrals shall include continuing contributions made pursuant to a salary reduction agreement and single sum contributions (including all or a portion of cash bonuses) if permitted under Item 4(a)(2) of the Non-Standardized Adoption Agreement.
(b) The Employer shall contribute and allocate to each Participant's Elective Deferral account an amount equal to the amount of the Participant's Elective Deferrals.
(c) Participants may elect to commence, modify, or terminate Elective Deferrals as of a uniformly applied date or dates (at least once each calendar year) determined by the Plan Administrator. Such elections shall become effective as of such date or dates and must be given to the Plan Administrator in writing, during such reasonable period prior to such date or dates as the Plan Administrator may prescribe. Such elections shall remain in effect until modified or terminated and shall not be effective retroactively.
(d) A Participant's Elective Deferrals are subject to any limitations imposed in Item 4(a) of the Adoption Agreement and any further limitations under this Plan. No Participant shall be permitted to have Elective Deferrals made under this Plan, or any other qualified plan maintained by the Employer, during any taxable year in excess of the dollar limitation contained in Section 402(g) of the Code in effect at the beginning of such taxable year.
(e) A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Plan Administrator of the Amount of the Excess Elective Deferrals to be assigned to the Plan. A Participant is deemed to notify the Plan Administrator of any Excess elective Deferrals that arise by taking into account only those Elective Deferrals made to this Plan and any other plans of this Employer.
Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15, each year, to Participants to whose accounts Excess Elective Deferrals were assigned for the preceding taxable year and who claim Excess Elective Deferrals for such year.
(f) The Participant's claim shall be in writing; shall be submitted to
the Plan Administrator not later than March 1 of the year next following the
year in which the Excess Elective Deferral was made; shall specify the amount of
the Participant's Excess Elective Deferral for the preceding calendar year; and
shall be accompanied by the Participant's written statement that if such amounts
are not distributed, such Excess Elective Deferrals, when added to amounts
deferred under other plans or arrangements described in Sections 401(k), 408(k),
or 403(b) of the Code, will exceed the limit imposed on the Participant by
Section 402(g) of the Code for the year in which the deferral occurred.
(g) The Excess Elective Deferral shall be adjusted for income or loss up to the date of distribution. The income or loss allocable to Excess Elective Deferrals is the sum of: (1) income or loss allocable to the Participant's Elective Deferral account for the taxable year multiplied by a fraction, the numerator of which is such Participant's Excess Elective Deferrals for the year and the denominator is the Participant's Accrued Benefit attributable to Elective Deferrals without regard to any income or loss occurring during such taxable year; and (2) ten percent of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Participant's taxable year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month.
4.2 Actual Deferral Percentage/Excess Contributions.
(a) The Actual Deferral Percentage (hereinafter "ADP") for Participants who are Highly Compensated Employees for each Plan Year and the ADP for Participants who are Non-highly Compensated Employees for the same Plan Year must satisfy one of the following tests:
(i) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-highly Compensated Employees for the same Plan Year multiplied by 1.25; or
(ii) The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are Non-highly Compensated Employees for the same Plan Year multiplied by 2.0, provided that the ADP for Participants who are Highly Compensated Employees does not exceed the ADP for participants who are Non-highly Compensated Employees by more than two (2) percentage points.
(b) Special Rules:
(i) The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP test) allocated to his or her accounts under two or more arrangements described in Section 401(k) of the Code, that are maintained by the Employer, shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under section 401(k) of the Code.
(ii) In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Sections of
the Code only if aggregated with this Plan, then this
Section shall be applied by determining the ADP of
Employees as if all such plans were a single plan. For Plan
Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Section 401(k) of the Code
only if they have the same Plan Year.
(iii) For purposes of determining the ADP of a Participant who is a 5-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP test) and Compensation of such participant shall include the Elective Deferrals (and, if applicable, Qualified Nonelective Contributions and Qualified Matching Contributions, or both) and Compensation for the Plan Year of Family Members. Family Members, with respect to such Highly Compensated Employees, shall be disregarded as separate employees in determining the ADP both for Participants who are Non-highly Compensated Employees and for Participants who are Highly Compensated Employees.
(iv) For purposes of determining the ADP Test, Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions must be made before the last day of the twelve-month period immediately following the Plan Year to which contributions relate.
(v) The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP Test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such Test.
(vi) The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.
(c) Excess Contributions.
(i) Notwithstanding any other provision of the Plan, except
Section 4.2(b) herein, Excess Contributions, plus any
income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to
Participants to whose accounts such Excess Contributions
were allocated for the preceding Plan Year. Such
distributions shall be made to Highly Compensated Employees
on the basis of the respective portions of the Excess
Contributions attributable to each of such Employees.
Excess Contributions of Participants who are subject to the
family member aggregation rules shall be allocated among
the family members in proportion to the Elective Deferrals
(and amounts treated as Elective Deferrals) of each family
member that is combined to determine the combined ADP.
However, if such excess amounts, plus any increase and
minus any loss allocable thereto, are distributed more than
2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, then Section 4974 of the Code
imposes a ten (10) percent excise tax on the Employer
maintaining the plan with respect to such amounts.
(ii) The Excess Contributions shall be adjusted for income or
loss up to the date of distribution. The income or loss
allocable to Excess Contributions is the sum of (1) income
or loss allocable to the Participant's Elective Deferral
account (and, if applicable, the Qualified Nonelective
Contribution account or the Qualified Matching
Contributions account or both) for the Plan Year multiplied
by a fraction, the numerator of which is such Participant's
Excess Contributions for the year and the denominator is
the Participant's Accrued Benefit attributable to Elective
Deferrals (and Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, if any of such
contributions are included in the ADP test) without regard
to any income or loss occurring during such Plan Year; and
(2) ten percent of the amount determined under (1)
multiplied by the number of whole calendar months between
the end of the Plan Year and the date of distribution,
counting the month of distribution if distribution occurs
after the 15th of such month.
(iii) Accounting for Excess Contributions. Excess Contributions shall be distributed from the Participant's Elective Deferral account and Qualified Matching Contribution account (if applicable) in proportion to the Participant's Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Nonelective Contribution account only to the extent that such Excess Contributions exceed the balance in the Participant's Elective Deferral account and Qualified Matching Contribution account.
4.3 Qualified Nonelective Contributions.
(a) The Employer may elect to make Qualified Nonelective Contributions under the Plan on behalf of Employees for any Plan Year.
(b) In addition, in lieu of distributing Excess Contributions as provided in Section 4.2(c) of the Plan, or Excess Aggregate Contributions as provided in Section 4.6(c) of the Plan, and to the extent elected by the Employer, the Employer may make Qualified Nonelective Contributions on behalf of Non-highly Compensated Employees that are sufficient to satisfy either the ADP Test or the ACP Test, or both, pursuant to regulations under the Code.
4.4 Matching Contributions.
(a) If elected by the Employer in Item 4(c) of the Adoption Agreement, the Employer will make Matching Contributions to the Plan. The amount of such Matching Contributions shall be calculated by reference to the Participants' Elective Deferrals as specified by the Employer in the Adoption Agreement.
(b) Vesting. Matching Contributions will be vested in accordance with the Employer's election in Item 7 of the Adoption Agreement.
(c) Forfeitures. Forfeitures of Matching Contributions shall be made in accordance with the forfeiture provisions in Section 5.5 unless the Employer elects in the Adoption Agreement to treat them in the same manner as forfeitures of Excess Aggregate Contributions.
(d) No Matching Contributions shall be made to a Participant who terminates employment and who would not be entitled under the terms of the Plan and Adoption Agreement to receive an allocation of the Employer's Profit Sharing contributions (assuming such contributions were permitted under the Plan and were actually made). Employers who have elected not to make Employer Profit Sharing contributions under Item 5(a) of the Adoption Agreement and have not completed Item 5(c) of the Adoption Agreement may elect one of the options in Item 5(c) to apply to Matching Contributions by completing Item 5(c) of the Adoption Agreement.
4.5 Qualified Matching Contributions.
(a) The Employer may make Qualified Matching Contributions to the Plan for any Plan Year.
(b) In lieu of distributing Excess Contributions as provided in
Section 4.2(c), the Employer may make Qualified Matching Contributions on behalf
of Non-Highly Compensated Employees that are sufficient to satisfy the ADP Test.
4.6 Limitations On Employee Contributions And Matching Contributions.
(a) The Average Contribution Percentage (hereinafter "ACP") for Participants who are Highly Compensated Employees for each Plan Year and the ACP for Participants who are Non-highly Compensated Employees for the same Plan Year must satisfy one of the following tests:
(i) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-highly Compensated Employees for the Plan Year multiplied by 1.25; or
(ii) The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are Non-highly Compensated Employees for the same Plan Year multiplied by two (2), provided that the ACP for Participants who are Highly Compensated Employees does not exceed the ACP for Participants who are Non-highly Compensated Employees by more than two (2) percentage points.
(b) Special Rules.
(i) Multiple Use. If one or more Highly Compensated Employees
participate in both a cash or deferred arrangement under
Section 401(k) of the Code ("CODA") and a plan subject to
the ACP Test maintained by the Employer and the sum of the
ADP and ACP of those Highly Compensated Employees subject
to either or both tests exceeds the Aggregate Limit, then
the ACP of those Highly Compensated Employees who also
participate in a CODA will be reduced (beginning with such
Highly Compensated Employee whose ACP is the highest) so
that the limit is not exceeded. The amount by which each
Highly Compensated Employee's Contribution Percentage
Amounts is reduced shall be treated as an Excess Aggregate
Contribution. The ADP and ACP of the Highly Compensated
Employees are determined after any corrections required to
meet the ADP and ACP Tests. Multiple use does not occur if
both the ADP and ACP of the Highly Compensated Employees
does not exceed 1.25 multiplied by the ADP and ACP of the
Non-highly Compensated Employees.
(ii) For purposes of this Section, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his or her account under two or more plans described in Section 401(a) of the Code, or CODAs, that are maintained by the Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more CODAs that have different plan years, all CODAs ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under section 401(m) of the Code.
(iii) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Sections of
the Code only if aggregated with this plan, then this
Section shall be applied by determining the Contribution
Percentages of Participants as if all such plans were a
single plan. For plan years beginning after December 31,
1989, plans may be aggregated in order to satisfy Section
401(m) of the Code only if they have the same plan year.
(iv) For purposes of determining the Contribution Percentage of a Participant who is a five-percent owner or one of the ten most highly-paid Highly Compensated Employees, the Contribution Percentage Amounts, and Compensation of such Participant shall include the Contribution Percentage Amounts, and Compensation for the Plan Year of Family Members. Family Members with respect to Highly Compensated Employees, shall be disregarded as separate employees in determining the Contribution Percentage both for Participants who are Non-highly Compensated Employees and for Participants who are Highly Compensated Employees.
(v) For purposes of determining the ACP Test, Employee Contributions are considered to have been made in the Plan Year in which contributed to the Trust. Matching Contributions and Qualified Nonelective Contributions will be considered made for a Plan Year if made no later than the end of the twelve-month period beginning on the day after the close of the Plan Year.
(vi) The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP Test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test.
(vii) "Aggregate Limit" shall mean the sum of (i) 125 percent of
the greater of the ADP of the Non-highly Compensated
Employees for the Plan Year or the ACP of Non-highly
Compensated Employees under the plan subject to Code
Section 401(m) for the Plan Year beginning with or within
the Plan Year of the CODA and (ii) the lesser of 200% or
two plus the lesser of such ADP or ACP.
(viii) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.
(c) Distribution of Excess Aggregate Contributions.
(i) General Rule. Notwithstanding any other provision of this plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions of Participants who are subject to the family member aggregation rules shall be allocated among the family members in proportion to the Employee and Matching Contributions (or amounts treated as Matching Contributions) of each family member that is combined to determine the combined ACP. If such Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arise, a ten (10) percent excise tax will be imposed on the employer maintaining the plan with respect to those amounts.
(ii) Determination of Income or Loss. The Excess Aggregate
Contributions shall be adjusted for income or loss up to
the date of distribution. The income or loss allocable to
Excess Aggregate Contributions is the sum of: (1) income or
loss allocable to the Participant's Employee Contribution
account, Matching Contribution account (if any, and if all
amounts therein are not used in the ADP test) and, if
applicable, Qualified Nonelective Contribution account and
Elective Deferral account for the Plan Year multiplied by a
fraction, the numerator of which is such participant's
Excess Aggregate Contributions for the year and the
denominator is the Participant's Accrued Benefit
attributable to Contribution Percentage Amounts without
regard to any income or loss occurring during such Plan
Year; and (2) ten percent of the amount determined under
(1) multiplied by the number of whole calendar months
between the end of the Plan Year and the date of
distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
(iii) Treatment of Forfeitures. Forfeitures of Excess Aggregate Contributions may either serve to reduce employer contributions or may be reallocated to the accounts of Non-highly Compensated Employees, as elected by the Employer in Item 5(d) of the Adoption Agreement.
(iv) Accounting for Excess Aggregate Contributions. Excess Aggregate Contributions shall be forfeited if otherwise forfeitable under the terms of the Plan (or, if not forfeitable, distributed on a pro rata basis) from the Participant's Employee Contribution account, Matching Contribution account and Qualified Matching Contribution account, and, if applicable, the Participant's Qualified Nonelective Contribution account or Elective Deferral account, or both.
(v) The determination of the Excess Aggregate Contributions shall be made after first determining the Excess Elective Deferrals, and then determining the Excess Contributions.
4.7 Excess Elective Deferrals, Excess Contributions and Excess Aggregate contributions shall be treated as Annual Additions under Article VIII of the Plan.
ARTICLE V -- PROFIT SHARING AND MONEY
PURCHASE CONTRIBUTIONS AND ALLOCATIONS
5.1 (a) Profit Sharing Plan. Pursuant to Item 5 of Adoption Agreements #001, 002, 005, and 006, the Employer may elect to make a Profit Sharing contribution for any Plan Year. All Employer contributions or Cash-or-Deferred contributions to the Plan may be made without regard to profits. The Plan shall nevertheless continue to be designed to qualify as a profit sharing plan for purposes of Sections 401(a), 401(k), 402, 412, and 417 of the Code.
(b) Money Purchase Plan. The Employer shall contribute for each Plan Year an amount determined by the contributions formula in Item 5 of Adoption Agreements #003 and 004.
(c) Contributions shall be made within the time prescribed by law for making a deductible contribution. A failure by the Employer to take a deduction shall be deemed a decision to make no contribution to a profit sharing plan.
5.2 For each Plan Year, the Employer's Contribution, if any, shall be allocated among Participants in accordance with Item 5 of the Adoption Agreement provided, however, if the Plan is a profit sharing plan integrated with Social Security, profit-sharing contributions for the Plan Year will be allocated to Participants' Accounts as follows:
STEP ONE: Contributions and forfeitures will be allocated to each Participant's account in the ratio that each Participant's total Compensation bears to all Participants' total Compensation, but not in excess of 3% of each Participant's Compensation.
STEP TWO: Any contributions and forfeitures remaining after the allocation in Step One will be allocated to each Participant's account in the ratio that each Participant's Compensation for the Plan Year in excess of the integration level bears to the excess Compensation of all Participants, but not in excess of 3%.
STEP THREE: Any contributions and forfeitures remaining after the allocation in Step Two will be allocated to each Participant's account in the ratio that the sum of each Participant's total Compensation and Compensation in excess of the integration level bears to the sum of all Participants' total Compensation and Compensation in excess of the integration level, but not in excess of the profit-sharing maximum disparity rate.
STEP FOUR: Any remaining Employer contributions or forfeitures will be allocated to each Participant's account in the ratio that each Participant's total Compensation for the Plan Year bears to all Participants' total Compensation for that Year.
The maximum profit sharing disparity rate is equal to 2.7% provided, however, that if the integration level is more than 80% of the Taxable Wage Base, the maximum profit sharing disparity rate shall be 2.4% and if the integration level is more than the greater of $10,000 or 20% of the Taxable Wage Base but not more than 80% of the Taxable Wage Base, the maximum profit sharing disparity rate shall be 1.3%. The integration level shall not be less than the greater of $10,000 or 20% of the Taxable Wage Base. If the integration level is equal to the Taxable Wage Base, the applicable percentage is 2.7%. The integration level shall be the Taxable Wage Base unless the Employer elects another integration level on the Adoption Agreement. The Taxable Wage Base shall mean the amount considered as wages under Code Section 3121(a)(1) in effect as of the beginning of the Plan Year.
A Participant whose employment is terminated before the end of a Plan Year but after he has completed 1000 Hours of Service shall not share in the allocation of Employer contributions for such Plan Year unless the Employer has specified that he shall so share in Item 5 of the Adoption Agreement. In the case of a Standardized Plan, this paragraph shall not apply for Plan Years commencing after December 31, 1989.
5.3 If the employment of a Participant was terminated for any reason after the end of a Plan Year, but prior to the date of receipt by the Trustees of the full or remaining Employer Contribution for that Plan Year, the share of the contribution for such Participant shall be determined and distributed by the Trustee in accordance with the applicable provisions of this Plan as though such share had been available on the Participant's date of termination.
5.4 Notwithstanding any other provisions of this Trust, Annual Additions to each Participant's Account under this Trust shall not exceed the limitations set out in Article VIII herein.
5.5 If in any Plan Year forfeitures become available in accordance with Article X the amounts forfeited (other than Matching Contributions and Excess Aggregate Contributions) shall (if elected by the Employer on an Adoption Agreement permitting such election) serve to reduce employer contributions or (in the absence of such election) be allocated as of the last day of that Plan Year among the Participants' Accounts in the ratio that the Compensation paid to each Participant during the Plan Year bears to the total Compensation paid to all Participants during the Plan Year. In addition, if all forfeitures cannot be allocated to accounts of Participants to whose accounts such limits applied because of the limitations set forth in Article VIII, that portion of the forfeiture not allocated shall be placed in a separate suspense account by the Trustees and shall not be credited with any investment gains or losses attributable thereto. Any amounts held in the suspense account shall be allocated on the next allocation date and/or on each succeeding allocation date until the suspense account is exhausted. No Employer contributions shall be made at any time until such suspense account has been fully allocated. Forfeitures arising hereunder will be allocated only for the benefit of Employees of the Employer who adopted this Plan.
5.6 The Plan Administrator shall certify to the Trustees the amount of the Employer Contributions and forfeitures, if any, and any Participant's voluntary contributions to be credited each year to a Participant's Account.
ARTICLE VI -- PARTICIPANT CONTRIBUTIONS AND ROLLOVERS
6.1 (a) Nonqualified voluntary contributions.
(i) This paragraph applies to all Standardized Plans. This Plan will not accept nonqualified voluntary contributions and, except for 401(k) cash or deferred profit sharing plans, Matching Contributions for Plan years beginning after the Plan Year in which this Plan is adopted by the Employer. Nonqualified voluntary contributions for Plan Years beginning after December 31, 1986, together with any Matching Contributions, will be limited so as to meet the nondiscrimination test of Section 401(m).
(ii) This paragraph applies to Non-Standardized Plans. Subject to the limitations of Section 401(m) of the Code and Article IV, each Participant may voluntarily contribute cash on his own behalf as a nonqualified voluntary contribution.
(b) Qualified voluntary contributions. The Plan Administrator will not accept qualified voluntary contributions which are made for a taxable year beginning after December 31, 1986. Contributions made prior to that date will be maintained in a separate account which will be nonforfeitable at all times. The account will share in the gains and losses of the trust in the same manner as described in Article XIV of the Plan. No part of the qualified voluntary contribution account will be used to purchase life insurance. Subject to Sections 9.1 and 11.3, (joint and survivor annuity requirements, if applicable), the Participant may withdraw any part of the qualified voluntary contribution account by making a written application to the Plan Administrator.
6.2 A Participant who has made qualified or nonqualified voluntary contributions may at any time, upon thirty (30) days' written notice to the Employer and the Trustees, have distributed to him in cash the accumulated value of his aggregate qualified or nonqualified voluntary contributions subject to the joint and survivor annuity provisions of Section 9.1, if applicable. No withdrawal or distribution made under this Section shall affect any Participant's Accrued Benefit derived from Employer Contributions. Additionally, no forfeitures will occur solely as a result of any such withdrawal or distribution.
6.3 The Plan Administrator may, in accordance with a uniform nondiscriminatory policy, permit a Participant, or an employee eligible to become a Participant under Section 3(a) of the Adoption Agreement, to rollover, or to cause a direct rollover, of all or a part of an eligible rollover distribution (as defined in Section 402(c)(4) of the Code) to this Plan, provided such amount is rolled over to this Plan in accordance with applicable Sections of the Code. The Plan Administrator may also, in accordance with a uniform nondiscriminatory policy, direct the Trustee to receive or make a Trustee-to-Trustee transfer. A Trustee-to-Trustee transfer is a transfer from or to another trust exempt from tax under Section 501(a) of the Code which is part of a plan qualified under Section 401(a) of the Code.
Rollover contributions and Trustee-to-Trustee transfers, amounts of income thereon and increases in value thereof shall be fully vested and shall be accounted for separately from qualified and nonqualified voluntary contributions, Employer contributions and forfeitures. However, rollover contributions of qualified voluntary contributions shall be accounted for along with a Participant's other qualified voluntary contributions made hereunder but shall not be taken into account in applying the limitations set forth in Section 6.1.
6.4 If a Participant has made qualified or nonqualified voluntary contributions or rollover contributions, all such contributions and the earnings thereon, less any such contributions previously withdrawn, shall be distributed to the Participant in any one or more of the ways set out in Article IX hereof upon the occurrence of any event giving rise to a distribution under the terms of this Plan.
6.5 For purposes hereof, "qualified voluntary contributions" shall mean contributions voluntarily made by a Participant on his own behalf which were deductible for Federal Income Tax purposes in accordance with Code Section 219 as in effect for tax years prior to 1987. Also for purposes hereof, "nonqualified voluntary contributions" shall mean contributions voluntarily made by a Participant on his own behalf which are not deductible for Federal Income Tax purposes.
ARTICLE VII -- PROVISIONS RELATING TO TOP HEAVY PLANS
For the purposes of this Article VII the following terms shall have the meanings set forth below.
7.1 This plan is "Top-Heavy" if any of the following conditions exists:
(a) If the top-heavy ratio for this Plan exceeds 60 percent and this Plan is not part of any required aggregation group or permissive aggregation group of plans.
(b) If this Plan is part of a required aggregation group of plans but not part of a permissive aggregation group and the top-heavy ratio for the group exceeds 60 percent.
(c) If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top-heavy ratio for the permissive aggregation group exceeds 60 percent.
A plan is a "Super Top-Heavy Plan" if, as of the Determination Date, the plan would meet the test specified above for being a Top-Heavy plan if ninety percent (90%) were substituted for sixty percent (60%) in each place it appears.
For the purposes of determining whether a plan is top-heavy under Section 416 of the Code, Elective Deferrals are considered Employer contributions.
7.2 The "Determination Date" for purposes of determining whether a plan is a Top-Heavy plan for a particular Plan Year is the last day of the preceding Plan Year (or, in the case of the first Plan Year, the last day of the first Plan Year).
7.3 The "Valuation Date" for purposes of determining the value of accounts under this Article VII shall be the Determination Date.
7.4 "Key Employee" means any Employee or former Employee in the Plan (including a beneficiary of such employee) who at any time during the Plan Year in which the Determination Date occurs or any of the four preceding Plan Years is:
(a) An officer of the Employer or an Affiliated Employer whose annual compensation exceeds 50 percent of the dollar limitation under Section 415(b)(1)(A) of the Code, (but in no event shall more than fifty (50) Employees or, if less, the greater of three (3) or ten percent (10%) of all Employees be taken into account under this paragraph (a) as Key Employees and those taken into account shall be the ones with the highest one-year compensation during the aforementioned five (5) year period).
(b) One of the ten (10) Employees owning (or considered as owning within the meaning of Code Section 318) the largest interest of the Employer if such individual's compensation exceeds 100 percent of the dollar limitation under Code Section 415(c)(1)(A).
(c) If the Employer is a corporation, a person owning (or considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer; or if the Employer is not a corporation, a person who owns more than five percent (5%) of the capital or profits interest in the Employer.
(d) A person who has an aggregate annual compensation from the Employer and Affiliated Employers of more than One Hundred Fifty Thousand dollars ($150,000) and who would be described in paragraph (c) hereof if one percent (1%) were substituted for five percent (5%).
Annual compensation means compensation as defined in Section 415(c)(3) of
the Code, but including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludible from the Employee's gross income under
Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code.
The determination of who is a Key Employee will be made in accordance with
Section 416(i) of the Code and the Regulations thereunder.
7.5 "Non-Key Employee" means any Participant in the Plan (including a Beneficiary of such Participant) who is not a Key Employee.
7.6 The "Top-Heavy Ratio" is as determined in (a) or (b) below in accordance with (c) below.
(a) If the Employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plan) and the Employer has not
maintained any defined benefit plan which during the 5-year period ending on the
Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio for
this Plan alone or for the Required or Permissive Aggregation Group as
appropriate is a fraction, the numerator of which is the sum of the account
balances of all Key Employees as of the Determination Date(s) (including any
part of any account balance distributed in the 5-year period ending on the
Determination Date(s)), and the denominator of which is the sum of all account
balances (including any part of any account balance distributed in the 5-year
period ending on the Determination Date(s)), both computed in accordance with
Section 416 of the Code and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to reflect any contribution not
actually made as of the Determination Date, but which is required to be taken
into account on that date under Section 416 of the Code and the regulations
thereunder.
(b) If the Employer maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Employer maintains or has maintained one or more defined benefit plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (a) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Participants, determined in accordance with (a) above, and the present value of accrued benefits under the defined benefit plan or plans for all participants as of the Determination Date(s), all determined in accordance with Section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an accrued benefit made in the five-year period ending on the determination date.
(c) For purposes of (a) and (b) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Section 416 of the Code and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a Participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one Hour of Service with any Employer maintaining the plan at any time during the 5-year period ending on the Determination Date will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans the value of account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year.
The accrued benefit (under a defined benefit plan) of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code.
7.7 A "Permissive Aggregation Group" is a Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
7.8 A "Required Aggregation Group" is (1) each qualified plan of the Employer in which at least one Key Employee participates, or participated at any time during the determination period (regardless of whether the plan has terminated), and (2) any other qualified plan of the Employer which enables a plan described in (1) to meet the requirements of Sections 401(a)(4) or 410 of the Code.
7.9 Notwithstanding anything contained herein to the contrary, if the Plan is a Top-Heavy Plan as determined pursuant to Code Section 416 for any Plan Year beginning after December 31, 1983, or if the Employer has elected in Item 9 of the Adoption Agreement that the Plan be treated as a Top-Heavy Plan for any such Plan Year, the Plan shall meet the following requirements for any such Plan Year and for all Plan Years thereafter.
(a) Minimum Vesting Requirements. Vesting shall be determined in accordance with the schedule selected by the Employer in Item 9 in the case of a Non-Standardized Adoption Agreement; provided, however, in no event shall the application of this subparagraph reduce a Participant's vesting percentage determined in accordance with the applicable provisions of this Plan in effect immediately prior to the date this subparagraph (a) becomes operative. Such schedule applies to all benefits within the meaning of Section 411(a)(7) of the Code except those attributable to Employee Contributions, including benefits accrued before the effective date of Section 416 of the Code and benefits accrued before the Plan became Top-Heavy. Further, no decrease of a Participant's nonforfeitable percentage may occur in the event the Plan's status as top-heavy changes for any Plan Year. However, this Section does not apply to the Accrued Benefits of any Participant who does not have an Hour of Service after the Plan has initially become Top-Heavy and such Participant's Accrued Benefit attributable to Employer contributions and forfeitures will be determined without regard to this Section.
(b) Minimum Contribution Requirement. A minimum contribution
allocation (which may include forfeitures otherwise allocable) for such Plan
Year shall be made for each Participant who is a Non-Key Employee in an amount
equal to at least three percent (3%) of such Participant's Compensation for such
Plan Year. Such three percent (3%) minimum contribution requirement shall be
increased to four percent (4%) for any Plan Year in which the Employer also
maintains a defined benefit pension plan if necessary to avoid the application
of Code Section 416(h)(1), relating to special adjustments to the Code Section
415 limits for Top-Heavy Plans, if the adjusted limitations of Code Section
416(h)(1) would otherwise be exceeded if such minimum contribution requirement
were not so increased. A minimum contribution allocation shall be made on behalf
of a Participant who is a Non-Key Employee even though, under other plan
provisions, the Participant would not otherwise be entitled to receive an
allocation, or would have received a lesser allocation for the year because of
(i) the Participant's failure to complete 1,000 Hours of Service (or any
equivalent provided in the Plan), or (ii) the Participant's failure to make
mandatory employee contributions to the Plan, or (iii) compensation less than a
stated amount. For Plan years beginning on or after January 1, 1989, Elective
Deferrals are not treated as employer contributions for the purpose of
satisfying this minimum contribution requirement. For each Plan Year in which
Paired Plans are Top-Heavy, the Employer will provide a total minimum
contribution equal to 3% of compensation for each Non-Key employee who is
entitled to a minimum contribution under both Paired Plans. For each Plan Year
in which Paired Plans are Top-Heavy, any Employee who benefits under one paired
plan shall benefit under the other paired plan.
The minimum contribution requirements set forth above shall be reduced in the following circumstances:
(i) The percentage minimum contribution required hereunder shall, if the Employer has no defined benefit plan which designates this Plan to satisfy Section 401 of the Code, in no event exceed the percentage contribution (as a percentage of Compensation) made for the Key Employee for whom such percentage is the highest for the Plan Year.
(ii) No minimum contribution will be required for a Participant under this Plan for any Plan Year if the Employer maintains another qualified plan under which the minimum benefit or contribution requirement applicable to Top-Heavy plans will be met for such Participant for such Plan Year.
(iii) The minimum contribution is determined without regard to any Social Security contribution.
(iv) Minimum contributions will be made hereunder only to Participants or Employees eligible to participate who are employed by the Employer on the last day of the Plan Year.
(v) The minimum contributions made hereunder (to the extent
required to be nonforfeitable under Section 416(b)) may not be forfeited under
Section 411(a)(3)(B) or Section 411(a)(3)(D).
(vi) For years beginning before January 1, 1989, any amounts contributed hereunder for the benefit of a Participant who is a Non-Key Employee via a salary reduction agreement in accordance with Section 4.1(a) or as a result of such Non-Key Employee's failure to elect to receive same in cash in accordance with Section 4.1(a), shall be applied towards the satisfaction of the minimum contribution requirements set forth above.
(c) In the event the Employer adopts the MFS Profit Sharing Retirement Plan and the MFS Money Purchase Pension Plan, the minimum contribution required by Section 7.09(b) above shall be made to the money purchase pension plan. 7.10 For Plan Years beginning on or after January 1, 1989, neither Elective Deferrals nor Matching Contributions may be taken into account for the purpose of satisfying the minimum top-heavy contribution requirement.
ARTICLE VIII -- LIMITATIONS ON ALLOCATIONS
For the purposes of this Article VIII the following terms shall have the meanings set forth below.
8.1 "ANNUAL ADDITIONS". The sum of the following amounts allocated on behalf of a Participant for a Limitation Year:
(i) all Employer contributions, and
(ii) all forfeitures, and
(iii) all nonqualified voluntary contributions under Item 4 of the Adoption Agreement and defined in Section 6.5 herein.
Amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(1)(2), which is part of a pension or annuity plan maintained by the Employer, are treated as Annual Additions to a defined contribution plan. Also, amounts derived from contributions paid or accrued, after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee, as defined in Section 419A(d)(3) of the Code, under a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, are treated as Annual Additions to a defined contribution plan. Excess Elective Deferrals shall be treated as annual additions under the plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year.
For the purposes of this Section, amounts reapplied to reduce Employer contributions under Section 8.15 shall also be included as Annual Additions.
8.2 "COMPENSATION". With respect to Participants who are Self-Employed Individuals, Compensation for purposes hereof shall be as defined in Section 2.12, subject, however, to the exclusions set forth below. With respect to Participants who are not Self-Employed Individuals, Compensation for purposes hereof shall mean wages, salaries, and fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer maintaining the plan (including, but not limited to commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses), subject to the exclusions set forth below:
EXCLUSIONS
(a) Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the employee, or any distributions from a plan of deferred compensation;
(b) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;
(c) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and
(d) Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity described in Section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the employee).
For purposes of applying the Limitations of this Section, Compensation for a Limitation Year is the Compensation actually paid or includible in gross income during such year. Notwithstanding the preceding sentence, Compensation for a participant in a defined contribution plan who is permanently and totally disabled (as defined in Section 22(e)(3) of the Code) is the Compensation such participant would have received for the Limitation Year if the participant was paid at the rate of Compensation paid immediately before becoming permanently and totally disabled; such imputed compensation for the disabled participant may be taken into account only if the participant is not a Highly Compensated Employee, and contributions made on behalf of such participant are nonforfeitable when made.
8.3 "DEFINED BENEFIT PLAN FRACTION". A fraction, the numerator of which is
the sum of the Participant's projected Annual Benefits under all the defined
benefit plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent (100 percent for any Plan Year
during which the Plan is a Super Top- Heavy Plan determined in accordance with
Section 7.1 or for any Plan Year with respect to which the Plan is deemed to be
a Super Top-Heavy Plan in accordance with Item 9(b) of the Adoption Agreement)
of the dollar limitation determined for the Limitation Year under Sections
415(b) and (d) of the Code or 140 percent of the Highest Average Compensation
including any adjustments under Section 415(b) of the Code.
Notwithstanding the above if the Participant was a participant (as of the first day of the first Limitation Year beginning after December 31, 1986) in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the Plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987.
8.4 "DEFINED CONTRIBUTION DOLLAR LIMITATION". $30,000 or if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1) of the Code as in effect for the Limitation Year.
8.5 "DEFINED CONTRIBUTION PLAN FRACTION". A fraction, the numerator of which is the sum of the Annual Additions to the Participant's account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years, (including the Annual Additions attributable to the Participant's nondeductible employee contributions under all defined benefit plans, whether or not terminated, maintained by the Employer, and the Annual Additions attributable to all welfare benefit funds, as defined in Section 419(e) of the Code, and individual medical accounts, as defined in Section 415(l)(2) of the Code, maintained by the Employer), and the denominator of which is the sum of the Maximum Aggregate Amounts for the current and all prior Limitation Years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The Maximum Aggregate Amount in any Limitation Year is the lesser of 125 percent (100 percent for any Plan Year during which the Plan is a Super Top Heavy Plan determined in accordance with Section 7.1 or for any Plan Year with respect to which the Plan is deemed to be a Super Top Heavy Plan in accordance with Item 9(b) of the Adoption Agreement) of the dollar limitation determined under Sections 415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the Code or 35 percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the first Limitation Year beginning after December 31, 1986 in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987 and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before January 1, 1987, shall not be recomputed to treat all Employee Contributions as Annual Additions.
8.6 "EMPLOYER". For purposes of this Article, Employer shall mean the Employer that adopts this Plan and in the case of a group of employers which constitutes a controlled group of corporations (as defined in Section 414(b) of the Code as modified by Section 415(h)) or which constitutes trades or businesses (whether or not incorporated) which are under common control (as defined in Section 414(c) as modified by Section 415(h)), or which constitutes an affiliated service group (as defined in Section 414(m)), or which constitutes any other entities required to be aggregated with the Employer pursuant to regulations under Section 414(o) of the Code, all such employers shall be considered a single employer for purposes of applying the limitations of this Article.
8.7 "EXCESS AMOUNT". The excess of the Participant's Annual additions for the Limitation Year over the Maximum Permissible Amount, less loading and other administrative charges allocable to such excess.
8.8 "MASTER OR PROTOTYPE PLAN". A plan, the form of which is the subject of a favorable opinion letter from the Internal Revenue Service.
8.9 "MAXIMUM PERMISSIBLE AMOUNT". The maximum Annual Addition that may be contributed or allocated to a Participant's account under the Plan for any Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25 percent of the Participant's compensation for the Limitation
Year. The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits (within the meaning of Section 401(h) or
Section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition
under Sections 415(l)(1) or 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12-consecutive month period, the maximum permissible amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short limitation year 12
8.10 "PROJECTED ANNUAL BENEFIT". The annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if such benefit is expressed in a form other than a straight life annuity or qualified joint and survivor annuity) to which the Participant would be entitled under the terms of the plan assuming:
(a) the participant will continue employment until normal retirement age under the plan (or current age, if later), and
(b) the Participant's Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the plan will remain constant for all future Limitation Years.
8.11 "HIGHEST AVERAGE COMPENSATION". The average compensation for the three consecutive Years of Service with the Employer that produces the highest average. For purposes of this Section, a Year of Service shall be the Plan Year.
Sections 8.12 through 8.15 (These Sections apply to Employers who do not maintain any qualified plan in addition to this Plan).
8.12 If a Participant does not participate in, and has never participated in another qualified plan or a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the adopting Employer, or an individual medical account, as defined in Section 415(1)(2) of the Code, maintained by the Employer, which provides an Annual Addition, the amount of Annual Additions which may be allocated under this Plan on a Participant's behalf for a Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer contribution that would otherwise be contributed or allocated to the Participant's account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount.
8.13 Prior to the determination of the Participant's actual Compensation for the Limitation Year, the Maximum Permissible Amount may be determined on the basis of the Participant's estimated annual Compensation for such Limitation Year. Such estimated annual Compensation shall be determined on a reasonable basis and shall be uniformly determined for all Participants similarly situated. Any Employer contributions based on estimated annual Compensation shall be reduced by any Excess Amounts carried over from prior years.
8.14 As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for such Limitation Year shall be determined on the basis of the Participant's actual Compensation for such Limitation Year.
8.15 If pursuant to Section 8.14 or as a result of the allocation of forfeitures, there is an Excess Amount with respect to a Participant for a Limitation Year, such Excess Amount shall be disposed of as follows:
(i) First, any nonqualified voluntary contributions permitted under Section 6.1 and defined in Section 6.5 hereof, to the extent that the return would reduce the Excess Amount, shall be returned to the Participant.
(ii) If after applying (i) above there still remains an Excess Amount and if the Participant is in the service of the Employer which is covered by the Plan at the end of a Limitation Year, then such Excess Amount must not be distributed to the Participant, but shall be reapplied to reduce future Employer contributions (including any allocation of forfeitures) under this Plan for the next Limitation Year (and for each succeeding year, as necessary) for such Participant. The result being that in each such year the sum of actual Employer contributions plus the reapplied amount shall equal the amount of Employer contributions which would otherwise be allocated to each Participant's Account.
(iii)If after applying (i) above there still remains an Excess Amount and if the Participant is not in the service of the Employer which is covered by the Plan at the end of a Limitation Year, then such Excess Amount must not be distributed to the Participant. The Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer contributions (including allocation of any forfeitures) for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary.
(iv) If a suspense account is in existence at any time during a Limitation Year pursuant to this section, it will not participate in the allocation of the trust's investment gains and losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participants' accounts before any Employer or any Employee contributions may be made to the plan for that Limitation Year. Excess amounts may not be distributed to Participants or former Participants.
Sections 8.16 through 8.21 (These Sections apply to Employers who, in addition to this Plan, maintain one or more plans, all of which are qualified master or prototype defined contribution plans, welfare benefit funds, as defined in Section 419(e) of the Code or individual medical accounts, as defined in Section 415(l)(2) of the Code.)
8.16 If, in addition to this Plan, a Participant is covered under another
qualified master or prototype defined contribution plan maintained by the
Employer, a welfare benefit fund, as defined in Section 419(e) of the Code,
maintained by the Employer, or an individual medical account, as defined in
Section 415(l)(2) of the Code, maintained by the Employer, which provides an
Annual Addition during any Limitation Year, the amount of Annual Additions which
may be allocated under this Plan on a Participant's behalf for such Limitation
Year, shall not exceed the lesser of:
(i) The Maximum Permissible Amount, reduced by the sum of any Annual Additions allocated to the Participant's Accounts for the same Limitation Year under such other defined contribution plans and welfare benefit funds; or
(ii) Any other limitation contained in this Plan.
If the Annual Additions with respect to the Participant under other defined contribution plans and welfare benefit funds maintained by the Employer are less than the Maximum Permissible Amount and the Employer contribution that would otherwise be contributed or allocated to the Participant's account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other defined contribution plans and welfare benefit funds in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's account under this Plan for the Limitation Year.
8.17 Prior to the determination of the Participant's actual Compensation for the Limitation Year, the amounts referred to in Section 8.16(i) above may be determined on the basis of the Participant's estimated annual Compensation for such Limitation Year. Such estimated annual Compensation shall be determined on a reasonable basis and shall be uniformly determined for all Participants similarly situated. Any Employer contribution (including allocations of forfeitures) based on estimated annual Compensation shall be reduced by any Excess Amounts carried over from prior years.
8.18 As soon as is administratively feasible after the end of the Limitation Year, the amounts referred to in Section 8.16(i) shall be determined on the basis of the Participant's actual Compensation for such Limitation Year.
8.19 If, pursuant to Section 8.18 or as a result of the allocation of forfeitures, a Participant's Annual Additions under this Plan and all such other plans result in an Excess Amount, such Excess Amount shall be deemed to consist of the amount last allocated, except that Annual Additions attributable to a welfare benefit fund or individual medical account will be deemed to have been allocated first regardless of the actual allocation date.
8.20 If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of,
(i) The total Excess Amount allocated as of such date, times
(ii) The ratio of (a) the Annual Additions allocated to the Participant for the Limitation Year as of such date under this Plan, to (b) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all the other qualified Master or Prototype defined contribution plans.
8.21 Any Excess Amounts attributed to this Plan shall be disposed of as provided in Section 8.15.
(Section 8.22 applies only to Employers who, in addition to this Plan, maintain one or more qualified plans which are qualified defined contribution plans other than a Master or Prototype plan.)
8.22 If the Employer also maintains another plan which is a qualified defined contribution plan other than a Master or Prototype plan, Annual Additions allocated under this Plan on behalf of any Participant for any Limitation Year shall be limited in accordance with the provisions of Sections 8.16 through 8.21 as though the other plan were a Master or Prototype plan, unless the Employer provides other limitations in Item 10 of the Adoption Agreement.
(Section 8.23 applies only to Employers who, in addition to this Plan, maintain one or more qualified plans which are qualified defined benefit plans.)
8.23 If the Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant's Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any Limitation Year. The Annual Additions which may be credited to the Participant's Account under this Plan for any Limitation Year will be limited in accordance with Item 10 of the Adoption Agreement.
ARTICLE IX -- RETIREMENT BENEFITS
9.1 (a) A Participant who retires on his Normal Retirement Date, Early Retirement Date, Disability Retirement Date or Late Retirement Date, shall be entitled to receive his Accrued Benefit in accordance with the normal form of benefit under Section 9.2 that is elected by the Employer under Item 8a of the Adoption Agreement, unless the Participant instructs the Plan Administrator in writing as to another form of benefit under Section 9.2.
(b) The preceding paragraph notwithstanding if an annuity is the normal form of benefit, then an unmarried Participant's vested Accrued Benefit will be paid in the form of a single life annuity under Section 9.2(a) and unless a married Participant files a waiver, as described below, with the Plan Administrator within the 90 day period ending on the Annuity Starting Date, the married Participant's vested Accrued Benefit will be paid in the form of a Qualified Joint and Survivor Annuity. In addition, any Accrued Benefit attributable to a Trustee-to-Trustee transfer described in Section 6.3 that is from a plan subject to the joint and survivor annuity rules of Section 417 of the Code shall be paid in the form of a single life annuity under Section 9.2(a) to an unmarried Participant and in the form of a Qualified Joint and Survivor Annuity to a married Participant, unless such married Participant files a waiver as described below. The Participant may elect to have such annuity distributed upon attainment of the earliest retirement age (the earliest date on which under the Plan the Participant could elect to receive retirement benefits).
(c) Any waiver of a Qualified Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity (Section 11.3) shall not be effective unless: (a) the Participant's spouse consents in writing to the election; (b) the election designates a specific beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent); (c) the spouses's consent acknowledges the effect of the election; and (d) the spouse's consent is witnessed by a Plan representative or notary public. Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity shall not be effective unless the election designates a form of benefit payment which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent). If it is established to the satisfaction of a Plan representative that there is no spouse or that the spouse cannot be located, a waiver will be deemed a qualified election. Any consent by a spouse obtained under this provision (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to such spouse. A consent that permits designations by the Participant without any requirement of further consent by such spouse must acknowledge that the spouse has the right to limit consent to a specific beneficiary, and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior waiver may be made by a Participant without the consent of the spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Subsection 9.1(e) below.
(d) For purposes hereof, spouse shall mean spouse of the Participant, provided that a former spouse will be treated as the spouse and the current spouse will not be treated as the spouse or surviving spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code.
(e) In the case of a Qualified Joint and Survivor Annuity, the Plan Administrator shall, no less than 30 days and no more than 90 days prior to the Annuity Starting Date, provide each Participant a written explanation of: (i) the terms and conditions of a Qualified Joint and Survivor Annuity; (ii) the Participant's right to make and the effect of a waiver of the Qualified Joint and Survivor Annuity; (iii) the rights of a Participant's spouse; and (iv) the right to make, and the effect of, a revocation of a waiver of a Qualified Joint and Survivor Annuity.
(f) Safe harbor rules.
(i) This Subsection shall apply to a Participant in a
profit-sharing plan, and to any distribution, made on or
after the first day of the first Plan Year beginning after
December 31, 1988, from or under a separate account
attributable solely to accumulated deductible employee
contributions, as defined in Section 72(o)(5)(B) of the
Code, and maintained on behalf of a participant in a money
purchase pension plan (including a target benefit plan) if
the following conditions are satisfied: (1) the Participant
does not elect payments in the form of a life annuity; and
(2) on the death of a Participant, the Participant's vested
Accrued Benefit will be paid to the Participant's surviving
spouse, but if there is no surviving spouse, or if the
surviving spouse has consented in a manner conforming to a
qualified election, then to the Participant's Designated
Beneficiary. The surviving spouse may elect to have
distribution of the vested Accrued Benefit balance commence
within the 90-day period following the date of the
Participant's death. The Accrued Benefit shall be adjusted
for gains or losses occurring after the Participant's death
in accordance with provisions of the Plan governing the
adjustment of Accrued Benefits for other types of
distributions. This Subsection 9.1(f) shall not be
operative with respect to a Participant in a profit-sharing
plan if the Plan is a direct or indirect transferee of a
defined benefit plan, money purchase plan, a target benefit
plan, stock bonus, or profit-sharing plan which is subject
to the survivor annuity requirements of Section 401(a)(11)
and Section 417 of the Code. If this Subsection 9.1(f) is
operative, then the provisions of this Section 9.1, other
than Subsections 9.1(a), (f) and (g), shall be inoperative.
(ii) The Participant may waive the spousal death benefit described in this Section at any time provided that no such waiver shall be effective unless it satisfies the conditions described in Subsection 11.3 (other than the notification requirement referred to therein) that would apply to the Participant's waiver of the qualified preretirement survivor annuity.
(iii) For purposes of this Subsection 9.1(f), vested Accrued Benefit shall mean, in the case of a money purchase pension plan, the participant's separate account balance attributable solely to accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code. In the case of a profit-sharing plan, Vested Accrued Benefit shall be the vested portion of the Participant's Accrued Benefit.
(iv) In the case of a profit sharing plan, no annuity form of benefit is available to a Participant under this Plan if the normal form of benefit is not a life annuity, the Plan was not previously subject to the survivor annuity requirements of Sections 401(a)(11) and 417 of the Code and the conditions of this safe harbor are otherwise satisfied.
The foregoing Subsection 9.1(a) through (f) shall apply to Participants who are credited with at least one Hour of Service on or after August 23, 1984 and such other Participants as provided in the following Transitional Rule.
(g) Transitional Rule.
(i) Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits set forth above must be given the opportunity to elect to have the prior provisions of this Section apply if such Participant is credited with at least one Hour of Service under this Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and such Participant had at least 10 years of Credited Service for vesting purposes when he or she separated from service.
(ii) Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under this Plan or a predecessor plan on or after September 2, 1974, and who is not otherwise credited with any service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his or her benefits paid as set forth in (iii) below.
(iii) Any Participant who has elected pursuant to (ii) above and any Participant who does not elect under (i) above or who meets the requirements of (i) above except that such Participant does not have at least 10 years of Credited Service for vesting purposes when he or she separates from service, shall have his or her benefits distributed in accordance with all of the following requirements if benefits would have been payable in the form of a life annuity:
(1) Automatic joint and survivor annuity. If benefits in the form of a life annuity become payable to a married participant who: (a) begins to receive payments under the plan on or after Normal Retirement Age; or (b) dies on or after Normal Retirement Age while still working for the Employer; or (c) begins to receive payments on or after the qualified early retirement age; or (d) separates from service on or after attaining Normal Retirement Age (or the qualified early retirement age) and after satisfying the eligibility requirements for the payment of benefits under the plan and thereafter dies before beginning to receive such benefits; then such benefits will be received under this plan in the form of a Qualified Joint and Survivor Annuity, unless the Participant has elected otherwise during the election period. The election period must begin at least 6 months before the Participant attains qualified early retirement age and end not more than 90 days before the commencement of benefits. Any election hereunder will be in writing and may be changed by the participant at any time.
(2) Election of early survivor annuity. A Participant who is employed after attaining the qualified early retirement age will be given the opportunity to elect, during the election period, to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the spouse under the Qualified Joint and Survivor Annuity if the Participant had retired on the day before his or her death. Any election under this provision will be in writing and may be changed by the Participant at any time. The election period begins on the later of (1) the 90th day before the Participant attains the qualified early retirement age, or (2) the date on which participation begins, and ends on the date the Participant terminates employment.
(3) For purposes hereof, qualified early retirement age is the latest of: (a) the earliest date, under the Plan, on which the Participant may elect to receive retirement benefits, (b) the first day of the 120th month beginning before the Participant reaches Normal Retirement Age, or (c) the date the Participant begins participation.
The respective opportunities to elect (as described in Subsection 9.1(g)(i) and (ii) above) must be afforded to the appropriate Participants during the period commencing on August 23, 1984, and ending on the date benefits would otherwise commence.
The provisions of this Section 9.1 shall take precedence over any conflicting provision in this Plan.
9.2 A Participant may, on or before the date benefits must commence in accordance with Article XII, instruct the Plan Administrator, in writing, as to how and when to distribute the total value of the Participant's Accrued Benefit. Such instructions are, however, subject to the provisions of this Section 9.2 and of Section 9.1 and Article XII. The distribution shall be made, in whole or in part, in any one or more of the following ways:
(a) By purchase and distribution to the Participant of a single premium immediate or deferred, nontransferable fixed annuity contract providing for periodic payment to the Participant or to the Participant during the Participant's lifetime and thereafter to the Participant's spouse or other beneficiary, provided that payment of any deferred benefit commence no later than the Participant's Normal Retirement Date and further provided that in the case of a married Participant, no benefit shall be paid in the form of an annuity for such Participant's life without a written waiver by the Participant's spouse as provided under Section 9.1 above.
(b) By a lump sum payment to the Participant, in cash or in kind or a combination of both; or
(c) By installments in approximate equal amounts made over one of the following periods (or combination thereof):
(i) the life of the Participant;
(ii) the life of the Participant and the Designated Beneficiary (as defined in Section 12.6(b));
(iii) a period certain not extending beyond the life expectancy of the Participant; or
(iv) a period certain not extending beyond the joint and last survivor expectancy of the Participant and the Designated Beneficiary.
The normal form of benefit shall be a lump sum payment unless a life annuity is the normal form of benefit under Item 8(a) of the Adoption Agreement.
9.3 This Section applies to distributions made on or after January 1, 1993.
(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.
(b) Definitions.
(i) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).
(ii) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described
in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(iii) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse.
(iv) Direct rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.
ARTICLE X -- RIGHTS TO BENEFITS ON TERMINATION OF EMPLOYMENT
10.1 Upon termination of a Participant's employment for any reason other than Retirement or death, the Participant shall be entitled to receive the nonforfeitable portion of his Accrued Benefit in accordance with Section 12.8 or 12.9, whichever is applicable, and shall have a nonforfeitable right to that portion of his Accrued Benefit provided by Employer contributions to this Trust (other than Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions) as determined in accordance with the vesting schedule selected in Item 7 or Item 9 of the Adoption Agreement, whichever is applicable. The Participant's Accrued Benefit derived from Elective Deferrals, Qualified Nonelective Contributions, Employee Contributions, and Qualified Matching Contributions is fully vested and nonforfeitable at all times. The amount of the Participant's Accrued Benefit shall be calculated as of the last day of the Plan Year coinciding with or next preceding the date the distribution is due. Notwithstanding the vesting schedule elected by the Employer in Item 7 or Item 9 of the Adoption Agreement, whichever is applicable, the Accrued Benefit of any Participant who reaches the Normal Retirement Age or retires on an Early Retirement Date or Disability Retirement Date shall be fully vested and nonforfeitable.
10.2 For Former Participants who do not have a fully vested and nonforfeitable right to their Accrued Benefit, the Employer shall adopt one of the following two provisions for treatment of forfeitures which provision, once adopted, shall apply to all Former Participants:
(i) Any forfeitable portion of the Former Participant's account shall be forfeited on the date on which such Participant incurs five (5) consecutive one year breaks in Service. A separate account will be established for the Participant's interest in the Plan as of the time of any distribution. At any relevant time the Participant's nonforfeitable portion of the separate account will be equal to an amount ("X") determined by the formula:
X = P (AB + (R x D)) - (R x D)
For purposes of applying the formula: P is the nonforfeitable percentage at the relevant time, AB is the Accrued Benefit at the relevant time, D is the amount of the distribution, and R is the ratio of the Accrued Benefit at the relevant time to the Accrued Benefit after distribution.
(ii) Any forfeited portion of the Participant's Accrued Benefit will be treated as a forfeiture on the date of distribution. If such former Participant resumes employment covered hereunder prior to incurring 5 consecutive one year Breaks in Service following the date of distribution, the portion of such former Participant's Accrued Benefit forfeited as a result of such distribution and such Break in Service shall be restored hereunder if such Former Participant repays to the Plan the full amount of the distribution within five years following the date of resumption of employment. For purposes of this paragraph, if such Former Participant receives less than the entire vested portion of his Accrued Benefit attributable to Employer contributions, the part of the nonvested portion that will be treated as a forfeiture is the total nonvested portion multiplied by a fraction, the numerator of which is the amount of the distribution attributable to Employer contributions and the denominator of which is the entire vested portion of his Accrued Benefit attributable to Employer contributions. Additionally, any forfeited amounts to be restored hereunder shall be provided, at the discretion of the Employer, from (i) income or gain to the Plan, (ii) forfeitures, or (iii) Employer contributions. For purposes of this paragraph, a Former Participant with no vested Accrued Benefit shall be deemed to receive a distribution upon termination of employment.
10.3 If a Participant incurs a Break in Service, Years of Service before such Break will not be taken into account in determining the Participant's nonforfeitable percentage in the portion of his or her Accrued Benefit derived from Employer Contributions until the Participant has completed a Year of Service after such Break in Service.
10.4 If a Participant has incurred 5 or more consecutive one year Breaks in Service, all Years of Service after such Breaks in Service will be disregarded for the purpose of determining the Participant's vesting percentage in that portion of his Accrued Benefit attributable to Employer contributions that accrued before such Breaks in Service. Such Participant's pre-break Years of Service will count in determining his or her vesting percentage in the portion of his Accrued Benefit derived from Employer contributions that accrued after such Breaks in Service only if either:
(i) such Participant had a nonforfeitable interest in the portion of his Accrued Benefit attributable to Employer contributions, (including Elective Deferrals) at the time of separation from service, or
(ii) upon returning to service his number of consecutive one year Breaks in Service is less than his number of Years of Service. Separate accounts will be maintained for the Participant's pre-Break and post-Break Accrued Benefit attributable to Employer contributions. Both accounts will share in the earnings and losses of the Trust.
10.5 If a Participant separates from service before satisfying the age requirement for early retirement, but after satisfying the service requirement, the Participant will be entitled to elect an early retirement benefit upon satisfaction of such age requirement.
ARTICLE XI -- DEATH BENEFITS
11.1 The death benefits for any Participant or Former Participant shall be
the sum of (a) the death benefit available under the terms of any Policies in
force on the Participant's Life; plus (b) the value of the Participant's
Account, if any, as of the last day of the Plan Year coinciding with or next
preceding the date on which payment is made, or the current value attributable
thereto, if applicable pursuant to Section 14.8 herein; plus (c) any Employer
contribution due in respect of the Participant for the current Plan Year; plus
(d) any Employee Contributions made by the Participant which were not applied to
annuity contracts and have not been credited to the Participant's Account, or
the current value attributable to any such contributions, if applicable.
Notwithstanding the foregoing, if any premium(s) for Policies on the
Participant's life paid by the Employer during the Plan Year in which the
Participant dies exceeds the Employer Contribution due in respect of the
Participant for such Plan Year, the excess, if any, shall be treated as a
distribution and shall be deducted from any value of the Participant's Account
payable pursuant to (b) above.
11.2 Upon becoming a Participant, each Participant shall designate, in writing on a form provided by the Plan Administrator, a Beneficiary or Beneficiaries to receive any death benefit payable under this Trust. The Plan Administrator shall forward a copy thereof to the Trustees. Each Participant reserves the right to change such Beneficiary or Beneficiaries and the method of payment of benefits from time to time by filing a new or revised designation with the Plan Administrator and the Trustees, but any change will be effective only if it is consistent with the provisions of the Plan. In the absence of a designated Beneficiary for amounts other than Policy proceeds, the Participant shall be deemed to have designated the following Beneficiaries (if then living) in the following order of priority:
(i) Spouse
(ii) Children, including adopted children and stepchildren, in equal shares, the share of any deceased child to pass to such child's issue in shares determined by right of representation, and
(iii) Participant's estate
Policy proceeds shall, subject to Section 11.3 and to the Transition Rule set forth in Section 9.1, be paid to the Trustee for the benefit of the Beneficiary as of the Participant's date of death.
11.3 (a) Anything contained in Sections 11.1 and 11.2 to the contrary
notwithstanding, unless a Participant files a waiver, as described below, within
the election period, also described below, if the Participant dies before the
Annuity Starting Date, the Participant's Accrued Benefit shall be paid to the
Participant's surviving spouse and, to the extent the normal form of retirement
benefit under Section 9.1 is a life annuity, applied toward the purchase of an
annuity for the life of the Participant's surviving spouse. In addition, any
Accrued Benefit attributable to a Trustee-to-Trustee transfer described in
Section 6.3 that is from a plan subject to the joint and survivor annuity rules
of Section 417 of the Code shall be paid in the form of an annuity for the life
of the Participant's surviving spouse. The surviving spouse may elect to have
such annuity distributed within a reasonable period after the Participant's
death. Such benefit shall be referred to herein as a qualified preretirement
survivor benefit. If the normal form is a lump sum, then such death benefit will
be paid in a lump sum to, unless such waiver is filed, the Participant's
surviving spouse.
(b) A waiver of the qualified preretirement survivor benefit is subject to the rules and requirements applicable to a waiver of a Qualified Joint and Survivor Annuity, set forth in Section 9.1(c).
(c) The Plan Administrator shall provide each Participant within the applicable period for such Participant a written explanation of the qualified preretirement survivor annuity in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements of Subsection 9.1(e) applicable to a Qualified Joint and Survivor Annuity.
The applicable period for a Participant is whichever of the following periods ends last: (i) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (ii) a reasonable period ending after the individual becomes a Participant; and (iii) a reasonable period ending after this Section first applies to the Participant. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from service in the case of a Participant who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in (ii) and (iii) is the end of the two-year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which age 35 is attained, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined.
(d) For purposes hereof, surviving spouse shall mean the surviving spouse of a Participant, provided that a former spouse will be treated as the surviving spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code.
(e) With respect to the qualified preretirement survivor benefit, the election period begins on the first day of the Plan Year in which the Participant attains age 35 and ends on the date of his death. If a Participant separates from service prior to the first day of the Plan Year in which age 35 is attained, with respect to the Accrued Benefit as of the date of separation, the election period shall begin on the date of separation. A Participant who will not yet attain age 35 as of the end of any current Plan Year may make a special qualified election to waive the qualified preretirement survivor annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the participant will attain age 35. Such election shall not be valid unless the Participant receives a written explanation of the qualified preretirement survivor annuity in such terms as are comparable to the explanation required under Subsection 9.1(e). Qualified preretirement survivor annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after such date shall be subject to the full requirements of this Article.
(f) The foregoing shall apply to any Participant who is credited with at least one Hour of Service on or after August 23, 1984 and such other Participants as provided in the Transitional Rule set forth in Section 9.1(f).
(g) Anything contained in this Article XI to the contrary notwithstanding, the payment of any death benefits hereunder is subject to the Transitional Rule set forth in Section 9.1.
(h) Notwithstanding the terms of this Section 11.3 or the Transitional Rule set forth in Section 9.1, any benefits payable hereunder to a surviving spouse may, at the election of said surviving spouse, be paid in a form other than the form specified herein; provided, however, any such other form is subject to Section 9.2.
(i) The provisions of this Section 11.3 shall take precedence over any conflicting provisions in this Plan.
11.4 Upon the death of any Participant, the Plan Administrator shall perform all necessary duties to ensure that the Beneficiary designated in accordance with this Article XI shall receive the death benefits payable under this Trust.
ARTICLE XII -- DISTRIBUTION OF BENEFITS
12.1 General Rules.
(a) Subject to Sections 9.1 and 11.3, (joint and survivor annuity requirements), the requirements of Section 12.1 through 12.7 shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of this Plan. Unless otherwise specified, the provisions of this Section apply to calendar years beginning after December 31, 1984.
(b) All distributions required under this article shall be determined and made in accordance with the proposed regulations under Section 401(a)(9), including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the proposed regulations.
12.2 Required beginning date. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's required beginning date.
12.3 Limits on Distribution Periods. As of the first distribution calendar year, distributions, if not made in a single-sum, may only be made over one of the periods specified in Section 9.2(c).
12.4 Determination of amount to be distributed each year. If the Participant's interest is to be distributed in other than a single sum, the following minimum distribution rules shall apply on or after the required beginning date:
(a) Individual Account.
(i) If a Participant's benefit is to be distributed over (1) a period not extending beyond the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's Designated Beneficiary or (2) a period not extending beyond the life expectancy of the designated beneficiary, the amount required to be distributed for each calendar year, beginning with distributions for the first distribution calendar year, must at least equal the quotient obtained by dividing the Participant's benefit by the applicable life expectancy.
(ii) For calendar years beginning before January 1, 1989, if the Participant's spouse is not the designated beneficiary, the method of distribution selected must assure that at least 50% of the present value of the amount available for distribution is paid within the life expectancy of the Participant.
(iii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with
distributions for the first distribution calendar year
shall not be less than the quotient obtained by dividing
the Participant's Accrued Benefit by the lesser of (1) the
applicable life expectancy or (2) if the Participant's
spouse is not the designated beneficiary, the applicable
divisor determined from the table set forth in Q&A-4 of
Section 1.401(a)(9)-2 of the proposed regulations.
Distributions after the death of the Participant shall be
distributed using the applicable life expectancy in Section
12.4(a)(i) above as the relevant divisor without regard to
proposed regulations Section 1.401(a)(9)-2.
(iv) The minimum distribution required for the Participant's first distribution calendar year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the employee's required beginning date occurs, must be made on or before December 31 of that distribution calendar year.
(b) Other forms. If the Participant's benefit is distributed in the form of an annuity purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of Section 401(a)(9) of the Code and the proposed regulations thereunder.
12.5 Death Distribution Provisions.
(a) Distribution beginning before death. If the participant dies after distribution of his or her interest has begun, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death.
(b) Distribution beginning after death. If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the extent
that an election is made to receive distributions in accordance with (i) and
(ii) below:
(i) if any portion of the Participant's interest is payable to a Designated Beneficiary, distributions may be made over the life or over a period certain not greater than the life expectancy of the Designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died;
(ii) if the Designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (i) above shall not be earlier than the later of (1) December 31 of the calendar year immediately following the calendar year in which the participant died and (2) December 31 of the calendar year in which the Participant would have attained age 70 1/2.
If the participant has not made an election pursuant to this Subsection
12.5(b) by the time of his or her death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the earlier of
(1) December 31 of the calendar year in which distributions would be required to
begin under this section, or (2) December 31 of the calendar year which contains
the fifth anniversary of the date of death of the Participant. If the
Participant has no Designated Beneficiary, or if the Designated Beneficiary does
not elect a method of distribution, distribution of the Participant's entire
interest must be completed by December 31 of the calendar year containing the
fifth anniversary of the Participant's death.
(c) For purposes of Subsection 12.5(b) above, if the surviving spouse dies after the Participant, but before payments to such spouse begin, the provisions of Subsection 12.5(b) with the exception of paragraph (ii) therein, shall be applied as if the surviving spouse were the Participant.
(d) For purposes of this Section 12.5, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority.
(e) For the purposes of this Section 12.5, distribution of a Participant's interest is considered to begin on the Participant's required beginning date (or, if Subsection 12.5(c) above is applicable, the date distribution is required to begin to the surviving spouse pursuant to Section 12.5(b) above). If distribution in the form of an annuity described in Subsection 12.4(b) above irrevocably commences to the Participant before the required beginning date, the date distribution is considered to begin is the date distribution actually commences.
12.6 Definitions.
(a) Applicable life expectancy. The life expectancy (or joint and last survivor expectancy) calculated using the attained age of the Participant (or Designated Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the applicable life expectancy shall be the life expectancy as so recalculated. The applicable calendar year shall be the first distribution calendar year, and if life expectancy is being recalculated such succeeding calendar year. If annuity payments commence in accordance with Subsection 12.4(b) before the required beginning date, the applicable calendar year is the year such payments commence. If distribution is in the form of an immediate annuity purchased after the Participant's death with the Participant's remaining interest, the applicable calendar year is the year of purchase.
(b) Designated Beneficiary. The individual who is designated as the Beneficiary under the plan in accordance with Section 401(a)(9) and the regulations thereunder.
(c) Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to Section 12.5 above.
(d) Life expectancy. Life expectancy and joint and last survivor expectancy are computed by use of the expected return multiples in Tables V and VI of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse in the case of distributions described in Subsection 12.5(b)(ii) above) by the time distributions are required to begin, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Participant (or spouse) and shall apply to all subsequent years. The life expectancy of a nonspouse Beneficiary may not be recalculated.
(e) Participant's benefit.
(i) The Accrued Benefit as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions or forfeitures allocated to the Accrued Benefit as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date.
(ii) Exception for second distribution calendar year. For purposes of paragraph (i) above, if any portion of the minimum distribution for the first distribution calendar year is made in the second distribution calendar year on or before the required beginning date, the amount of the minimum distribution made in the second distribution calendar year shall be treated as if it had been made in the immediately preceding distribution calendar year.
(f) Required beginning date.
(i) General rule. The required beginning date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70 1/2.
(ii) Transitional rules. The required beginning date of a participant who attains age 70 1/2 before January 1, 1988, shall be determined in accordance with (1) or (2) below:
(1) Non-5-percent owners. The required beginning date of a Participant who is not a 5-percent owner is the first day of April of the calendar year following the calendar year in which the later of retirement or attainment of age 70 1/2 occurs.
(2) 5-percent owners. The required beginning date of a Participant who is a 5-percent owner during any year beginning after December 31, 1979, is the first day of April following the later of:
(a) the calendar year in which the Participant attains age 70 1/2, or
(b) the earlier of the calendar year with or within which ends the Plan Year in which the Participant becomes a 5-percent owner, or the calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent owner who attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990.
(iii) 5-percent owner. A Participant is treated as a 5 percent owner for purposes of this section if such Participant is a 5 percent owner as defined in Section 416(i) of the Code (determined in accordance with Section 416 but without regard to whether the plan is top-heavy) at any time during the Plan year ending with or within the calendar year in which such owner attains age 66 1/2 or any subsequent year.
(iv) Once distributions have begun to a 5-percent owner under this section, they must continue to be distributed even if the Participant ceases to be a 5-percent owner in a subsequent year.
12.7 Transitional Rule.
(a) Notwithstanding the other requirements of this article and subject to the requirements of Sections 9.1 and 11.3 (joint and survivor annuity requirements), distribution on behalf of any Employee, including a 5-percent owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences):
(i) The distribution by the Trust is one which would not have disqualified such Plan under Section 401(a)(9) of the Internal Revenue Code as in effect prior to amendment by the Deficit Reduction Act of 1984.
(ii) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Plan is being distributed or, if the Employee is deceased, by a Beneficiary of such Employee.
(iii) Such designation was in writing, was signed by the Employee or the Beneficiary, and was made before January 1, 1984.
(iv) The Employee had accrued a benefit under the plan as of December 31, 1983.
(v) The method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the Beneficiaries of the Employee listed in order of priority.
(b) A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Employee.
(c) For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee or the Beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in Subsections 12.7(a)(i) and (v).
(d) If a designation is revoked any subsequent distribution must satisfy the requirements of Section 401(a)(9) of the Code and the proposed regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Trust must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Section 401(a)(9) of the Code and the proposed regulations thereunder, but for the Section 242(b)(2) election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements in Section 1.401(a)(9)-2 of the proposed regulations. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of Section 1.401(a)(9)-1 of the Income Tax Regulations shall apply.
12.8 (a) The nonforfeitable portion of the Participant's Accrued Benefit
attributable to Employer contributions plus the then-total value of the Accrued
Benefit attributable to the Participant's contributions, if any, shall be
distributed, in accordance with the applicable distribution forms set forth in
Section 9.1 or Section 9.2. The Plan Administrator shall, with the written
consent of the Participant (and the consent of the Participant's spouse, if any,
if the normal form of benefit under the Plan is a life annuity or if the
Participant elects a life annuity as a form of benefit) distribute the
nonforfeitable portion of the Participant's Accrued Benefit to such Participant
as soon as administratively possible after the end of the Plan Year coinciding
with or next following the termination of employment or as soon as
administratively possible thereafter; but in no event later than the time
specified in this Article XII. The consent of the Participant and the
Participant's spouse shall be obtained in writing within the 90-day period
ending on the Annuity Starting Date.
(b) The Plan Administrator shall notify the Participant and the Participant's spouse of the right to defer any distribution until the Participant's Accrued Benefit is no longer immediately distributable. Such notification shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Code Section 417(a)(3), and shall be provided no less than 30 days and no more than 90 days prior to the Annuity Starting Date.
Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the form of a Qualified Joint and Survivor Annuity while the account balance is immediately distributable. (Furthermore, if payment in the form of a Qualified Joint and Survivor Annuity is not required with respect to the Participant pursuant to Section 9.1 of the Plan, only the Participant need consent to the distribution of an Accrued Benefit that is immediately distributable.) Neither the consent of the Participant nor the Participant's spouse shall be required to the extent that a distribution is required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition, upon termination of this Plan if the Plan does not offer an annuity option (purchased from a commercial provider), the participant's Accrued Benefit may, without the Participant's consent, be distributed to the Participant or transferred to another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code) within the same controlled group.
An Accrued Benefit is immediately distributable if any part of the Accrued Benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of Normal Retirement Age or age 62.
For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first Plan Year beginning after December 31, 1988, the Participant's vested Accrued Benefit shall not include amounts attributable to accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code.
(c) If a distribution is one to which sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
(1) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively elects a distribution.
12.9 Notwithstanding the foregoing, if the total nonforfeitable portion of a Participant's Accrued Benefit is an amount equal to $3,500 or less, such amount shall be distributed, without the consent of the Participant or the Participant's spouse. Any forfeitable portion of the Participant's Accrued Benefit will be treated as a forfeiture. However, no distribution shall be made pursuant to the preceding sentence after the first day of the first period for which an amount is received as an annuity unless the Participant and his or her spouse (or the Participant's surviving spouse) consent in writing to such distribution.
12.10 The Plan Administrator shall effect the distribution of any benefit provided under this Section as soon as possible after the occurrence of any event giving rise to a distribution. Unless the Participant otherwise elects, payments of benefits shall begin no later than 60 days after the latest of the close of the Plan Year in which occurs (A) the date in which the Participant attains the earlier of age 65 or Normal Retirement Age, (B) the 10th anniversary of the year in which the Participant commenced participation, or (C) the Participant terminates his service with the Employer. Notwithstanding the foregoing, the failure of a Participant and spouse to consent to a distribution while a benefit is immediately distributable, within the meaning of Section 12.8 of the Plan, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section.
12.11 Except as provided in Item 8(d) of the Adoption Agreement, Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions and income allocable to such amounts are not distributable earlier than upon the Participant's separation from service, death, or disability. Distributions shall be available upon:
(a) Termination of the Plan without the establishment of another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code or a simplified employee pension plan as defined in Section 408(k)).
(b) The disposition by an Employer that is a corporation to an
unrelated corporation of substantially all of the assets (within the meaning of
Section 409(d)(2) of the Code) used in a trade or business of such corporation
if such corporation continues to maintain this Plan after the disposition, but
only with respect to Employees who continue employment with the corporation
acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such corporation's interest in a subsidiary (within the meaning of Section 409(d)(3) of the Code) if such corporation continues to maintain this Plan, but only with respect to Employees who continue employment with such subsidiary.
(d) Upon the hardship of the Participant to the extent provided for in Item 14.14 of the Plan.
All distributions that may be made pursuant to one or more of the foregoing distributable events are subject to the spousal and Participant consent requirements (if applicable) contained in sections 411(a)(11) and 417 of the Code. In addition, distributions after March 31, 1988, that are triggered by any of the first three events enumerated above must be made in a lump sum.
12.12 In the event that any Participant who has been granted a leave of absence does not return to employment with the Employer within the period of authorized absence, such Participant shall be deemed to have terminated his employment with the Employer on the date such absence commenced. The Plan Administrator, at the direction of the Employer, shall thereupon apply the provisions of this Article XII.
ARTICLE XIII -- AMENDMENT, TERMINATION AND
MERGER OF PLAN AND TRUST
13.1 The Employer reserves the right to amend the elective provisions selected by it in the Adoption Agreement by a written instrument signed by the Employer and delivered to and accepted by the Trustees:
(a) at any time prior to obtaining initial Internal Revenue Service approval of the Plan and Trust as a tax exempt, qualified retirement plan and trust under the requirements of the Internal Revenue Code and the Regulations issued thereunder;
(b) at any time thereafter provided that no amendment:
(i) shall cause or permit any part of the corpus or income of the Trust to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or Beneficiaries;
(ii) shall cause or permit any portion of the Trust assets to revert to, or become the property of the Employer;
(iii) shall affect the rights, duties or responsibilities of the Trustees and/or the Insurer without their consent;
(iv) shall have the effect of decreasing a Participant's vested interest determined without regard to such amendment as of the later of the date such amendment is adopted or the date it becomes effective;
(v) shall decrease a Participant's Accrued Benefit or eliminate an optional form of distribution with respect to an Accrued Benefit; provided, however, a Participant's Accrued Benefit may be reduced to the extent permitted under Section 412(c)(8) of the Code.
Notwithstanding the preceding sentence, a Participant's account balance may be reduced to the extent permitted under Section 412(c)(8) of the Code. For purposes of this Section, a plan amendment which has the effect of decreasing a Participant's account balance or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing an Accrued Benefit. Furthermore, if the vesting schedule of a Plan is amended, in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee's right to his Employer-derived Accrued Benefit will not be less than his percentage computed under the Plan without regard to such amendment. Copies of all such written instruments shall be given to the Prototype Sponsoring Organization.
13.2 Any such amendment of this Plan and Trust by the Employer shall be set forth in an instrument in writing executed on behalf of the Employer by a duly authorized officer. Any recital in such an instrument that the action proposed was authorized shall be accepted by the Trustees and the Prototype Sponsoring Organization as proof of such action.
13.3 If the Plan's vesting schedule is amended or the Plan is amended in any way that directly or indirectly affects the computation of a Participant's non-forfeitable percentage, or if the Plan is deemed amended by an automatic change to or from a Top-Heavy vesting schedule, any Participant with at least 3 Years of Service may, by filing a written request with the Employer prior to the latest of (a) sixty (60) days after the amendment's adoption, or (b) sixty (60) days after the amendment's effective date, or (c) sixty (60) days after receiving written notice of the amendment, irrevocably elect to have his vested percentage computed under the vesting schedule in effect immediately prior to the amendment. For Participants who do not have at least 1 hour of service in any Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "5 Years of Service" for "3 Years of Service" where such language appears.
13.4 The Employer expects to continue the Plan and Trust and the payment of contributions to the Trustees indefinitely. However, the continuance of the Plan and Trust is not assumed by the Employer as a contractual obligation and the Employer reserves the right to terminate the Plan and Trust at any time, by a written instrument executed on behalf of the Employer consistent with the requirements of Section 13.2 and authorized in accordance with the requirements of Section 13.1(b), and delivered to the Trustees. The Employer reserves the right at any time and within its sole discretion to reduce or discontinue contributions to this Plan and Trust.
13.5 Notwithstanding any other provisions herein to the contrary, but subject to Section 1.2(a), in the event of termination or partial termination of the Plan or complete discontinuance of contributions hereunder, Accrued Benefits of each affected Participant shall be fully vested and shall not thereafter be subject to forfeiture. The Plan Administrator shall notify the Trustee of any such termination and instruct the Trustee with respect to distributions of each Participant's Accrued Benefit in accordance with Article X. Upon the completion of such distribution, the Trustees shall be relieved from all further liability with respect to all amounts so paid.
13.6 If this Plan is merged or consolidated with any other plan or its assets or liabilities are transferred to any other plan, each Participant or Former Participant then covered hereunder shall be entitled to a benefit immediately after the merger, consolidation or transfer if the Plan then terminated equal to, or greater than, the benefit the Participant or Former Participant would have been entitled to receive if this Plan had been terminated immediately before the merger, consolidation or transfer.
13.7 Except for (i) changes to the choice of options in the Adoption Agreement, (ii) amendments stated in the Adoption Agreement which allow the plan to satisfy Sections 415 or to avoid duplication of minimums under Section 416 of the Code because of the required aggregation of multiple plans, (iii) or certain model amendments published by the Internal Revenue Service which specifically provide that their adoption will not cause the Plan to be treated as individually designed if the adopting Employer amends the plan or nonelective portions of the Adoption Agreement (including amendments stated in the Adoption Agreement which allow the Plan to operate under a waiver of the minimum funding requirement), it will no longer participate in this prototype plan, but will be considered to have an individually designed plan.
13.8 The Employer hereby delegates the power to the Prototype Sponsoring Organization to amend this Prototype Plan and Trust. The Prototype Sponsoring Organization shall notify the Employer in writing of any such amendment. The Employer shall be deemed to have adopted such amendment unless the Employer notifies the Prototype Sponsoring Organization in writing within thirty days after the Prototype Sponsoring Organization's delivery of such amendment. If the Employer does not adopt such amendment, the Employer will no longer participate in this prototype plan, but will be considered to have an individually designed plan.
13.9 In the event this Plan is adopted as an amendment to another plan, the provisions of Section 13.1(b) shall apply to such adoption. In the event the adoption of this Plan or an amendment to the Plan changes the computation period and the Employee performs 1,000 Hours of Service during the prior computation period and during the new computation period which commences prior to the end of the prior computation period, the Employee shall be credited with two (2) years of Service for all purposes under this Plan.
ARTICLE XIV -- PROVISIONS RELATING TO THE TRUSTEES
14.1 The Trustees shall discharge the powers granted to them under this Trust in a nondiscriminatory manner for the exclusive purposes of providing benefits to Participants, Former Participants and Beneficiaries and for defraying reasonable expenses of administration. The Trustees shall discharge their duties and powers with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. In addition, the Trustees hereby agree to post bond or such other security as may be required by law for the faithful performance of their duties.
14.2 The Trustees shall receive from the Employer all contributions paid to the Trust. All contributions so received, together with any income thereon, shall be held, managed and administered in trust pursuant to the terms of this Plan and Trust and in the manner set forth herein and in the Adoption Agreement. The Trustees shall invest and reinvest Trust Assets in accordance with the Plan Administrator's instructions. The Trustee shall be entitled to rely upon such instructions furnished by the Plan Administrator and shall be under no duty or obligation to make inquiry or investigation with respect thereto and the Trustee shall have no discretionary authority to determine investment except as specifically authorized to the contrary by Item 6 of the Adoption Agreement. Only if specifically authorized in Item 6 of the Adoption Agreement, the Trustee shall have the investment powers of the Plan Administrator; provided, that in no event shall The First National Bank of Boston as Trustee have any such investment powers. All individuals exercising any investment powers hereunder shall exercise the judgment and care under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in a like situation and shall diversify such investments so as to minimize the risk of large losses.
In the event that the Trustees do not receive written investment directions accompanying funds for investment, the Trustees shall not be liable for holding such funds uninvested until such directions are received. The Trustees shall not be required to follow any investment direction which the Trustees have reason to believe would violate the rules against prohibited transactions or party in interest transactions.
If elected by the Employer in Item 6 of the Adoption Agreement, a Participant may, by written direction to the Plan Administrator, direct the Trustees from time to time to invest all or any part of his share of the Trust Fund which is subject to control in investments selected by the Participant from among MFS Investments or other investments chosen by the Employer. Any such direction shall be deemed continuing until changed by the Participant. A Participant may change his investment directions from time to time, may direct the Trustees to sell or cause to be redeemed any investment, and may direct the Trustees to reinvest the proceeds from any such sale or redemption. The Trustees shall comply with the directions of a Participant received from the Plan Administrator as soon as practicable; provided, however, that in the case of the directions to purchase investments, the Trustees will not comply therewith until after the necessary funds to make such purchase have been allocated to the Participant's Account. Brokerage commissions, transfer taxes, and other charges and expenses in connection with the purchase or sale of investments shall be added to the cost of such investments or deducted from the proceeds thereof as the case may be. All gains and losses on such investments and all dividends, interest or other income shall be credited and all charges in connection with such investments shall be charged, as the case may be, to the Participant's Account. All such investments shall be excluded from the Trust Fund for purposes of adjustments of gains and losses made to joint trust investments made on behalf of all Participants.
Neither the Trustees, the Employer nor the Plan Administrator shall be responsible for any loss resulting from any direction given by the Participant or from the failure of the Participant to change any direction previously given. Neither the Trustees, the Employer, the Plan Administrator, nor any other person shall be under any duty to question any such direction by the Participant or to review any investments selected by the Participant or to make any suggestions to the Participant in connection therewith; and any loss occasioned by the selection, sale or redemption, holding or reinvestment, or other handling of any investment in accordance with the Participant's direction or failure to change any direction previously given, shall be the responsibility of the Participant.
The Plan Administrator may, however, prescribe uniform rules limiting the frequency, amount or types of investments, which rules shall become binding when approved by the Employer and communicated to the Participants.
The foregoing notwithstanding, the Plan Administrator shall instruct the Trustee to invest at least the minimum amount of Plan assets required by the Adoption Agreement executed by the Employer in investment media distributed by MFS Fund Distributors, Inc.
14.3 The Trustees may apply for Policies on the life of any Participant in accordance with the rules set forth in Article XV herein.
14.4 The Trustees shall have all powers necessary to hold in trust, invest, reinvest and administer the trust fund without distinction between principal and income. In amplification of and not in limitation of the foregoing, the Trustees shall have the following powers of investment, control, administration and disposition:
(a) To invest and reinvest in real or personal property, evidence of indebtedness or ownership, bonds, common or preferred stocks, mortgages, notes, shares or participation certificates issued by regulated investment companies and Policies issued by the Insurer, including reasonable amounts of life insurance for the benefit of this Trust upon any key Employees whose deaths might materially affect the Employer's contributions to the Trust;
(b) To sell, convey, exchange, lease, convert, divide, partition, consent to partition, transfer, repair, manage, operate, improve, mortgage or redeem any asset held in the trust fund at public or private sale, for cash or upon credit, with or without security, without necessarily disclosing their fiduciary capacity and without any obligation on the part of any person dealing with the Trustees to inquire into the validity, effectiveness, or propriety of any such action;
(c) To exercise personally, or by granting a general or limited proxy, conversion privileges, voting rights or options in respect of any property, to join in or oppose any reorganization, recapitalization, consolidation, merger, liquidation or stock split;
(d) To cause any part or all of the assets of this Trust to be commingled with the assets of similar Trusts (in the event the Trustee is a corporation) created by other employers and qualified under Sections 401(a) and 501(a) of the Code, by causing such assets to be invested as part of the common fund;
(e) To sue or defend against any action or legal proceedings, to compromise, settle, submit to arbitration, to enforce or abstain from enforcing any right or claim, but not without having first been indemnified from assets other than Plan assets in an amount and in a manner satisfactory to them in their sole judgment;
(f) To borrow money from any lender, in any amount and upon such terms and conditions as they may deem advisable and to secure repayment by pledging or mortgaging any property;
(g) To maintain such part of the trust fund as they may deem advisable in cash or in other nonproductive form without any liability for interest thereon;
(h) To employ suitable agents, employees and professional advisors as they may deem advisable for the best interest of the Trust, and to pay them reasonable remuneration;
(i) To make and execute all instruments which are necessary, advisable or proper in order to carry out the terms or intentions of the Trust or to discharge their duties;
(j) To cause securities or other property to be held in their own name, or in the name of their nominee with or without a disclosure of the Trust;
(k) Generally to do all such acts, execute all such instruments, take all such proceedings, and exercise all such rights and privileges with relation to property constituting the Trust Fund as if the Trustees were the absolute owner thereof.
14.5 If permitted by Item 8(c) of the Adoption Agreement, a Participant may apply to the Plan Administrator for a loan from the Plan in accordance with a uniform nondiscriminatory policy. Such policy shall be in writing and shall include provisions intended to satisfy Department of Labor regulations governing plan loans. Such provisions, as revised from time to time by the Plan Administrator, shall be considered a part of this Plan provided, however, any amendment or revision of such policy shall not be treated as an amendment of this document and shall not cause this plan to be treated as an individually designed plan.
(a) Except as otherwise provided herein, loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis.
(b) Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Employees.
(c) Loans must be adequately secured and bear a reasonable interest rate.
(d) No Participant loan shall exceed the present value of the Participant's vested Accrued Benefit.
(e) A Participant must obtain the consent of his or her spouse, if any, to use of the Accrued Benefit as security for the loan. Spousal consent shall be obtained no earlier than the beginning of the 90-day period that ends on the date on which the loan is to be so secured. The consent must be in writing, must acknowledge the effect of the loan, and must be witnessed by a Plan representative or notary public. Such consent shall thereafter be binding with respect to the consenting spouse or any subsequent spouse with respect to that loan. A new consent shall be required if the Accrued Benefit is used for renegotiation, extension, renewal, or other revision of the loan.
(f) In the event of a default, foreclosure on the note and attachment of security will not occur until a distributable event occurs in accordance with the Plan.
(g) No loans will be made to any Shareholder-Employee or Owner-Employee.
(h) If a valid spousal consent has been obtained in accordance with
(e), then, notwithstanding any other provision of this Plan, the portion of the
Participant's vested Accrued Benefit used as a security interest held by the
Plan by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the Accrued Benefit payable at
the time of death or distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the Participant's vested Accrued
Benefit (determined without regard to the preceding sentence) is payable to the
surviving spouse, then the Accrued Benefit shall be adjusted by first reducing
the vested Accrued Benefit by the amount of the security used as repayment of
the loan, and then determining the benefit payable to the surviving spouse.
In no event shall the total of any such loan, plus the outstanding balance, if any, of all other loans to the Participant or Beneficiary from this Plan exceed the lesser of (a) $50,000, reduced by the excess, if any, of (i) the highest outstanding loan balance during the one-year period ending on the day before the loan date over (ii) the outstanding balance of loans from the Plan on the loan date, or (b) 50% of present value of the Participant's vested Accrued Benefit. For the purpose of the above limitation, all loans from all plans of the Employer and Affiliated Employers are aggregated. Furthermore, any loan shall by its terms require that repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan, unless such loan is used to acquire a dwelling unit which within a reasonable time (determined at the time the loan is made) will be used as the principal residence of the Participant. An assignment or pledge of any portion of the Participant's interest in the Plan and a loan, pledge, or assignment with respect to any insurance contract purchased under the Plan, will be treated as a loan under this paragraph.
14.6 The Trustees shall from time to time, on written directions of the Plan Administrator, make payments out of the Trust to such persons in such manner, in such amounts, and for such purposes as may be specified in the Plan Administrator's written directions. Upon any such payment being made, the amount thereof shall no longer constitute a part of the Trust.
14.7 The Plan Administrator shall establish and maintain accurate records
to disclose the interest in the Trust Fund of each Participant, Former
Participant, and Beneficiary in a form to be known as a Participant's Account.
Separate accounts shall be maintained for those portions of a Participant's
Accrued Benefit that are attributable to Elective Deferrals, Qualified
Nonelective Contributions, Matching Contributions, Qualified Matching
Contributions, other Employer contributions not included in the preceding items,
nonqualified voluntary contributions and qualified voluntary contributions. Such
separate accounts shall be credited with the applicable contributions, earnings
and losses, distributions and other adjustments in accordance with this Article
XIV. The maintenance of individual accounts is only for accounting purposes and
shall not operate to vest in any Participant, Former Participant or Beneficiary
any right or interest in or to any of the assets except as specifically provided
by this Trust, and a segregation of the Trust assets to each Participant's
Account shall not be required.
14.8 As of the last day of each Plan Year, the Trustees shall determine the total net worth of the Trust Fund and the amount of net income or net loss. The net worth shall be determined by valuing all assets of the Trust Fund, excluding any contributions made by the Employer or any Participants for the current Plan Year, at their fair market value as of the last business day of the Plan Year. The Plan Administrator shall adjust each Participant's Account to reflect the appreciation or depreciation in the value of the Trust Fund in the same proportion that the value of each Participant's Account on the previous valuation date then bore to the aggregate value of all Participants' Accounts on such date and shall report, in writing, such adjustment to the Plan Administrator. After each Participant's Account has been adjusted in accordance with the foregoing valuation, the Plan Administrator shall credit each Participant's Account, as of the last day of the Plan Year, with the value of contributions for the Plan Year just ended in accordance with Articles IV, V, VI and XII.
14.9 Within sixty days following the close of a Plan Year, the Trustees shall render an account to the Plan Administrator showing the financial condition of the Trust and such other information or data deemed appropriate. This account shall set forth all receipts, disbursements and other transactions effected by the Trustees during said year including the investments at the end of the year, the cost of each item as carried on the books of the Trustees and the fair market value thereof. All accounts, books and records of the Trustees relating to such transactions shall be open to inspection and audit at all reasonable times by the Employer, the Plan Administrator or their designated representatives.
14.10 After the close of each Plan Year and within the time prescribed by regulation, the Plan Administrator shall furnish to all Participants or Former Participants a statement setting forth their Accrued Benefits as of the end of the Plan Year, their vested Accrued Benefits and such other information as the Plan Administrator may deem relevant, or as may be required by law.
14.11 The Trustees, the Employer and the Plan Administrator may enter into a supplementary trust agreement for the purposes of modifying the powers, duties or responsibilities granted to the Trustees under this Article XIV or for allocating specific duties among the Trustees or to an investment advisor or an investment manager. Any such supplementary agreement shall be in a writing delivered to the Prototype Sponsor and executed with the same formality as this Trust and shall be deemed a part hereof as if such supplementary agreement were incorporated herein.
14.12 Provided that the Trustees have acted in good faith or in reliance upon any written instructions and directions of the Plan Administrator and have discharged their duties in accordance with the objectives and prudence set out in this Article XIV, the Employer agrees to indemnify the Trust and the Trustees against any liability imposed as a result of a claim asserted by any person or persons. In taking any action upon any instrument, certificate or paper believed by the Trustees to be genuine and to be signed or presented by the proper person or persons, the Trustees shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing, but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained.
14.13 A Trustee may resign at any time by delivering to the Employer a written notice of resignation. A Trustee may be removed by the Employer by delivery of a written notice of removal. Any such notice of resignation or removal shall take effect at a date specified therein, which shall not be less than thirty (30) days after the delivery thereof, unless such notice shall be waived. In the case of the resignation or removal of a Trustee, the Employer shall promptly appoint a successor Trustee, who shall be either one or more individuals and/or institutions able to serve as Trustee. All right, title and interest of such Trustee in the assets of this Trust and all rights, privileges, duties and immunities under this Plan and Trust theretofore vested in such Trustee shall vest in the successor Trustee upon the successor Trustee's written acceptance of appointment. Upon such acceptance, the Trustee shall execute, acknowledge and deliver all documents and written instruments which are necessary to transfer and convey the right, title and interest in the Trust assets, and all rights and privileges thereto, to the successor Trustee. Whenever The First National Bank of Boston is Trustee hereunder then, in addition to the foregoing provisions, the Trustee may be removed and a successor appointed by the Prototype Sponsoring Organization. The Prototype Sponsoring Organization shall notify the Employer of such removal and appointment.
14.14 (a) If the hardship distribution option is elected by the Employer in Item 8(d) of the Adoption Agreement, the Trustees may, upon the direction of the Plan Administrator, distribute to a Participant part or all of the Participant's Elective Deferrals and Qualified Nonelective Contributions account in the event of the Participant's incurrence of hardship; provided, however, that for Plan Years beginning after December 31, 1988, such hardship distributions shall in the aggregate be limited to the Participant's Elective Deferrals (and earnings credited to a Participant's account as of the end of the last Plan Year ending before July 1, 1989). Notwithstanding any other provision of the Plan to the contrary, if the Employer adopts a profit sharing plan pursuant to Adoption Agreement No. 001 or No. 002, (i) the Trustees, upon direction of the Plan Administrator, may make a partial distribution to a Participant in the event of the Participant's incurrence of hardship, and (ii) the Plan Administrator may, upon the application of any Participant, make a hardship determination in accordance with the applicable provisions of paragraphs (b) and (c) of this section and a uniform nondiscriminatory policy provided, however, that in no event shall such distribution exceed the Participant's vested interest and the Plan Administrator shall utilize the procedure and formula in Section 10.2(i) to determine the Participant's vested interest thereafter. Any such distribution pursuant to the preceding sentence shall be charged first against the Participant's voluntary contributions, next against mandatory contributions, next against rollover contributions, and finally against Employer contributions.
(b) For the purposes of this section, hardship is defined as an immediate and heavy financial need of the Employee where such Employee lacks other available resources. Hardship distributions are subject to the spousal consent requirements contained in Sections 401(a)(11) and 417 of the Code. The determination of whether a Participant has an immediate and heavy financial need shall be made by the Plan Administrator on the basis of all relevant facts and circumstances. A financial need shall not fail to qualify as immediate and heavy merely because such need was reasonably foreseeable or voluntarily incurred by the Employee. A financial need is deemed immediate and heavy only if it is: (1) for expenses incurred or necessary for medical care, described in Section 213(d) of the Code, of the Participant, the Participant's spouse, children or dependents; (2) to purchase (excluding mortgage payments) a principal residence for the Participant; (3) to prevent eviction of the Participant from or foreclosure on the mortgage of the Participant's principal residence; (4) to pay tuition and related educational fees for the next 12 months, of post-secondary education of the Participant or the Participant's spouse, children, or dependent; (5) for such other deemed need as the Commissioner of Internal Revenue Service shall publish through public notice.
(c) In addition, a distribution will not qualify unless the immediate and heavy financial need cannot be satisfied from other resources of the Participant (or the Participant's spouse and minor children) that are reasonably available to the Participant. The Participant must certify that the need cannot be relieved by (1) reimbursement or compensation by insurance or otherwise; (2) reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need; (3) by cessation of elective deferrals or Employee non-deductible contributions under the plan, or (4) by other distributions or non-taxable loans from plans maintained by the Employer, or by borrowing from commercial sources on reasonable commercial terms. A distribution will be deemed necessary to satisfy an immediate and heavy financial need only if: (a) the distribution is not in excess of the amount of the immediate heavy financial need of the Participant (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); (b) the Participant has obtained all distributions, other than hardship distributions, and all non-taxable loans, currently available under all plans maintained by the Employer; (c) all plans maintained by the Employer provide that the Employee's Elective Deferrals (and Employee Contributions) will be suspended for twelve months after the receipt of the hardship distribution; (d) all plans maintained by the Employer provide that the Employee may not make Elective Deferrals for the Employee's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Section 402(g) of the Code for such taxable year less the amount of such Employee's Elective Deferrals for the taxable year of the hardship distribution.
14.15 Notwithstanding any other provision of this Plan to the contrary and to the extent permitted under applicable law, in the event The First National Bank of Boston is Trustee (or any successor trustee is appointed by the Prototype Sponsoring Organization), such Trustee shall exercise powers of the Trustee under the Plan only at the direction and upon the instructions of the Plan Administrator and the duties and obligations of The First National Bank of Boston (or any successor Trustee appointed by the Prototype Sponsoring Organization) as Trustee shall be limited to holding title to the Plan assets and all other duties of the Trustee set forth in the Plan shall be the obligation of the Plan Administrator. The provisions of the Plan applicable to The First National Bank of Boston shall apply to any successor appointed by the Prototype Sponsoring Organization.
ARTICLE XV --PROVISIONS RELATING TO POLICIES
15.1 A Participant or the Employer may, subject to the rules of the Insurer, direct the Trustees to purchase Policies on the life of any Participant which shall provide, in whole or in part, the benefits provided by the terms of this Trust. "POLICY" means a life insurance contract or an annuity contract issued by the Insurer. "INSURER" means any legal reserve life company licensed to do business in the State where the Trustees are located. The signature of the Participant on any application for a Policy on his life shall be evidence of such Participant's consent to the purchase of such Policy. The premiums for any life insurance contract shall be limited as follows:
(a) Ordinary life - For purposes hereof, ordinary life insurance contracts are contracts with both nondecreasing death benefits and nonincreasing premiums. If such contracts are purchased, less than 1/2 of the aggregate Employer contributions allocated to any Participant will be used to pay the premiums attributable to them.
(b) Term and universal life - No more than 1/4 of the aggregate Employer contribution allocated to any Participant will be used to pay the premiums on term life insurance contracts, universal life insurance contracts, and all other life insurance contracts which are not ordinary life.
(c) Combination - The sum of 1/2 of the ordinary life insurance premiums and all other life insurance premiums will not exceed 1/4 of the aggregate Employer contributions allocated to any Participant.
15.2 With respect to any Policy purchased by the Trustees, the following rules shall apply:
(a) Each Policy may include an increased annuity option provision which, under the terms of such provision, shall permit the Trustees to apply a portion of the funds held in the Trust Fund to increase the annuity available under the terms of the Policy in order to provide the retirement benefits required by the terms of this Trust;
(b) The Trustees shall apply for, own, and pay premiums on each Policy and shall be entitled to exercise all incidents of ownership in each Policy but only in accordance with the provisions of this Trust. In addition, the Trustees shall be designated as the payee for any lifetime benefits payable under the terms of each Policy. The Trustees shall retain physical possession of each Policy unless its distribution is required by the terms of this Trust;
(c) Any annuity contract distributed by the Trustees in accordance with the terms of this Trust shall be endorsed nontransferable to provide that such contract may not be sold, assigned, discounted, or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose, to any other person than the Insurer. The terms of any annuity contract purchased and distributed by the Plan to a Participant or spouse shall comply with the requirements of this Plan;
(d) The Trustees shall be the Beneficiary for any death benefits
payable under a Policy on the life of a Participant in accordance with Article
XI. However, the Trustees shall be required to pay over all proceeds of the
contract(s) to the Participant's designated beneficiary in accordance with the
distribution provisions of this Plan. A Participant's spouse will be the
designated beneficiary of the proceeds in all circumstances unless a waiver has
been made in accordance with Section 11.3. Under no circumstances shall the
Trust retain any part of the proceeds;
(e) Any dividends or credits earned on insurance contracts will be allocated to the Participant's account derived from employer contributions for whose benefit the contract is held;
(f) The Employee shall submit such evidence of insurability as requested by the Insurer.
15.3 No Policy purchased hereunder shall be held by the Trustees after the date the Participant on whose life such Policy was provided retires or otherwise terminates service with the Employer. The Trustees shall, at the direction of the Participant and subject to Section 9.1, convert such Policy into an annuity, or into cash to be distributed in any one or more of the ways set out in Article IX herein. Alternately, any such Policy may be transferred and delivered to the Participant on whose life such Policy was issued, subject to Sections 9.1 and 11.3 herein.
15.4 In the event of any conflict between the provisions of this Plan and the terms of any policy or contract, the provisions of the Plan shall prevail.
15.5 The Insurer issuing Policies under the terms of this Trust shall not be deemed to be a party to this Trust and the obligations of the Insurer shall be limited to carrying out the terms of its Policies. The Insurer shall not be responsible for the validity of this Trust.
15.6 The Insurer may deal with the Trustees as though the Trustees were the absolute owners of the Policies. The Insurer shall not be required to take or permit any action contrary to the terms of its Policies.
15.7 Any and all forms or other documents required by the Insurer may be executed and signed by any one Trustee. The Insurer shall be fully protected in taking any action on the faith thereof and shall incur no liability or responsibility for so doing. Any instrument executed by the Trustee shall be received by the Insurer as conclusive evidence of any of the matters mentioned in the Plan.
15.8 The Insurer may issue any Policy for which application is made by the Trustee without responsibility for determining whether the application is proper or whether the proposed Participant is eligible to participate in the Plan.
15.9 In the event that any portion of a Participant's Account is invested in Policies, then the Participant's Accrued Benefit shall include the cash surrender value of any Policy purchased on the participant's behalf. Notwithstanding the foregoing, if any premium(s) for Policies on the Participant's life paid by the Employer during the Plan Year in which the Participant terminates or dies, exceeds the Employer Contribution due in respect of the Participant for such Plan Year, the excess, if any, shall be treated as a distribution and shall be deducted from any value of the Participant's Account.
15.10 No qualified voluntary contributions made by a Participant shall be invested in Policies.
15.11 A terminated Participant may direct the Trustees to assign to him
full ownership rights in any Policy or Policies purchased on his behalf. If the
Participant is not fully vested, any such assignment shall be conditional upon
payment to the Trustees of the excess of the cash surrender value of the
Policy(ies) over the vested portion thereof. In lieu of a cash payment, the
Participant may direct the Trustees to effect such payment from the
Participant's Account or from the proceeds of a Policy loan. Any such directions
by the Participant shall be made to the Trustees, in writing, prior to the date
the distribution is to be made in accordance with Section 12.8. Any amounts so
received by the Trustees shall be treated as a forfeiture in accordance with
Section 5.5 herein.
ARTICLE XVI -- ADMINISTRATIVE PROVISIONS
16.1 The Plan Administrator shall be as designated by the Employer in Item 2(b) of the Adoption Agreement and shall carry out the duties assigned to the Plan Administrator under this Plan and Trust. The Trustees shall be notified in writing by the Employer of the name of the Plan Administrator or any successors thereto. The Plan Administrator shall be in charge of the operation and administration of the Plan and shall have all powers necessary to carry out its terms. The Plan Administrator may be a corporate officer, a partner, or an Owner-Employee, whichever is applicable depending upon the organization of the Employer, or an Employee of the Employer, or other individuals or organization, and shall serve at the pleasure of the Employer. The Plan Administrator may resign at any time by delivering to the Employer a written notice of resignation, not less than fifteen (15) days before the effective date of his resignation. The Plan Administrator may be removed by the Employer at any time by delivery of a written notice of removal. Upon receipt of, or giving notice of, the resignation, removal, death or other cause, the Employer shall promptly appoint a successor Plan Administrator. Until a new appointment is made and accepted, and until a Plan Administrator is designated, the Employer shall have full authority to act as the Plan Administrator. The Plan Administrator shall be the designated agent for service of legal process.
16.2 The Plan Administrator shall interpret and administer this Plan in accordance with its terms and in a manner consistent with the requirements of the Code, all other applicable legislation and Regulations issued thereunder. All interpretations of the Plan and questions concerning its administration and application shall be determined by the Plan Administrator and such determination shall be binding on all persons except as otherwise expressly provided herein.
16.3 All parties to whom fiduciary duties have been delegated under this Plan and Trust shall supply the Plan Administrator with copies of all records of their proceedings and actions as shall be necessary for the Plan Administrator to properly administer the Plan and to discharge his responsibilities hereunder.
16.4 The Plan Administrator shall keep records of employment, eligibility for coverage hereunder, allocations to Participant's accounts, and all other relevant data pertaining to the rights of any person affected hereby, and shall ensure that such records are retained for the periods required by law. In addition, the Plan Administrator shall be responsible for the timely filing of all returns, reports, and statements required to be filed periodically with the Internal Revenue Service, the Department of Labor and Employees. The Plan Administrator shall also ensure that each person entitled to a benefit hereunder receives such benefit.
16.5 All expenses of administering the Plan including, without limitation, trustee, advisory or other similar fees, shall constitute a charge against and be payable from the Trust Fund except to the extent the Employer, in its discretion, elects to pay such expenses. Such expenses shall also include such reasonable compensation as shall from time to time be agreed upon in writing between the Employer, the Trustees, the Plan Administrator, and such other parties to whom fiduciary duties have been delegated, except that no such compensation shall be paid to any parties who are full-time Employees of the Employer or who are partners in the Employer or who is the Owner-Employee of the Employer, and who are otherwise remunerated for such services. In addition, all parties to whom fiduciary duties have been delegated hereunder shall be reimbursed for any reasonable expenses incurred by them in the administration and operation of this Plan and Trust. The Prototype Sponsoring Organization may receive an annual maintenance fee for Plan Years beginning at least thirty (30) days after the Prototype Sponsoring Organization mails notice of such fee to the Employer.
16.6 At no time shall it be possible for any part of the assets of the Trust to be used for, or diverted to, purposes other than for the exclusive benefit of Participants, Former Participants and Beneficiaries except as specifically provided below:
(a) In the event that the Plan and Trust is not initially approved by the Internal Revenue Service in accordance with Section 1.2.
(b) In the event that any contribution is made to this Trust because of a mistake in fact, an amount may be returned to the Employer equal to the excess of (1) the amount contributed, over (2) the amount that would have been contributed had there not been a mistake of fact, provided, however, that no amount shall be returned which would cause the balance of a Participant's Account to be reduced to less than the balance which would have been in the account had the mistake in fact not been made. Earnings attributable to such excess contribution may not be returned to the Employer but losses attributable thereto must reduce the amount to be so returned.
(c) In the event that the contribution is not deductible under Section 404 of the Code.
(d) In the event that the Plan is amended, and in the event that any contribution is made to the Plan conditioned upon the qualification of the Plan as amended, such contribution will be returned to the Employer upon the determination that the Plan, as amended, fails to qualify under the Code; provided, however, that any such amendment is submitted to the Internal Revenue Service for qualification within one year from the date the amendment is adopted. With respect to (a) above, assets shall be returned to the Employer as specified in Section 1.2(c).
With respect to (b) above, contributions shall be returned to the Employer within one year from the date such contributions were made.
With respect to (c) above, contributions shall be returned within one year from the date such deduction is disallowed.
With respect to (d) above, contributions shall be returned within one year from the date the Plan's requalification is denied.
16.7 A Participant, Former Participant, Beneficiary, or the Employer acting in his behalf shall notify the Plan Administrator in writing of a claim for benefits under the Plan. Such notice of claim shall be in any form reasonably acceptable to the Plan Administrator and shall set forth the basis of such claim. Authorization is hereby granted to the Plan Administrator to conduct such examinations as may be necessary to determine the validity of the claim and to take such steps as may be necessary to facilitate the payment of any benefits to which the Participant, Former Participant, or Beneficiary may be entitled under the terms of this Plan. In the event that any claim for benefits under this Plan is denied, the Plan Administrator shall furnish written notice to the claimant specifying the reason for the denial. The Plan Administrator shall provide any Participant, Former Participant, or Beneficiary whose claim for benefits has been denied with a reasonable opportunity for a full and fair review of such claim. In the event that any claim hereunder is denied because of any dispute as to the proper recipient of any payment, the Plan Administrator, in his sole discretion, may direct the Trustees to withhold such payment until the dispute shall have been settled by the parties concerned or shall have been determined by a court of competent jurisdiction.
16.8 Except as may be specifically provided for by law, neither a Participant, Former Participant, nor a Beneficiary shall have any rights whatsoever against the Employer, or any officer or employee thereof, the Plan Administrator, the Trustees or any other parties to whom fiduciary duties have been delegated as a result of this Trust except those expressly granted to them by this Trust. Nothing contained herein shall be construed to give any Participant the right to remain an employee of the Employer.
16.9 None of the parties to this Trust shall knowingly permit the Trust to engage in a prohibited transaction as described in Section 503(b) or 4975(a) of the Code and Section 406 of ERISA.
16.10 To the extent permitted by law, no payment to any person under any Policy, nor the right to receive such payments, nor any interest in this Trust, shall be subject to assignment, alienation, transfer or anticipation, either by voluntary or involuntary act of any Participant or Beneficiary or by operation of law, nor shall such payment or right or interest be subject to the demands or claims of any creditor of such person, nor be liable in any way for such person's debts, obligations or liabilities. The preceding sentence shall also apply to the creation, assignment, or recognition of a right, pursuant to a domestic relations order, to any benefit payable with respect to a Participant unless such order is determined to be a qualified domestic relations order, as defined in Section 414(p) of the Code, or any domestic relations order entered before January 1, 1985. In the event that any Participant's benefits are garnished or attached by order of any court, the Trustees or the Plan Administrator may bring an action for a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid by the Trust. During the pendency of said action, any benefits that become payable shall be paid into the court as they become payable, to be distributed by the court to the recipient it deems proper at the close of said action.
16.11 Whenever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and whenever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.
16.12 In all matters which do not conflict with the requirements of the Code or ERISA, or Regulations issued thereunder, this Plan and Trust will be construed, administered and enforced according to the laws of the State in which the principal place of business of the Employer is located; provided, that if The First National Bank of Boston is Trustee, the Plan and Trust will be construed, administered, and enforced according to the laws of the Commonwealth of Massachusetts. If any provisions of this Plan or Trust shall be held illegal or invalid for any reason, the remaining provisions herein shall not be affected and this Plan and Trust shall be construed as if the illegal or invalid provisions had never been included herein.
16.13 The Employer's participation in this Plan is independent of that of any and all other employers adopting it by their own separate Adoption Agreements. All contributions, Policies and other funds, if any, made or held under the Plan as adopted by the Employer shall be administered separately and exclusively for the benefit of Participants, Former Participants and Beneficiaries.
16.14 If the Employer fails to attain or retain qualification, such Employer can no longer participate in this Prototype Plan and Trust and the Employer's plan will thereafter be considered an individually designed plan.
16.15 If the Trust is disqualified by the Internal Revenue Service, the Trustees must, within thirty (30) days of receipt of notice of disqualification, either segregate all assets of the Trust, or distribute such assets to the Participants in accordance with Article XII herein. A copy of the notice of disqualification shall be given to the Insurer.
16.16 If this Plan provides contributions or benefits for one or more Owner-Employees who control both the business with respect to which this Plan is established and one or more other trades or businesses, this Plan and the plan established with respect to such other trades or businesses must, when looked at as a single plan, satisfy Sections 401(a) and (d) of the Code with respect to the employees of this and all other trades or businesses.
If this Plan provides contributions or benefits for one or more Owner-Employees who control one or more other trades or businesses, the employees of each such other trade or business must be included in a plan which satisfies Sections 401(a) and (d) of the Code and which provides contributions and benefits not less favorable than provided for such Owner-Employees under this plan.
If an individual is covered as an Owner-Employee under the plans of two or more trades or businesses which he does not control and such individual controls a trade or business, then the contributions or benefits of the employees under the plan of the trade or business which he does control must be as favorable as those provided for him under the most favorable plan of the trade or business which he does not control.
For purposes of the preceding paragraphs, an Owner-Employee, or two or more Owner-Employees, shall be considered to control a trade or business if such Owner-Employee, or such two or more Owner-Employees together:
(1) own the entire interest in an unincorporated trade or business, or
(2) in the case of a partnership, own more than 50 percent of either the capital interest or the profits interest in such partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more Owner-Employees shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership which such Owner-Employee, or such two or more Owner-Employees, are considered to control within the meaning of the preceding sentence.
16.17 It is specifically provided that this Plan may be adopted by an employer under any of the following circumstances, as specified in Item 2(e) of the Adoption Agreement:
(a) The initial adoption of a qualified retirement plan;
(b) The amendment of any other previously adopted qualified retirement plan.
16.18 If all or a portion of a Participant's Accrued Benefit is forfeited because the Participant or his Beneficiary, if applicable, cannot be found, such will be reinstated if a claim is subsequently made by the Participant or, if applicable, his Beneficiary.
16.19 Prototype Plan Amendments. The Prototype Plan and Trust (the
"Prototype Plan") as amended by the Prototype Sponsoring Organization to comply
with the Tax Reform Act of 1986 received IRS opinion letters in 1990. In 1993,
the Prototype Sponsoring Organization further amended the Prototype Plan
pursuant to IRS Revenue Procedure 92-41 to, among other things, include certain
liberalized rules contained in final regulations under Sections 401(k) and
401(m) of the Code, modify the definition of compensation, permit additional
options for the treatment of forfeitures, require that any Employee benefiting
under one paired Plan also benefit under the other paired plan, and permit an
employee to directly roll over distributions in accordance with Code Section
401(a) (31) ("1993 Amendment"). The Prototype Plan as amended by the 1993
Amendment received IRS opinion letters in 1993 and was adopted by the Prototype
Sponsoring Organization as of June 30, 1993. The effective date for the 1993
Amendment to the Prototype Plan is as follows:
(i) in the case of a new Plan established by the adoption of the Prototype Plan, the effective date is the Effective Date as defined in Section 2.17 of the Plan;
(ii) in the case of an existing Plan, the effective date of each provision of the 1993 Amendment shall be the later of the first day of the first Plan Year beginning after June 30, 1993 or the first day of the first Plan Year in which the Prototype Plan (as amended by the 1993 Amendment) is adopted, unless another date is specified in a provision or is required to maintain the Plan as a qualified plan under the Code.
Prior to such effective date, the provisions of the Prototype Plan as amended for the Tax Reform Act of 1986 without regard to the 1993 Amendment shall apply. 16.20 In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months. the OBRA '93 annual Compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual Compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual Compensation limit in effect for that prior determination period. For this purpose, for a determination period beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual Compensation limit is $150,000.
EXHIBIT NO. 99.15(a)
MFS FIXED INCOME TRUST
MFS BOND FUND
AMENDED AND RESTATED DISTRIBUTION PLAN
AMENDED AND RESTATED DISTRIBUTION PLAN with respect to the shares of beneficial interest to be designated "CLASS A" of the MFS BOND FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust"), a business trust organized and existing under the laws of The Commonwealth of Massachusetts, dated the 19th day of December, 1990, amended and restated the 27th day of August, 1993, amended the 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940 (the "Act"); and
WHEREAS, a plan of distribution pursuant to Rule 12b-1 of the Act was previously adopted and approved by the Trustees of the Trust, including the Qualifying Trustees (as defined below), and by the shareholders of the Fund; and
WHEREAS, the Trust intends to continue to distribute the Shares of Beneficial Interest (without par value) of the Fund designated Class A Shares (the "Shares") in part in accordance with Rule 12b-1 under the Act ("Rule 12b-1"), and desires to adopt this amended and restated Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") in a form approved by the Board of Trustees of the Trust (the "Board of Trustees") in the manner specified in Rule 12b-1, with MFS Fund Distributors, Inc., a Delaware corporation, as distributor (the "Distributor"), whereby the Distributor provides facilities and personnel and renders services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will enter into agreements ("Dealer Agreements") with various securities dealers and other financial intermediaries ("Dealers") pursuant to which the Dealers will act as dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be paid by investors who purchase Shares and that the Distributor and Dealers will receive such sales charge as partial compensation for their services in connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the Fund as a plan of distribution relating to the Shares in accordance with Rule 12b-1 under the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the Services described in Section 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. As partial consideration for the services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate of 0.10% per annum of the average daily net assets of the Fund attributable to the Shares. Such payments shall commence following shareholder approval of the Plan but only upon notification by the Distributor to the Fund of the commencement of the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its Dealer Agreement, the Fund shall on or after the Commencement Date pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. The Distributor may from time to time reduce the amount of the service fee paid to a Dealer for Shares sold prior to certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the expenses permitted to be paid by the Fund pursuant to this Plan on or after the Commencement Date shall include other distribution related expenses. These other distribution related expenses may include, but are not limited to, a dealer commission and a payment to wholesalers employed by the Distributor on net asset value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to Sections 3
and 4 hereof and this Section 5 shall not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to the Shares. No fees shall be paid
pursuant to Section 4 hereof or this Section 5 to any insurance company which
has entered into an agreement with the Trust on behalf of the Fund and the
Distributor that permits such insurance company to purchase Shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof and
this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of the Shares, and (b) approval by a vote of the Board of Trustees and vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any of the agreements related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however, that such continuance is subject to annual approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on continuance of this Plan. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees; provided that (a) any amendment to increase materially the amount to be spent for the services described herein shall be effective only upon approval by a vote of a "majority of the outstanding voting securities" of the Shares and (b) any material amendment of this Plan shall be effective only upon approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on such amendment. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees or by a vote of a "majority of the outstanding voting securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and "majority of the outstanding voting securities" are used as defined in the Act. In addition, for purposes of determining the fees payable to Dealers and wholesalers, the value of the Share's net assets shall be computed in the manner specified in the Fund's then current prospectus for computation of the net asset value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in Section 10 hereof (collectively the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such Record shall be kept in an easily accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the Act.
15. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(b)
MFS FIXED INCOME TRUST
MFS BOND FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "CLASS B" of MFS BOND FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust") a Massachusetts business trust, dated September 1, 1993, amended the 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest (without par value) of the Fund designated Class B Shares (the "Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rules; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware corporation, to provide certain distribution services for the Fund (the "Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") (in a form approved by the Board of Trustees of the Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby the Distributor will provide facilities and personnel and render services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may retain the services of firms or individuals to act as dealers (the "Dealers") of the Shares in connection with the offering of Shares, and (b) the Distributor may make payments for such services to the Dealers out of the fee paid to the Distributor hereunder, any deferred sales charges imposed by the Distributor in connection with the repurchase of Shares, its profits or any other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may impose certain deferred sales charges in connection with the repurchase of Shares by the Fund, and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class B shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan for the Fund as a plan for distribution relating to the Shares in accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for commissions payable to Dealers, all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the services described in paragraph 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. It is understood that the Distributor may impose certain deferred sales charges in connection with the repurchase of Shares by the Fund and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges. As additional consideration for all services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate of 0.75% per annum of the Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its dealer agreement with the Distributor, the Fund shall pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. That portion of the Fund's average daily net assets on which the fees payable under this paragraph 4 hereof are calculated may be subject to certain minimum amount requirements as may be determined, and additional or different dealer qualification standards that may be established from time to time, by the Distributor. The Distributor shall be entitled to be paid any fees payable under this paragraph 4 hereof with respect to Shares for which no Dealer of record exists or qualification standards have not been met as partial consideration for personal services and/or account maintenance services provided by the Distributor to the Shares. The service fee payable pursuant to this paragraph 4 may from time to time be paid by the Fund to the Distributor and the Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the Dealers may provide for payment of commissions to Dealers in connection with the sales of Shares and may provide for a portion (which may be all or substantially all) of the fees payable by the Fund to the Distributor under the Distribution Agreement to be paid by the Distributor to the Dealers in consideration of the Dealer's services as dealers of the Shares. Except as described in paragraph 4, nothing in this Plan shall be construed as requiring the Fund to make any payment to any Dealer or to have any obligations to any Dealer in connection with services as a dealer of the Shares. The Distributor shall agree and undertake that any agreement entered into between the Distributor and any Dealer shall provide that, except as provided in paragraph 4, such Dealer shall look solely to the Distributor for compensation for its services thereunder and that in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor, legal counsel, investment adviser, administrator, transfer agent, custodian, shareholder servicing agent, registrar or dividend disbursing agent of the Fund; expenses of distributing and redeeming Shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund, except that the Distributor shall be responsible for the distribution-related expenses as provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of the Shares, and (b) approval by a vote of the Board of Trustees and a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such continuance is "specifically approved at least annually" by a vote of both a majority of the Trustees of the Trust and a majority of the Qualified Trustees. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees; provided that this Plan may not be amended to increase materially the amount of permitted expenses hereunder without the approval of holders of a "majority of the outstanding voting securities" of the Shares and may not be materially amended in any case without a vote of a majority of both the Trustees and the Qualified Trustees. This Plan may be terminated at any time by a vote of a majority of the Qualified Trustees or by a vote of the holders of a "majority of the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under this Plan and the purposes for which such expenditures were made.
12. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons", "majority of the outstanding voting securities" and "specifically approved at least annually" are used as defined in the 1940 Act. In addition, for purposes of determining the fees payable to the Distributor hereunder, the value of the Fund's net assets shall be computed in the manner specified in the Fund's then-current prospectus and statement of additional information for computation of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in paragraph 11 hereof (collectively, the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such record shall be kept in an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(c)
MFS FIXED INCOME TRUST
MFS BOND FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "CLASS C" of MFS BOND FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust") a Massachusetts business trust, dated December 28, 1993, amended the 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest (without par value) of the Fund designated Class C Shares (the "Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware corporation, to provide certain distribution services for the Fund (the "Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") (in a form approved by the Board of Trustees of the Trust in a manner specified in Rule 12b-1) with the Distributor, whereby the Distributor will provide facilities and personnel and render services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may retain the services of firms or individuals to act as dealers (the "Dealers") of the Shares in connection with the offering of Shares, and (b) the Distributor may make payments for such services to the Dealers out of the fee paid to the Distributor hereunder, any deferred sales charges imposed by the Distributor in connection with the repurchase of Shares, its profits or any other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may (but is not required to) impose certain deferred sales charges in connection with the repurchase of Shares by the Fund, and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class C shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan for the Fund as a plan for distribution relating to the Shares in accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for any commissions payable to Dealers (including any ongoing maintenance commissions), all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the services described in paragraph 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. It is understood that the Distributor may (but is not required to) impose certain deferred sales charges in connection with the repurchase of Shares by the Fund and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges. As additional consideration for all services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate not to exceed 0.75% per annum of the Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its dealer agreement with the Distributor, the Fund shall pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. That portion of the Fund's average daily net assets on which the fees payable under this paragraph 4 hereof are calculated may be subject to certain minimum amount requirements as may be determined, and additional or different dealer qualification standards that may be established, from time to time by the Distributor. The Distributor shall be entitled to be paid any fees payable under this paragraph 4 hereof with respect to Shares for which no Dealer of record exists or qualification standards have not been met as partial consideration for personal services and/or account maintenance services provided by the Distributor to the Shares. The service fee payable pursuant to this paragraph 4 may from time to time be paid by the Fund to the Distributor and the Distributor will then pay these fees to Dealers on behalf of the Fund or retain them in accordance with this paragraph.
5. The Fund understands that agreements between the Distributor and the Dealers may provide for payment of commissions to Dealers in connection with the sales of Shares and may provide for a portion (which may be all or substantially all) of the fees payable by the Fund to the Distributor under the Distribution Agreement to be paid by the Distributor to the Dealers in consideration of the Dealer's services as a dealer of the Shares. Except as described in paragraph 4, nothing in this Plan shall be construed as requiring the Fund to make any payment to any Dealer or to have any obligations to any Dealer in connection with services as a dealer of the Shares. The Distributor shall agree and undertake that any agreement entered into between the Distributor and any Dealer shall provide that, except as provided in paragraph 4, such Dealer shall look solely to the Distributor for compensation for its services thereunder and that in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor, legal counsel, investment adviser, administrator, transfer agent, custodian, shareholder servicing agent, registrar or dividend disbursing agent of the Fund; expenses of distributing and redeeming Shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund, except that the Distributor shall be responsible for the distribution-related expenses as provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of Class C, and (b) approval by a vote of the Board of Trustees and a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such continuance is "specifically approved at least annually" by a vote of both a majority of the Trustees of the Trust and a majority of the Qualified Trustees. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees; provided that this Plan may not be amended to increase materially the amount of permitted expenses hereunder without the approval of holders of a "majority of the outstanding voting securities" of Class C and may not be materially amended in any case without a vote of a majority of both the Trustees and the Qualified Trustees. This Plan may be terminated at any time by a vote of a majority of the Qualified Trustees or by a vote of the holders of a "majority of the outstanding voting securities" of Class C.
11. The Fund and the Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under this Plan and the purposes for which such expenditures were made.
12. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons", "majority of the outstanding voting securities" and "specifically approved at least annually" are used as defined in the 1940 Act. In addition, for purposes of determining the fees payable to the Distributor hereunder, the value of the Fund's net assets shall be computed in the manner specified in the Fund's then-current prospectus and statement of additional information for computation of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in paragraph 11 hereof (collectively, the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such record shall be kept in an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(d)
MFS FIXED INCOME TRUST
MFS LIMITED MATURITY FUND
AMENDED AND RESTATED DISTRIBUTION PLAN
AMENDED AND RESTATED DISTRIBUTION PLAN with respect to the shares of beneficial interest to be designated "CLASS A" of the MFS LIMITED MATURITY FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust"), a business trust organized and existing under the laws of The Commonwealth of Massachusetts, dated the 8th day of January, 1992, amended and restated the 27th day of August, 1993, amended the 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940 (the "Act"); and
WHEREAS, a plan of distribution pursuant to Rule 12b-1 of the Act was previously adopted and approved by the Trustees of the Trust, including the Qualifying Trustees (as defined below), and by the shareholders of the Fund; and
WHEREAS, the Trust intends to continue to distribute the Shares of Beneficial Interest (without par value) of the Fund designated Class A Shares (the "Shares") in part in accordance with Rule 12b-1 under the Act ("Rule 12b-1"), and desires to adopt this amended and restated Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") in a form approved by the Board of Trustees of the Trust (the "Board of Trustees") in the manner specified in Rule 12b-1, with MFS Fund Distributors, Inc., a Delaware corporation, as distributor (the "Distributor"), whereby the Distributor provides facilities and personnel and renders services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will enter into agreements ("Dealer Agreements") with various securities dealers and other financial intermediaries ("Dealers") pursuant to which the Dealers will act as dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be paid by investors who purchase Shares and that the Distributor and Dealers will receive such sales charge as partial compensation for their services in connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the Fund as a plan of distribution relating to the Shares in accordance with Rule 12b-1 under the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the Services described in Section 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. As partial consideration for the services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate of 0.10% per annum of the average daily net assets of the Fund attributable to the Shares. Such payments shall commence following shareholder approval of the Plan but only upon notification by the Distributor to the Fund of the commencement of the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its Dealer Agreement, the Fund shall on or after the Commencement Date pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. The Distributor may from time to time reduce the amount of the service fee paid to a Dealer for Shares sold prior to certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the expenses permitted to be paid by the Fund pursuant to this Plan on or after the Commencement Date shall include other distribution related expenses. These other distribution related expenses may include, but are not limited to, a dealer commission and a payment to wholesalers employed by the Distributor on net asset value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to Sections 3
and 4 hereof and this Section 5 shall not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to the Shares. No fees shall be paid
pursuant to Section 4 hereof or this Section 5 to any insurance company which
has entered into an agreement with the Trust on behalf of the Fund and the
Distributor that permits such insurance company to purchase Shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof and
this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of the Shares, and (b) approval by a vote of the Board of Trustees and vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any of the agreements related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however, that such continuance is subject to annual approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on continuance of this Plan. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees; provided that (a) any amendment to increase materially the amount to be spent for the services described herein shall be effective only upon approval by a vote of a "majority of the outstanding voting securities" of the Shares and (b) any material amendment of this Plan shall be effective only upon approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on such amendment. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees or by a vote of a "majority of the outstanding voting securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and "majority of the outstanding voting securities" are used as defined in the Act. In addition, for purposes of determining the fees payable to Dealers and wholesalers, the value of the Share's net assets shall be computed in the manner specified in the Fund's then current prospectus for computation of the net asset value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in Section 10 hereof (collectively the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such Record shall be kept in an easily accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the Act.
15. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(e)
MFS FIXED INCOME TRUST
MFS LIMITED MATURITY FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "CLASS B" of MFS LIMITED MATURITY FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust") a Massachusetts business trust, dated September 1, 1993 and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest (without par value) of the Fund designated Class B Shares (the "Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware corporation, to provide certain distribution services for the Fund (the "Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") (in a form approved by the Board of Trustees of the Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby the Distributor will provide facilities and personnel and render services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may retain the services of firms or individuals to act as dealers (the "Dealers") of the Shares in connection with the offering of Shares, and (b) the Distributor may make payments for such services to the Dealers out of the fee paid to the Distributor hereunder, any deferred sales charges imposed by the Distributor in connection with the repurchase of Shares, its profits or any other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may impose certain deferred sales charges in connection with the repurchase of Shares by the Fund, and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class B shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan for the Fund as a plan for distribution relating to the Shares in accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for commissions payable to Dealers, all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the services described in paragraph 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. It is understood that the Distributor may impose certain deferred sales charges in connection with the repurchase of Shares by the Fund and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges. As additional consideration for all services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate of 0.75% per annum of the Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its dealer agreement with the Distributor, the Fund shall pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. That portion of the Fund's average daily net assets on which the fees payable under this paragraph 4 hereof are calculated may be subject to certain minimum amount requirements as may be determined, and additional or different dealer qualification standards that may be established from time to time, by the Distributor. The Distributor shall be entitled to be paid any fees payable under this paragraph 4 hereof with respect to Shares for which no Dealer of record exists or qualification standards have not been met as partial consideration for personal services and/or account maintenance services provided by the Distributor to the Shares. The service fee payable pursuant to this paragraph 4 may from time to time be paid by the Fund to the Distributor and the Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the Dealers may provide for payment of commissions to Dealers in connection with the sales of Shares and may provide for a portion (which may be all or substantially all) of the fees payable by the Fund to the Distributor under the Distribution Agreement to be paid by the Distributor to the Dealers in consideration of the Dealer's services as a dealer of the Shares. Except as described in paragraph 4, nothing in this Plan shall be construed as requiring the Fund to make any payment to any Dealer or to have any obligations to any Dealer in connection with services as a dealer of the Shares. The Distributor shall agree and undertake that any agreement entered into between the Distributor and any Dealer shall provide that, except as provided in paragraph 4, such Dealer shall look solely to the Distributor for compensation for its services thereunder and that in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor, legal counsel, investment adviser, administrator, transfer agent, custodian, shareholder servicing agent, registrar or dividend disbursing agent of the Fund; expenses of distributing and redeeming Shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund, except that the Distributor shall be responsible for the distribution-related expenses as provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of the Shares, and (b) approval by a vote of the Board of Trustees and a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such continuance is "specifically approved at least annually" by a vote of both a majority of the Trustees of the Trust and a majority of the Qualified Trustees. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees; provided that this Plan may not be amended to increase materially the amount of permitted expenses hereunder without the approval of holders of a "majority of the outstanding voting securities" of the Shares and may not be materially amended in any case without a vote of a majority of both the Trustees and the Qualified Trustees. This Plan may be terminated at any time by a vote of a majority of the Qualified Trustees or by a vote of the holders of a "majority of the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under this Plan and the purposes for which such expenditures were made.
12. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons", "majority of the outstanding voting securities" and "specifically approved at least annually" are used as defined in the 1940 Act. In addition, for purposes of determining the fees payable to the Distributor hereunder, the value of the Fund's net assets shall be computed in the manner specified in the Fund's then-current prospectus and statement of additional information for computation of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in paragraph 11 hereof (collectively, the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such record shall be kept in an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(f)
MFS FIXED INCOME TRUST
MFS LIMITED MATURITY FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "CLASS C" of MFS LIMITED MATURITY FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust") a Massachusetts business trust, dated July 20, 1994 and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest (without par value) of the Fund designated Class C Shares (the "Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware corporation, to provide certain distribution services for the Fund (the "Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") (in a form approved by the Board of Trustees of the Trust in a manner specified in Rule 12b-1) with the Distributor, whereby the Distributor will provide facilities and personnel and render services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may retain the services of firms or individuals to act as dealers (the "Dealers") of the Shares in connection with the offering of Shares, and (b) the Distributor may make payments for such services to the Dealers out of the fee paid to the Distributor hereunder, any deferred sales charges imposed by the Distributor in connection with the repurchase of Shares, its profits or any other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may (but is not required to) impose certain deferred sales charges in connection with the repurchase of Shares by the Fund, and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class C shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan for the Fund as a plan for distribution relating to the Shares in accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for any commissions payable to Dealers (including any ongoing maintenance commissions), all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the services described in paragraph 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. It is understood that the Distributor may (but is not required to) impose certain deferred sales charges in connection with the repurchase of Shares by the Fund and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges. As additional consideration for all services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate not to exceed 0.75% per annum of the Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its dealer agreement with the Distributor, the Fund shall pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. That portion of the Fund's average daily net assets on which the fees payable under this paragraph 4 hereof are calculated may be subject to certain minimum amount requirements as may be determined, and additional or different dealer qualification standards that may be established, from time to time by the Distributor. The Distributor shall be entitled to be paid any fees payable under this paragraph 4 hereof with respect to Shares for which no Dealer of record exists or qualification standards have not been met as partial consideration for personal services and/or account maintenance services provided by the Distributor to the Shares. The service fee payable pursuant to this paragraph 4 may from time to time be paid by the Fund to the Distributor and the Distributor will then pay these fees to Dealers on behalf of the Fund or retain them in accordance with this paragraph.
5. The Fund understands that agreements between the Distributor and the Dealers may provide for payment of commissions to Dealers in connection with the sales of Shares and may provide for a portion (which may be all or substantially all) of the fees payable by the Fund to the Distributor under the Distribution Agreement to be paid by the Distributor to the Dealers in consideration of the Dealer's services as a dealer of the Shares. Except as described in paragraph 4, nothing in this Plan shall be construed as requiring the Fund to make any payment to any Dealer or to have any obligations to any Dealer in connection with services as a dealer of the Shares. The Distributor shall agree and undertake that any agreement entered into between the Distributor and any Dealer shall provide that, except as provided in paragraph 4, such Dealer shall look solely to the Distributor for compensation for its services thereunder and that in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor, legal counsel, investment adviser, administrator, transfer agent, custodian, shareholder servicing agent, registrar or dividend disbursing agent of the Fund; expenses of distributing and redeeming Shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund, except that the Distributor shall be responsible for the distribution-related expenses as provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of Class C, and (b) approval by a vote of the Board of Trustees and a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such continuance is "specifically approved at least annually" by a vote of both a majority of the Trustees of the Trust and a majority of the Qualified Trustees. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees; provided that this Plan may not be amended to increase materially the amount of permitted expenses hereunder without the approval of holders of a "majority of the outstanding voting securities" of Class C and may not be materially amended in any case without a vote of a majority of both the Trustees and the Qualified Trustees. This Plan may be terminated at any time by a vote of a majority of the Qualified Trustees or by a vote of the holders of a "majority of the outstanding voting securities" of Class C.
11. The Fund and the Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under this Plan and the purposes for which such expenditures were made.
12. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons", "majority of the outstanding voting securities" and "specifically approved at least annually" are used as defined in the 1940 Act. In addition, for purposes of determining the fees payable to the Distributor hereunder, the value of the Fund's net assets shall be computed in the manner specified in the Fund's then-current prospectus and statement of additional information for computation of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in paragraph 11 hereof (collectively, the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such record shall be kept in an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(g)
MFS FIXED INCOME TRUST
MFS MUNICIPAL LIMITED MATURITY FUND
DISTRIBUTION PLAN
DISTRIBUTION PLAN with respect to the shares of beneficial interest to be designated "CLASS A" of the MFS MUNICIPAL LIMITED MATURITY FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust"), a business trust organized and existing under the laws of The Commonwealth of Massachusetts, dated the 1st day of September, 1993, amended the 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940 (the "Act"); and
WHEREAS, the Trust intends to distribute the Shares of Beneficial Interest (without par value) of the Fund designated Class A Shares (the "Shares") in part in accordance with Rule 12b-1 under the Act, ("Rule 12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") in a form approved by the Board of Trustees of the Trust (the "Board of Trustees") in the manner specified in Rule 12b-1, with MFS Fund Distributors, Inc., a Delaware corporation, as distributor (the "Distributor"), whereby the Distributor provides facilities and personnel and renders services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will enter into agreements ("Dealer Agreements") with various securities dealers and other financial intermediaries ("Dealers") pursuant to which the Dealers will act as dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be paid by investors who purchase Shares and that the Distributor and Dealers will receive such sales charge as partial compensation for their services in connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the Fund as a plan of distribution relating to the Shares in accordance with Rule 12b-1 under the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses described in Section 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. As partial consideration for the services performed and expenses to the extent specified in the Distribution Agreement in providing the services incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate of 0.10% per annum of the average daily net assets of the Fund attributable to the Shares. Such payments shall commence following shareholder approval of the Plan but only upon notification by the Distributor to the Fund of the commencement of the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its Dealer Agreement, the Fund shall on or after the Commencement Date pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. The Distributor may from time to time reduce the amount of the service fee paid to a Dealer for Shares sold prior to certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the expenses permitted to be paid by the Fund pursuant to this Plan on or after the Commencement Date shall include other distribution related expenses. These other distribution related expenses may include, but are not limited to, a dealer commission and a payment to wholesalers employed by the Distributor on net asset value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to Sections 3
and 4 hereof and this Section 5 shall not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to the Shares. No fees shall be paid
pursuant to Section 4 hereof or this Section 5 to any insurance company which
has entered into an agreement with the Trust on behalf of the Fund and the
Distributor that permits such insurance company to purchase Shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof and
this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of the Shares, and (b) approval by a vote of the Board of Trustees and vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any of the agreements related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however, that such continuance is subject to annual approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on continuance of this Plan. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees; provided that (a) any amendment to increase materially the amount to be spent for the services described herein shall be effective only upon approval by a vote of a "majority of the outstanding voting securities" of the Shares and (b) any material amendment of this Plan shall be effective only upon approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on such amendment. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees or by a vote of a "majority of the outstanding voting securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and "majority of the outstanding voting securities" are used as defined in the Act. In addition, for purposes of determining the fees payable to Dealers and wholesalers, the value of the Share's net assets shall be computed in the manner specified in the Fund's then current prospectus for computation of the net asset value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in Section 10 hereof (collectively the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such Record shall be kept in an easily accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the Act.
15. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(h)
MFS FIXED INCOME TRUST
MFS MUNICIPAL LIMITED MATURITY FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "CLASS B" of MFS MUNICIPAL LIMITED MATURITY FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust") a Massachusetts business trust, dated September 1, 1993, amended the 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest (without par value) of the Fund designated Class B Shares (the "Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware corporation, to provide certain distribution services for the Fund (the "Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") (in a form approved by the Board of Trustees of the Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby the Distributor will provide facilities and personnel and render services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may retain the services of firms or individuals to act as dealers (the "Dealers") of the Shares in connection with the offering of Shares, and (b) the Distributor may make payments for such services to the Dealers out of the fee paid to the Distributor hereunder, any deferred sales charges imposed by the Distributor in connection with the repurchase of Shares, its profits or any other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may impose certain deferred sales charges in connection with the repurchase of Shares by the Fund, and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class B shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan for the Fund as a plan for distribution relating to the Shares in accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for commissions payable to Dealers, all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the services described in paragraph 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. It is understood that the Distributor may impose certain deferred sales charges in connection with the repurchase of Shares by the Fund and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges. As additional consideration for all services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate of 0.75% per annum of the Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its dealer agreement with the Distributor, the Fund shall pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. That portion of the Fund's average daily net assets on which the fees payable under this paragraph 4 hereof are calculated may be subject to certain minimum amount requirements as may be determined, and additional or different dealer qualification standards that may be established from time to time, by the Distributor. The Distributor shall be entitled to be paid any fees payable under this paragraph 4 hereof with respect to Shares for which no Dealer of record exists or qualification standards have not been met as partial consideration for personal services and/or account maintenance services provided by the Distributor to the Shares. The service fee payable pursuant to this paragraph 4 may from time to time be paid by the Fund to the Distributor and the Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the Dealers may provide for payment of commissions to Dealers in connection with the sales of Shares and may provide for a portion (which may be all or substantially all) of the fees payable by the Fund to the Distributor under the Distribution Agreement to be paid by the Distributor to the Dealers in consideration of the Dealer's services as a dealer of the Shares. Except as described in paragraph 4, nothing in this Plan shall be construed as requiring the Fund to make any payment to any Dealer or to have any obligations to any Dealer in connection with services as a dealer of the Shares. The Distributor shall agree and undertake that any agreement entered into between the Distributor and any Dealer shall provide that, except as provided in paragraph 4, such Dealer shall look solely to the Distributor for compensation for its services thereunder and that in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor, legal counsel, investment adviser, administrator, transfer agent, custodian, shareholder servicing agent, registrar or dividend disbursing agent of the Fund; expenses of distributing and redeeming Shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund, except that the Distributor shall be responsible for the distribution-related expenses as provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of the Shares, and (b) approval by a vote of the Board of Trustees and a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such continuance is "specifically approved at least annually" by a vote of both a majority of the Trustees of the Trust and a majority of the Qualified Trustees. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees; provided that this Plan may not be amended to increase materially the amount of permitted expenses hereunder without the approval of holders of a "majority of the outstanding voting securities" of the Shares and may not be materially amended in any case without a vote of a majority of both the Trustees and the Qualified Trustees. This Plan may be terminated at any time by a vote of a majority of the Qualified Trustees or by a vote of the holders of a "majority of the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under this Plan and the purposes for which such expenditures were made.
12. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons", "majority of the outstanding voting securities" and "specifically approved at least annually" are used as defined in the 1940 Act. In addition, for purposes of determining the fees payable to the Distributor hereunder, the value of the Fund's net assets shall be computed in the manner specified in the Fund's then-current prospectus and statement of additional information for computation of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in paragraph 11 hereof (collectively, the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such record shall be kept in an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
EXHIBIT NO. 99.15(i)
MFS FIXED INCOME TRUST
MFS MUNICIPAL LIMITED MATURITY FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest to be designated "CLASS C" of MFS MUNICIPAL LIMITED MATURITY FUND (the "Fund"), a series of MFS Fixed Income Trust (the "Trust") a Massachusetts business trust, dated July 20, 1994, amended the 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial interest (without par value) of the Fund designated Class C Shares (the "Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and desires to adopt this Distribution Plan (the "Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware corporation, to provide certain distribution services for the Fund (the "Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the "Distribution Agreement") (in a form approved by the Board of Trustees of the Trust in a manner specified in Rule 12b-1) with the Distributor, whereby the Distributor will provide facilities and personnel and render services to the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may retain the services of firms or individuals to act as dealers (the "Dealers") of the Shares in connection with the offering of Shares, and (b) the Distributor may make payments for such services to the Dealers out of the fee paid to the Distributor hereunder, any deferred sales charges imposed by the Distributor in connection with the repurchase of Shares, its profits or any other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may (but is not required to) impose certain deferred sales charges in connection with the repurchase of Shares by the Fund, and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the Fund should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Fund and its Class C shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this Plan for the Fund as a plan for distribution relating to the Shares in accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. Among other things, the Distributor shall be responsible for any commissions payable to Dealers (including any ongoing maintenance commissions), all expenses of printing (excluding typesetting) and distributing prospectuses to prospective shareholders and providing such other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the extent specified in the Distribution Agreement in providing the services described in paragraph 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead), equipment, printing, delivery and mailing costs.
3. It is understood that the Distributor may (but is not required to) impose certain deferred sales charges in connection with the repurchase of Shares by the Fund and the Distributor may retain (or receive from the Fund, as the case may be) all such deferred sales charges. As additional consideration for all services performed and expenses incurred in the performance of its obligations under the Distribution Agreement, the Fund shall pay the Distributor a distribution fee periodically at a rate not to exceed 0.75% per annum of the Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account maintenance services performed by each Dealer in the performance of its obligations under its dealer agreement with the Distributor, the Fund shall pay each Dealer a service fee periodically at a rate not to exceed 0.25% per annum of the portion of the average daily net assets of the Fund that is represented by Shares that are owned by investors for whom such Dealer is the holder or dealer of record. That portion of the Fund's average daily net assets on which the fees payable under this paragraph 4 hereof are calculated may be subject to certain minimum amount requirements as may be determined, and additional or different dealer qualification standards that may be established, from time to time by the Distributor. The Distributor shall be entitled to be paid any fees payable under this paragraph 4 hereof with respect to Shares for which no Dealer of record exists or qualification standards have not been met as partial consideration for personal services and/or account maintenance services provided by the Distributor to the Shares. The service fee payable pursuant to this paragraph 4 may from time to time be paid by the Fund to the Distributor and the Distributor will then pay these fees to Dealers on behalf of the Fund or retain them in accordance with this paragraph.
5. The Fund understands that agreements between the Distributor and the Dealers may provide for payment of commissions to Dealers in connection with the sales of Shares and may provide for a portion (which may be all or substantially all) of the fees payable by the Fund to the Distributor under the Distribution Agreement to be paid by the Distributor to the Dealers in consideration of the Dealer's services as a dealer of the Shares. Except as described in paragraph 4, nothing in this Plan shall be construed as requiring the Fund to make any payment to any Dealer or to have any obligations to any Dealer in connection with services as a dealer of the Shares. The Distributor shall agree and undertake that any agreement entered into between the Distributor and any Dealer shall provide that, except as provided in paragraph 4, such Dealer shall look solely to the Distributor for compensation for its services thereunder and that in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor, legal counsel, investment adviser, administrator, transfer agent, custodian, shareholder servicing agent, registrar or dividend disbursing agent of the Fund; expenses of distributing and redeeming Shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund, except that the Distributor shall be responsible for the distribution-related expenses as provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of Class C, and (b) approval by a vote of the Board of Trustees and a vote of a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"), such votes to be cast in person at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such continuance is "specifically approved at least annually" by a vote of both a majority of the Trustees of the Trust and a majority of the Qualified Trustees. If such annual approval is not obtained, this Plan shall expire 12 months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees; provided that this Plan may not be amended to increase materially the amount of permitted expenses hereunder without the approval of holders of a "majority of the outstanding voting securities" of Class C and may not be materially amended in any case without a vote of a majority of both the Trustees and the Qualified Trustees. This Plan may be terminated at any time by a vote of a majority of the Qualified Trustees or by a vote of the holders of a "majority of the outstanding voting securities" of Class C.
11. The Fund and the Distributor shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under this Plan and the purposes for which such expenditures were made.
12. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons", "majority of the outstanding voting securities" and "specifically approved at least annually" are used as defined in the 1940 Act. In addition, for purposes of determining the fees payable to the Distributor hereunder, the value of the Fund's net assets shall be computed in the manner specified in the Fund's then-current prospectus and statement of additional information for computation of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in paragraph 11 hereof (collectively, the "Records") for a period of six years from the end of the fiscal year in which such Record was made and each such record shall be kept in an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS BOND FUND - CLASS A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.1A |
| NAME: MFS BOND FUND CLASS A |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 512,293,929 |
| INVESTMENTS AT VALUE | 515,726,367 |
| RECEIVABLES | 65,422,408 |
| ASSETS OTHER | 15,576 |
| OTHER ITEMS ASSETS | 25 |
| TOTAL ASSETS | 581,164,376 |
| PAYABLE FOR SECURITIES | 17,761,070 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,725,650 |
| TOTAL LIABILITIES | 20,486,720 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 589,505,543 |
| SHARES COMMON STOCK | 37,534,683 |
| SHARES COMMON PRIOR | 36,025,207 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 931,468 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 31,689,131 |
| ACCUM APPREC OR DEPREC | 3,792,712 |
| NET ASSETS | 560,677,656 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 45,466,284 |
| OTHER INCOME | 0 |
| EXPENSES NET | 5,599,012 |
| NET INVESTMENT INCOME | 39,867,272 |
| REALIZED GAINS CURRENT | (35,439,392) |
| APPREC INCREASE CURRENT | 34,798,721 |
| NET CHANGE FROM OPS | 39,226,601 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (32,067,842) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | (3,268,079) |
| NUMBER OF SHARES SOLD | 7,570,354 |
| NUMBER OF SHARES REDEEMED | 7,998,695 |
| SHARES REINVESTED | 1,937,817 |
| NET CHANGE IN ASSETS | 60,325,929 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 771,362 |
| OVERDIST NET GAINS PRIOR | 524,526 |
| GROSS ADVISORY FEES | 2,179,512 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 6,049,053 |
| AVERAGE NET ASSETS | 509,365,242 |
| PER SHARE NAV BEGIN | 12.75 |
| PER SHARE NII | 0.98 |
| PER SHARE GAIN APPREC | (0.05) |
| PER SHARE DIVIDEND | (0.97) |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 12.71 |
| EXPENSE RATIO | 1.00 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS BOND FUND - CLASS B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.1B |
| NAME: MFS BOND FUND CLASS B |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 512,293,929 |
| INVESTMENTS AT VALUE | 515,726,367 |
| RECEIVABLES | 65,422,408 |
| ASSETS OTHER | 15,576 |
| OTHER ITEMS ASSETS | 25 |
| TOTAL ASSETS | 581,164,376 |
| PAYABLE FOR SECURITIES | 17,761,070 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,725,650 |
| TOTAL LIABILITIES | 20,486,720 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 589,505,543 |
| SHARES COMMON STOCK | 5,947,776 |
| SHARES COMMON PRIOR | 2,624,203 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 931,468 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 31,689,131 |
| ACCUM APPREC OR DEPREC | 3,792,712 |
| NET ASSETS | 560,677,656 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 45,466,284 |
| OTHER INCOME | 0 |
| EXPENSES NET | 5,599,012 |
| NET INVESTMENT INCOME | 39,867,272 |
| REALIZED GAINS CURRENT | (35,439,392) |
| APPREC INCREASE CURRENT | 34,798,721 |
| NET CHANGE FROM OPS | 39,226,601 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (3,235,246) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 4,205,737 |
| NUMBER OF SHARES REDEEMED | (1,029,710) |
| SHARES REINVESTED | 147,546 |
| NET CHANGE IN ASSETS | 60,325,929 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 771,362 |
| OVERDIST NET GAINS PRIOR | 524,526 |
| GROSS ADVISORY FEES | 2,179,512 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 6,049,053 |
| AVERAGE NET ASSETS | 509,365,242 |
| PER SHARE NAV BEGIN | 12.73 |
| PER SHARE NII | 0.88 |
| PER SHARE GAIN APPREC | (0.05) |
| PER SHARE DIVIDEND | (0.87) |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 12.69 |
| EXPENSE RATIO | 1.84 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS BOND FUND - CLASS C AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.1C |
| NAME: MFS BOND FUND CLASS C |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 512,293,929 |
| INVESTMENTS AT VALUE | 515,726,367 |
| RECEIVABLES | 65,422,408 |
| ASSETS OTHER | 15,576 |
| OTHER ITEMS ASSETS | 25 |
| TOTAL ASSETS | 581,164,376 |
| PAYABLE FOR SECURITIES | 17,761,070 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 2,725,650 |
| TOTAL LIABILITIES | 20,486,720 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 589,505,543 |
| SHARES COMMON STOCK | 644,347 |
| SHARES COMMON PRIOR | 599,385 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 931,468 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 31,689,131 |
| ACCUM APPREC OR DEPREC | 3,792,712 |
| NET ASSETS | 560,677,656 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 45,466,284 |
| OTHER INCOME | 0 |
| EXPENSES NET | 5,599,012 |
| NET INVESTMENT INCOME | 39,867,272 |
| REALIZED GAINS CURRENT | (35,439,392) |
| APPREC INCREASE CURRENT | 34,798,721 |
| NET CHANGE FROM OPS | 39,226,601 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (481,518) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 835,445 |
| NUMBER OF SHARES REDEEMED | 813,659 |
| SHARES REINVESTED | 23,176 |
| NET CHANGE IN ASSETS | 60,325,929 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 771,362 |
| OVERDIST NET GAINS PRIOR | 524,526 |
| GROSS ADVISORY FEES | 2,179,512 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 6,049,053 |
| AVERAGE NET ASSETS | 509,365,242 |
| PER SHARE NAV BEGIN | 12.72 |
| PER SHARE NII | 0.88 |
| PER SHARE GAIN APPREC | (0.05) |
| PER SHARE DIVIDEND | (0.87) |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 12.68 |
| EXPENSE RATIO | 1.75 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS LIMITED MATURITY FUND CLASS A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.2A |
| NAME: MFS LIMITED MATURITY FUND CLASS A |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 107,567,415 |
| INVESTMENTS AT VALUE | 108,435,343 |
| RECEIVABLES | 14,819,278 |
| ASSETS OTHER | 13,514 |
| OTHER ITEMS ASSETS | 912 |
| TOTAL ASSETS | 123,269,047 |
| PAYABLE FOR SECURITIES | 15,340,195 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 371,745 |
| TOTAL LIABILITIES | 15,711,940 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 112,678,055 |
| SHARES COMMON STOCK | 12,076,923 |
| SHARES COMMON PRIOR | 14,042,836 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 239,443 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 5,797,667 |
| ACCUM APPREC OR DEPREC | 916,162 |
| NET ASSETS | 107,557,107 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 8,483,678 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1,235,208 |
| NET INVESTMENT INCOME | 7,248,470 |
| REALIZED GAINS CURRENT | (3,398,821) |
| APPREC INCREASE CURRENT | 2,524,452 |
| NET CHANGE FROM OPS | 6,374,101 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (6,069,321) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 3,921,821 |
| NUMBER OF SHARES REDEEMED | 6,542,877 |
| SHARES REINVESTED | 655,143 |
| NET CHANGE IN ASSETS | (4,811,513) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 315,229 |
| OVERDIST NET GAINS PRIOR | 2,414,668 |
| GROSS ADVISORY FEES | 453,367 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1,256,035 |
| AVERAGE NET ASSETS | 113,027,470 |
| PER SHARE NAV BEGIN | 7.14 |
| PER SHARE NII | 0.46 |
| PER SHARE GAIN APPREC | (0.04) |
| PER SHARE DIVIDEND | 0.00 |
| PER SHARE DISTRIBUTIONS | (0.46) |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 7.10 |
| EXPENSE RATIO | 0.95 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS LIMITED MATURITY FUND CLASS B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.2B |
| NAME: MFS LIMITED MATURITY FUND CLASS B |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 107,567,415 |
| INVESTMENTS AT VALUE | 108,435,343 |
| RECEIVABLES | 14,819,278 |
| ASSETS OTHER | 13,514 |
| OTHER ITEMS ASSETS | 912 |
| TOTAL ASSETS | 123,269,047 |
| PAYABLE FOR SECURITIES | 15,340,195 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 371,745 |
| TOTAL LIABILITIES | 15,711,940 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 112,678,055 |
| SHARES COMMON STOCK | 2,442,980 |
| SHARES COMMON PRIOR | 1,691,370 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 239,443 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 5,797,667 |
| ACCUM APPREC OR DEPREC | 916,162 |
| NET ASSETS | 107,557,107 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 8,483,678 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1,235,208 |
| NET INVESTMENT INCOME | 7,248,470 |
| REALIZED GAINS CURRENT | (3,398,821) |
| APPREC INCREASE CURRENT | 2,524,452 |
| NET CHANGE FROM OPS | 6,374,101 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (875,473) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 2,497,691 |
| NUMBER OF SHARES REDEEMED | 1,845,637 |
| SHARES REINVESTED | 99,556 |
| NET CHANGE IN ASSETS | (4,811,513) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 315,229 |
| OVERDIST NET GAINS PRIOR | 2,414,668 |
| GROSS ADVISORY FEES | 453,367 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1,256,035 |
| AVERAGE NET ASSETS | 113,027,470 |
| PER SHARE NAV BEGIN | 7.14 |
| PER SHARE NII | 0.41 |
| PER SHARE GAIN APPREC | (0.05) |
| PER SHARE DIVIDEND | 0.00 |
| PER SHARE DISTRIBUTIONS | (0.40) |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 7.10 |
| EXPENSE RATIO | 1.81 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS LIMITED MATURITY FUND CLASS C AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.2C |
| NAME: MFS LIMITED MATURITY FUND CLASS C |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 107,567,415 |
| INVESTMENTS AT VALUE | 108,435,343 |
| RECEIVABLES | 14,819,278 |
| ASSETS OTHER | 13,514 |
| OTHER ITEMS ASSETS | 912 |
| TOTAL ASSETS | 123,269,047 |
| PAYABLE FOR SECURITIES | 15,340,195 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 371,745 |
| TOTAL LIABILITIES | 15,711,940 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 112,678,055 |
| SHARES COMMON STOCK | 626,189 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 239,443 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 5,797,667 |
| ACCUM APPREC OR DEPREC | 916,162 |
| NET ASSETS | 107,557,107 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 8,483,678 |
| OTHER INCOME | 0 |
| EXPENSES NET | 1,235,208 |
| NET INVESTMENT INCOME | 7,248,470 |
| REALIZED GAINS CURRENT | (3,398,821) |
| APPREC INCREASE CURRENT | 2,524,452 |
| NET CHANGE FROM OPS | 6,374,101 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (212,068) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,524,637 |
| NUMBER OF SHARES REDEEMED | 920,571 |
| SHARES REINVESTED | 22,123 |
| NET CHANGE IN ASSETS | (4,811,513) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 315,229 |
| OVERDIST NET GAINS PRIOR | 2,414,668 |
| GROSS ADVISORY FEES | 453,367 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 1,256,035 |
| AVERAGE NET ASSETS | 113,027,470 |
| PER SHARE NAV BEGIN | 7.08 |
| PER SHARE NII | 0.37 |
| PER SHARE GAIN APPREC | (0.01) |
| PER SHARE DIVIDEND | 0.00 |
| PER SHARE DISTRIBUTIONS | (0.33) |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 7.11 |
| EXPENSE RATIO | 1.85 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS MUNICIPAL LIMITED MATURITY FUND-CLASS A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.3A |
| NAME: MFS MUNICIPAL LIMITED MATURITY FUND CLASS A |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 73,388,840 |
| INVESTMENTS AT VALUE | 73,119,626 |
| RECEIVABLES | 1,299,602 |
| ASSETS OTHER | 9,074 |
| OTHER ITEMS ASSETS | 42,323 |
| TOTAL ASSETS | 74,470,625 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 416,080 |
| TOTAL LIABILITIES | 416,080 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 75,260,454 |
| SHARES COMMON STOCK | 8,632,654 |
| SHARES COMMON PRIOR | 11,161,754 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 46,630 |
| ACCUMULATED NET GAINS | (890,065) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (269,214) |
| NET ASSETS | 74,054,545 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 3,999,372 |
| OTHER INCOME | 0 |
| EXPENSES NET | 901,369 |
| NET INVESTMENT INCOME | 3,098,003 |
| REALIZED GAINS CURRENT | (409,013) |
| APPREC INCREASE CURRENT | 136,714 |
| NET CHANGE FROM OPS | 2,825,704 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (2,823,344) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 3,162,482 |
| NUMBER OF SHARES REDEEMED | 5,948,248 |
| SHARES REINVESTED | 256,666 |
| NET CHANGE IN ASSETS | (16,727,054) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 28,451 |
| OVERDIST NET GAINS PRIOR | 372,507 |
| GROSS ADVISORY FEES | 343,251 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 909,907 |
| AVERAGE NET ASSETS | 85,180,498 |
| PER SHARE NAV BEGIN | 7.47 |
| PER SHARE NII | 0.28 |
| PER SHARE GAIN APPREC | (0.02) |
| PER SHARE DIVIDEND | (0.28) |
| PER SHARE DISTRIBUTIONS | 0.00 |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 7.45 |
| EXPENSE RATIO | 0.96 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS MUNICIPAL LIMITED MATURITY CLASS B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.3B |
| NAME: MFS MUNICIPAL LIMITED MATURITY CLASS B |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 73,388,840 |
| INVESTMENTS AT VALUE | 73,119,626 |
| RECEIVABLES | 1,308,676 |
| ASSETS OTHER | 1,289 |
| OTHER ITEMS ASSETS | 41,034 |
| TOTAL ASSETS | 74,470,625 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 416,080 |
| TOTAL LIABILITIES | 416,080 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 75,260,454 |
| SHARES COMMON STOCK | 1,046,882 |
| SHARES COMMON PRIOR | 993,695 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 46,630 |
| ACCUMULATED NET GAINS | (890,065) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (269,214) |
| NET ASSETS | 74,054,545 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 3,999,372 |
| OTHER INCOME | 0 |
| EXPENSES NET | 901,369 |
| NET INVESTMENT INCOME | 3,098,003 |
| REALIZED GAINS CURRENT | (409,013) |
| APPREC INCREASE CURRENT | 136,714 |
| NET CHANGE FROM OPS | 2,825,704 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (235,466) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 502,731 |
| NUMBER OF SHARES REDEEMED | 469,653 |
| SHARES REINVESTED | 20,109 |
| NET CHANGE IN ASSETS | 16,727,054 |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 28,451 |
| OVERDIST NET GAINS PRIOR | 372,507 |
| GROSS ADVISORY FEES | 343,251 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 909,907 |
| AVERAGE NET ASSETS | 85,180,498 |
| PER SHARE NAV BEGIN | 7.46 |
| PER SHARE NII | 0.21 |
| PER SHARE GAIN APPREC | (0.02) |
| PER SHARE DIVIDEND | (0.21) |
| PER SHARE DISTRIBUTIONS | 0.00 |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 7.44 |
| EXPENSE RATIO | 1.81 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 6 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS MUNICIPAL LIMITED MATURITY CLASS C AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| SERIES: |
| NUMBER: 9.3C |
| NAME: MFS MUNICIPAL LIMITED MATURITY CLASS C |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | APR 30 1995 |
| PERIOD END | APR 30 1995 |
| INVESTMENTS AT COST | 73,388,840 |
| INVESTMENTS AT VALUE | 73,119,626 |
| RECEIVABLES | 1,308,676 |
| ASSETS OTHER | 1,289 |
| OTHER ITEMS ASSETS | 41,034 |
| TOTAL ASSETS | 74,470,625 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 416,080 |
| TOTAL LIABILITIES | 416,080 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 75,260,454 |
| SHARES COMMON STOCK | 259,574 |
| SHARES COMMON PRIOR | 0 |
| ACCUMULATED NII CURRENT | 0 |
| OVERDISTRIBUTION NII | 46,630 |
| ACCUMULATED NET GAINS | (890,065) |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | (269,214) |
| NET ASSETS | 74,054,545 |
| DIVIDEND INCOME | 0 |
| INTEREST INCOME | 3,999,372 |
| OTHER INCOME | 0 |
| EXPENSES NET | 901,369 |
| NET INVESTMENT INCOME | 3,098,003 |
| REALIZED GAINS CURRENT | (409,013) |
| APPREC INCREASE CURRENT | 136,714 |
| NET CHANGE FROM OPS | 2,825,704 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (57,372) |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 915,597 |
| NUMBER OF SHARES REDEEMED | 662,727 |
| SHARES REINVESTED | 6,704 |
| NET CHANGE IN ASSETS | (16,727,054) |
| ACCUMULATED NII PRIOR | 0 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 28,451 |
| OVERDIST NET GAINS PRIOR | 372,507 |
| GROSS ADVISORY FEES | 343,251 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 909,907 |
| AVERAGE NET ASSETS | 85,180,498 |
| PER SHARE NAV BEGIN | 7.45 |
| PER SHARE NII | 0.21 |
| PER SHARE GAIN APPREC | (0.02) |
| PER SHARE DIVIDEND | (0.19) |
| PER SHARE DISTRIBUTIONS | 0.00 |
| RETURNS OF CAPITAL | 0.00 |
| PER SHARE NAV END | 7.45 |
| EXPENSE RATIO | 1.79 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |